26 Century Boulevard
Nashville, Tennessee 37214
(615) 514-7339

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)​

Toni Y. Hickey
26 Century Boulevard
Nashville, Tennessee 37214
(615) 514-7339

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)​

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

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.

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 to Section 7(a)(2)(B) of the Securities Act. ☐

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. The debt-for-equity exchange parties may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

 

us. In exchange, we will, as consideration, issue to Cummins shares of our common stock and intend to pay to Cummins upon the completion of this offering the amount of existing cash, plus the net proceeds of the term loan that we will enter into prior to the closing of this offering, plus any amounts drawn under the revolving credit facility, less an amount of cash to be retained by us in an amount to be determined by Cummins. We will also enter into a separation agreement with Cummins and various other agreements to provide a framework for our relationship with Cummins after the separation. We refer to these transactions, as further described in the section entitled “The Separation and Distribution Transactions — The Separation,” collectively as the “separation.” Except as otherwise indicated or unless the context otherwise requires, the information included in this prospectus about Atmus assumes the completion of the separation. See “The Separation and Distribution Transactions” for a description of the separation.

Unless we state otherwise or the context requires otherwise:

•

references to “Atmus,” “our company,” “we,” “us” or “our” refer to Atmus Filtration Technologies Inc., a Delaware corporation, and its subsidiaries after giving effect to the transactions described under “The Separation and Distribution Transactions — The Separation” or for periods prior to such transactions, Atmus, a business of Cummins Inc., the combined businesses operating within Cummins’ filtration division that have been or will be contributed to Atmus Filtration Technologies Inc., as part of such transactions (but such references do not include the three joint ventures that we have entered into as of the date of this prospectus, which include Fleetguard Filters Private Ltd., Filtrum Fibretechnologies Pvt. Ltd. and Shanghai Fleetguard Filter Co., Ltd.); and

​

•

references to “Cummins” or “Parent” refer to Cummins Inc., an Indiana corporation, and its subsidiaries other than Atmus.

​

 

ii

 

“first-fit” means a product applied to the engine or vehicle by the OEM and shipped as a part of the new equipment.

“GHG” means greenhouse gas.

“heavy-duty engine” means engines with displacement between 10.0-16.9 liters.

“industrial filtration market” means the subset of the filtration market (excluding engine applications and passenger cars) that includes machinery and equipment, oil and gas, pharmaceuticals, food and beverage, and metals and mining.

“Latin America” means Central and South American countries and Mexico.

“medium-duty engine” means engines with displacement between 5.0-9.9 liters.

“OEM” means original equipment manufacturer, which refers to Atmus customers that manufacture engines and vehicles. The term “OEM” as used throughout this prospectus also includes Cummins.

“off-highway” means the subset of the engine and transportation filtration market relating to vehicles or equipment that are used off-road, such as vehicles and equipment used in the agriculture, construction, defense, marine, mining, oil and gas, power generation and rail industries.

“on-highway” means the subset of the engine and transportation filtration market relating to vehicles that are used on-road, such as trucks, buses, recreational vehicles, emergency vehicles and vocational vehicles.

“passenger car market” means the subset of the filtration market relating to motor vehicles, other than motorcycles, multipurpose passenger vehicles, or trailers, that are designed to carry up to 10 people.

“service intervals” means the recommended interval between filter replacements, usually measured in miles or kilometers for on-highway applications, and usually measured in hours of operation for off-highway applications. Other equivalent terms are maintenance interval and operational interval.

 

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Conflicts of Interest

The offering is being conducted in accordance with the applicable provisions of Rule 5121 of the Conduct Rules of the Financial Industry Regulatory Authority, Inc., or FINRA, because Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, who are acting as underwriters in this offering will have a “conflict of interest” pursuant to Rule 5121(f)(5)(C)(ii) by virtue of their role as debt-for-equity exchange parties, since all of the net proceeds of this offering will be received by the debt-for-equity exchange parties. Rule 5121 requires that a “qualified independent underwriter” as defined in Rule 5121 must participate in the preparation of the prospectus and perform its usual standard of diligence with respect to the registration statement and this prospectus. Accordingly, BofA Securities, Inc. is assuming the responsibilities of acting as the qualified independent underwriter in the offering. See “Underwriting (Conflicts of Interest) —  Conflicts of interest.”

Corporate Information

Atmus was incorporated in Delaware as FILT Red, Inc. on April 1, 2022, for the purpose of holding Cummins’ filtration business in connection with the separation and this offering. On December 5, 2022, we filed a Certificate of Amendment with the Delaware Secretary of State to change our name from “FILT Red, Inc.” to “Atmus Filtration Technologies Inc.” Prior to the separation, we have had no operations. Our principal executive offices are located at 26 Century Boulevard, Nashville, Tennessee 37214, and our telephone number is (615) 514-7339. Prior to completion of this offering, we will establish a corporate website at Atmus.com. Our website and the information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference in, and will not considered part of, this prospectus. You should not rely on any such information in making your decision whether to purchase our common stock.

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10

 

11

 

 

13

 

​

14

 

 

16

 

​

​

​

​

​

​

​

​

​

December 31,

​

​

​

​

2022

​

​

2022

​

​

2021

​

$ in millions

​

​

Pro Forma

​

​

Actual

​

​

Actual

​

Summary Balance Sheet Data

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Total current assets

​

​

​

$

622.3

​

​

​

​

$

512.3

​

​

​

​

$

482.1

​

​

Total current liabilities

​

​

​

​

349.1

​

​

​

​

​

349.1

​

​

​

​

​

319.9

​

​

Property, plant and equipment, net

​

​

​

​

148.4

​

​

​

​

​

148.4

​

​

​

​

​

141.1

​

​

Total assets

​

​

​

​

989.4

​

​

​

​

​

879.4

​

​

​

​

​

848.3

​

​

Total liabilities

​

​

​

​

1,081.6

​

​

​

​

​

429.9

​

​

​

​

​

411.1

​

​

Total net parent investment

​

​

​

​

(92.2)

​

​

​

​

​

449.5

​

​

​

​

​

437.2

​

​

​

​

​

​

Years ended December 31,

​

$ in millions

​

​

2022

​

​

2021

​

​

2020

​

NET INCOME

​

​

​

$

170.1

​

​

​

​

$

171.3

​

​

​

​

$

142.8

​

​

Plus:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Interest expense

​

​

​

​

0.7

​

​

​

​

​

0.8

​

​

​

​

​

0.4

​

​

Income tax expense

​

​

​

​

41.6

​

​

​

​

​

46.5

​

​

​

​

​

57.8

​

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Depreciation and Amortization

​

​

​

​

21.6

​

​

​

​

​

21.6

​

​

​

​

​

21.1

​

​

EBITDA (non-GAAP)

​

​

​

$

234.0

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​

​

​

$

240.2

​

​

​

​

$

222.1

​

​

Net Sales

​

​

​

$

1,562.1

​

​

​

​

$

1,438.8

​

​

​

​

$

1,232.6

​

​

Net income margin

​

​

​

​

10.9%

​

​

​

​

​

11.9%

​

​

​

​

​

11.6%

​

​

EBITDA margin (non-GAAP)

​

​

​

​

15.0%

​

​

​

​

​

16.7%

​

​

​

​

​

18.0%

​

​

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The loss of a top OEM relationship, or changes in the preferences of our aftermarket end-users, could adversely impact the recurring nature of our aftermarket sales.

We supply filtration products to many of the largest OEMs for both first-fit and aftermarket, which results in recurring revenue for our products. Our relationships with these OEMs also allow us to be closely attuned to our customers' requirements and preferences and react quickly to any changes. The use of our filtration products as a standard first-fit component creates a steady demand for that product in the aftermarket, as end-users often return to the OEM for aftermarket service for multiple years and may continue to prefer our products as replacement or repair parts.

We may not be able to maintain our current top OEM relationships in the future or may not become the preferred supplier for additional OEMs. In addition, our channel partners’ and end-users’ preferences for replacement or repair filtration products may change in the future. The loss of a top OEM relationship, or changes in the preferences of our aftermarket end-users, could adversely impact the recurring nature of our aftermarket sales.

We derive significant earnings from investees that we do not directly control.

We earn equity, royalty and interest income from our joint venture in China — Shanghai Fleetguard Filter Co. Ltd., where we indirectly hold 50% of the economic interest. We also earn equity, royalty and interest income from our joint ventures in India — Fleetguard Filter Private Ltd. (“FFPL”), where we directly hold 49.491% of the economic interest (and 50% of the voting interest), and Filtrum Fibretechnologies Pvt. Ltd., where we hold, directly or indirectly, 49.75% of the economic interests (25% directly and 24.75% indirectly through our proportionate ownership of FFPL’s 50% ownership interest). For 2022, we recognized $28.0 million of equity, royalty and interest income from investees, compared to $32.4 million in 2021 and $40.7 million in 2020. Of these amounts, $17.1 million, $16.4 million and $24.9 million, respectively, were from our joint venture in India — FFPL. Although a significant percentage of our net income is derived from these unconsolidated entities (which were approximately 16.5% in 2022, approximately 18.9% in 2021 and approximately 28.5% in 2020, of which approximately 10.1%, approximately 9.6% and approximately 17.4% were from FFPL in 2022, 2021 and 2020, respectively), we do not unilaterally control their management or their operations, which puts a substantial portion of our net income and cash flow through dividend payments at risk from the actions or inactions of these entities. A significant reduction in the level of contribution by these entities to our net income would likely have a material adverse effect on our business, financial condition or results of operations.

Transactions to implement this offering, the separation and the distribution will constitute a change in control under our joint venture in India, resulting in the loss of rights to board representation, which would effectively result in the loss of the ability to prevent certain significant actions, and may result in a reduction or elimination of dividends.

Under the terms of the FFPL articles of association (the “FFPL Articles”), a change in control occurs when Cummins ceases to have control or ownership in Cummins Filtration Inc. (“CFI”) or loses majority voting rights in CFI. Transactions to implement the offering, the separation and the proposed subsequent distribution of Cummins’ equity interest in us will result in a change in control of CFI under the terms of the FFPL Articles. Upon a change in control, our joint venture partner will hold a 50.51% voting interest in FFPL. In addition, as noted above, CFI will lose its guaranteed right to board representation and a mandatory dividend payment provision will no longer be operative. The loss of these rights may have a material adverse impact on our ability to influence our business operations in India and to access the equity, royalty and interest income from FFPL. See “We derive significant earnings from investees that we do not directly control.”

We may be adversely impacted by work stoppages and other labor matters.

As of December 31, 2022, we employed approximately 4,250 persons worldwide. Approximately 55% of our employees worldwide are represented by various unions under collective bargaining agreements that expire between December 2023 and February 2024. While we have no reason to believe that we will be materially impacted by work stoppages or other labor matters, there can be no

 

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assurance that future issues with our labor unions will be resolved favorably or that we will not encounter future strikes, work stoppages, or other types of conflicts with labor unions or our employees. For example, during periodic collective bargaining in 2020, the United Auto Workers union representing manufacturing employees at the Cookeville, Tennessee site conducted a strike for six weeks after failing to accept modified terms and conditions offered by the company. Any of these consequences may have an adverse effect on us or may limit our flexibility in dealing with our workforce. In addition, many of our customers and suppliers have unionized work forces. Work stoppages or slowdowns experienced by us, our customers or suppliers could result in slowdowns or closures that would have a material adverse effect on our business, financial condition or results of operations.

Our products are exposed to variability in material and commodity costs.

Our businesses establish prices with our customers in accordance with contractual timeframes; however, the timing of material and commodity market price increases may prevent us from passing these additional costs on to our customers through timely pricing actions, which may lead to an adverse impact on our profit margins. For example, our gross margin decreased by 1.4 percentage points from 2021 (24.4%) to 2022 (23.0%) as a result of our material and freight costs increasing at a faster rate than the increase in net sales. Additionally, higher material and commodity costs around the world may offset our efforts to reduce our cost structure. Economies around the world have also generally seen significant inflationary pressures since 2021, which may persist in 2023 and beyond. If inflation continues to increase or stays above levels seen in recent years, we could face further material and commodity price fluctuations. As of the date of this prospectus, we have not entered into any hedging arrangements or agreements with respect to the purchase of the commodities used in our products. While we customarily have contractual pricing adjustment mechanisms with our customers that attempt to address some of these risks (notably with respect to steel and resins), there can be no assurance that material and commodity price fluctuations will not adversely affect our results of operations and cash flows. In addition, while the use of contractual pricing adjustments may provide us with some protection from adverse fluctuations in commodity prices, we potentially forego the benefits that might result from favorable fluctuations in costs. As a result, higher material and commodity costs, as well as hedging these commodity costs during periods of decreasing prices, could result in declining margins.

We are vulnerable to raw material, transportation and labor price increases and supply shortages, which have adversely impacted and could continue to adversely impact our operations.

We have experienced supply chain disruptions, including longer lead times for materials used in manufacturing our products and increased commodity prices and related challenges throughout the supply chain. We source a significant number of parts and raw materials critical to our business operations. Any delay in our suppliers’ deliveries may adversely affect our operations at multiple manufacturing locations, forcing us to seek alternative supply sources to avoid serious disruptions. Delays may be caused by factors affecting our suppliers (including the COVID-19 pandemic, capacity constraints, port congestion, labor disputes, economic downturns, availability of credit, impaired financial condition and geopolitical turmoil), suppliers’ allocations to other purchasers, weather emergencies, natural disasters, acts of government or acts of war or terrorism. In particular, if there are extended periods of travel, commercial and other restrictions due to COVID-19 infections or restrictions or other geopolitical turmoil, we could incur global supply disruptions. Any extended delay in receiving critical supplies could impair our ability to deliver products to our customers and have a material adverse effect on our business, financial condition or results of operations. Our North America plants, in particular, experienced reduced capacity for an extended period throughout 2021 and into 2022, primarily due to a lack of available components. This was primarily due to shortages in steel, resin, other petrochemical products and electronic components, as well as shortages in labor at our suppliers. Additionally, we have experienced plant closures due to COVID-19 restrictions. For example, our Mexico production was suspended for four weeks in 2020, our French facility was closed for one week in 2020, and our Shanghai facility experienced significantly reduced production in 2022.

In addition, the current economic environment has resulted, and may continue to result, in price increases and other volatility and inflation of many of our raw material, transportation and labor costs as a result of many factors, including our suppliers of resin and microprocessors exercising force majeure

 

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clauses, shortages of steel supply, general inflationary market pressures, pay rate increases at individual facilities and logistical issues, including global transportation delays and rising costs. These challenges can lead to increased material and conversion cost, which in turn leads to increased inventory balances. In 2021 and 2022, we experienced increased commodity prices, including for steel, resin and other petrochemical products. Additionally, shipping has experienced, and is continuing to experience, longer and more volatile time in transit, which further increases inventory balances.

Further, the labor market for skilled manufacturing remains tight as the U.S. economy recovers after the COVID-19 pandemic shutdowns and our labor costs have increased as a result. We have also experienced periodic absenteeism in our plants due to local COVID-19 outbreaks, leading to temporary production reductions. In the United States, in particular, we have experienced difficulty recruiting and retaining labor, leading to lower production and increased costs due to additional recruiting incentives. Material, transportation, labor and other cost inflation has adversely impacted, and could continue to adversely impact, our business, financial condition or results of operations.

Although we have taken a number of actions to mitigate these impacts, including, but not limited to, adding new supply sources, moving production among our facilities or outsourcing production to third-party manufacturers, adapting product design to reduce reliance on constrained materials, and investing in additional tooling and equipment, these mitigating actions may not be sufficient to overcome these impacts.

Complexity of supply chain and manufacturing could cause inability to meet demand and result in the loss of customers.

Our ability to fulfill customer orders is dependent on our manufacturing and distribution operations. Although we forecast demand, additional plant capacity takes significant time to bring online and thus changes in demand could result in longer lead times. We cannot guarantee that we will be able to adjust manufacturing capacity, in the short-term, to meet higher customer demand. For example, the COVID-19 pandemic caused lower levels of production at our manufacturing plants, including a four-week government-mandated shutdown at our manufacturing plant in Mexico, labor shortages, manufacturing disruptions and temporary shutdowns of business at some of our customers and suppliers. These disruptions impacted the availability of raw materials, including steel, resin, other petrochemical products and electronic components, and freight availability and reliability, which resulted in increased lead times. Efficient operations require streamlining processes, which we may not be capable of achieving. Unacceptable levels of service for key customers may result if we are not able to fulfill orders on a timely basis or if product quality or warranty or safety issues result from compromised production. Due to the complexity of our manufacturing operations, we may be unable to timely respond to fluctuations in demand, which could adversely impact our business, financial condition or results of operations.

While we have not experienced significant global surges or declines in demand, for much of 2022, overall demand exceeded our ability to fully meet such demand, resulting in an elevated level of backlog. As we moved through 2022, there was a reduction in these backlogs from peak levels, and we expect further stabilization in the first half of 2023.

We face significant competition in the markets we serve and maintaining a competitive advantage requires consistent investment with uncertain returns.

The businesses and product lines in which we participate are very competitive and we risk losing business based on a wide range of factors, including price, quality, technological and engineering capability, manufacturing and distribution capability, innovation, performance, reliability and availability, geographic coverage, delivery and customer service. Our customers continue to seek technological innovation, productivity gains and competitive prices from us and their other suppliers. As a result of these and other factors, if we do not meet our customers’ expectations, we may not be able to compete effectively.

Additionally, we operate in highly competitive markets and have numerous competitors who are well-established in those markets. Our competitors include companies that may have greater name recognition or financial, technical, operational, marketing or other resources than us. We expect our

 

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competitors to continue improving the design and performance of their products and to introduce new products that could be competitive in both price and performance. We believe that we have certain technological advantages over our competitors in the markets in which we operate, but maintaining these advantages requires us to consistently invest in research and development, sales and marketing and customer service and support. There is no guarantee that we will be successful in maintaining these advantages.

The competitive environment in which we operate is also subject to change. There is no guarantee that we will be successful in implementing new product expansions, as we may fail to successfully complete product development or achieve the level of sales for these products that we expect. There may also be unexpected costs for such new product offerings, which would lower their margins. In addition, certain competitors may have a competitive advantage in these new markets and if they are able to successfully develop a product before we do, they could reach the market before we do or gain broader market acceptance.

Evolving customer needs and developing technologies may threaten our existing business and growth.

The ongoing energy transition away from fossil fuels and the increased adoption of electrified powertrains in some market segments could result in lower demand for current diesel or natural gas engines and components and, over time, reduce the demand for related parts and service revenues. Specifically, our core markets may be impacted by technology transitions including transition to battery-electric vehicles, fuel cell electric vehicles and alternate power sources. Substantially all of our net sales are related to internal combustion engine filtration products. Concerns regarding the effects of emissions of GHG on the climate have driven (and will likely continue to drive) international, national, regional and local legislative and regulatory responses, imposing more stringent emissions standards and requiring higher fuel efficiency. Such responses may generate or accelerate changes in technology and in customer and end-user preference, including wider adoption of and preference for technologies providing alternatives to diesel engines such as electrification of equipment, which could reduce or eliminate the demand for our products. Moreover, on November 15, 2019, Cummins, our largest customer, established a new set of goals for 2030 as part of their environmental sustainability strategy. Among these new goals is reducing GHG from facilities and operations by 50% and from newly sold products by 25%. As a result of these risks, and as we have seen OEMs begin to invest heavily in these new technologies and launch new non internal combustion engines, we have been working, and continue to work, to expand our product offerings across industries and application types, including electric powertrain and fuel cells, among others. However, there can be no assurance that we will be successful in doing so, or even if we are successful, that such new products will generate the same revenue or margin as internal combustion engine filtration products. Such disruptive innovation could create new markets for others and displace existing companies and products. If we are unsuccessful in adapting our technologies or expanding into adjacent markets, these disruptions could result in significant negative consequences for our company. Our future growth is dependent on properly addressing future customer and end-user needs and adapting our products in line with global technology trends.

We rely on our executive leadership team and other key personnel as a critical part of our human capital resources.

We depend on the skills, institutional knowledge, working relationships and continued services and contributions of key personnel, including our executive leadership team as critical parts of our human capital resources. In addition, our ability to achieve our operating and strategic goals depends on our ability to identify, hire, train and retain qualified individuals. We compete with other companies both within and outside of our industry for talented personnel and we may lose key personnel or fail to attract, train and retain other talented personnel. Any such loss or failure could have material adverse effects on our results of operations, financial condition and cash flows.

In particular, our continued success will depend in part on our ability to retain the talents and dedication of key employees. As of December 31, 2022, we employed approximately 350 total technical

 

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resources. As of December 31, 2022, 48% of our technical employees are employed outside the United States, in India, China and France, many of whom we consider key employees. If enough key employees terminate their employment or become ill or otherwise cannot work as a result of the COVID-19 pandemic or otherwise, our business activities may be adversely affected and our management team’s attention may be diverted. In addition, we may not be able to locate suitable replacements for any key employees who leave.

We face risks from strategic transactions, such as acquisitions, divestitures, joint ventures and other similar arrangements that we may pursue or undertake.

We periodically evaluate potential strategic acquisition or investment opportunities and consider divestitures of non-strategic business lines and have historically pursued and undertaken certain of those opportunities. For example, in 1987 and 1994, we established our joint ventures in India and China, respectively, for our entry into those two markets, and have continued to explore additional joint ventures since then. Acquisitions, joint ventures and strategic investments could negatively impact our profitability and financial condition due to operating and integration inefficiencies, the incurrence of debt, contingent liabilities and amortization of expenses related to intangible assets. There are also a number of other risks inherent to acquisitions, including the potential loss of key customers and suppliers of the acquired businesses or adverse effects on relationships with existing customers and suppliers; the inability to identify all issues or potential liabilities during diligence; difficulties or delays in integrating and assimilating the acquired operations and products or in realizing projected efficiencies, growth prospects, cost savings and synergies; the loss of key employees; the potential increase in exposure to more onerous or costly legal and regulatory requirements and the diversion of management’s time and attention away from other business matters, which may prevent us from realizing the anticipated return on our investment. Additionally, we may require substantial additional capital, which could be raised pursuant to debt or equity financings, to pursue acquisitions and other business ventures, if any, in the future. We cannot assure you that we will be able to raise such additional capital on commercially reasonable terms, or at all. Divestitures may involve significant challenges and risks, such as difficulty separating out portions of our business or the potential loss of revenue or negative impacts on margins. Divestitures may also result in ongoing financial or legal proceedings, such as retained liabilities, which could have an adverse impact on our results of operations, financial condition and cash flows. Further, during the pendency of a proposed transaction, we may be subject to risks related to a decline in the business, loss of employees, customers or suppliers and the risk that the transaction may not close, any of which could adversely impact our business. Additionally, because acquisitions, divestitures, joint ventures, strategic partnerships and other similar arrangements are inherently risky, any such transaction may not be successful and may, in some cases, harm our business, financial condition or results of operations. Failure to complete any such planned transaction may adversely impact our business, financial condition or results of operations.

Our long term performance targets assume certain ongoing productivity improvements; if we do not successfully manage productivity improvements, we may not realize the expected benefits.

Our long term performance targets assume certain ongoing productivity improvements as a key component of our business strategy to, among other things, contain operating expenses, increase operating efficiencies and align manufacturing capacity to demand. We may not be able to realize the expected benefits and cost savings if we do not successfully execute these plans while continuing to invest in business growth. Factors that can cause us to not realize expected benefits or execute our plans for productivity improvements include, but are not limited to, unanticipated costs or complications resulting from the separation, unforeseen complications arising from leveraging existing filtration technology to new industries, global commodities pricing and availability, manufacturing costs and delays, inflationary pressures and labor availability. If any of these, or other, difficulties are encountered, expected benefits of such cost savings may not otherwise be realized, which could adversely impact our business, financial condition or results of operations.

A number of our customers operate in similar cyclical industries and economic conditions in these industries could impact our sales.

Three customers each accounted for 10% or more of our net sales in 2022 and 2021. Cummins is one of our key customers and accounted for approximately 19% of our net sales in 2022. While our

 

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relationship with Cummins will be secured through our first-fit supply agreement and aftermarket supply agreement, Cummins operates in both global off-highway and on-highway industries and is subject to the cyclicality of those industries. A number of our other customers, including PACCAR and the Traton Group, are also concentrated in similar cyclical industries, including off-highway industries such as construction, agriculture, mining, oil and gas and power generation, as well as on-highway industries such as truck, bus, vocational and recreational vehicles. This exposes our business to additional risk based on our customers’ respective economic conditions. Our success is also dependent on retaining key customers, which requires us to successfully manage relationships and anticipate the needs of our customers in the channels in which we sell our products. Changes in the economic conditions could materially and adversely impact our business, financial condition or results of operations.

Unexpected events, including natural disasters, may increase our cost of doing business or disrupt our operations.

There could be an occurrence of one or more unexpected events, including a terrorist attack, war or civil unrest, a weather event, an earthquake, a pandemic or other catastrophe in countries in which we operate or in which our suppliers are located.

Such an event could result in physical damage to and complete or partial closure of one or more of our headquarters, manufacturing facilities or distribution centers, temporary or long-term disruption in the supply of component products from some local and international suppliers, disruption in the transport of our products to customers and disruption of information systems. Prior to the distribution, Cummins’ existing insurance coverage, and following the distribution, the insurance coverage we expect to enter into, may not provide protection for all costs that may arise from any such event. Any disruption in our operations could have an adverse impact on our ability to meet our customer needs or may require us to incur additional expense in order to produce sufficient inventory. Certain unexpected events could adversely impact our business, financial condition or results of operations.

Our business is exposed to potential warranty claims.

We face an inherent business risk of exposure to warranty claims if our products’ failure to perform to specification results, or is alleged to result in property damage. At any given time, we are subject to various and multiple warranty claims, any one of which, if decided adversely to us, may have a material adverse effect on our reported results of operation in the period in which our liability with respect to any such claim is recognized.

Our products are subject to recall for performance or safety-related issues.

Our products are subject to recall for performance or safety-related issues. Product recalls subject us to reputational risk, loss of current and future customers, reduced revenue and product recall costs. Product recall costs are incurred when we decide, either voluntarily or involuntarily, to recall a product through a formal campaign to solicit the return of specific products due to known or suspected performance or safety issues. For example, quality issues were identified with a particular application of a fuel heater, which primarily impacted one customer, resulting in a recall campaign. See Note 11, “PRODUCT WARRANTY LIABILITY” to the historical combined financial statements for additional details. Any significant product recalls could have material adverse effects on our results of operations, financial condition and cash flows. Additionally, any significant returns or warranty claims, as well as the timing of such returns or claims, could result in significant additional costs to us and could adversely affect our business, financial condition or results of operations.

Failure to protect or enforce our intellectual property could reduce or eliminate any competitive advantage and reduce our sales and profitability and the cost of protecting or enforcing our intellectual property may be significant.

Our long-term success depends on our ability to market innovative competitive products. We own a number of patents, trade secrets, copyrights, trademarks, trade names and other forms of intellectual property related to our products and services throughout the world and the operation of our business, which we rely on to distinguish our services and solutions from those of our competitors. Patents have a limited life and, in some cases, have expired or will expire in the near future. We also have non-exclusive

 

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rights to intellectual property owned by others in certain of our markets. For example, some of our products may include components that are manufactured by our competitors. Our intellectual property may be challenged, invalidated, stolen, circumvented, infringed or otherwise violated upon by third parties or we may be unable to maintain, renew or enter into new license agreements with third-party owners of intellectual property on reasonable terms, or at all. In addition, the global nature of our business increases the risk that our intellectual property may be subject to infringement, theft or other unauthorized use or disclosure by others. Our ability to protect and enforce intellectual property rights, including through litigation or other legal proceedings, also varies across jurisdictions and in some cases, our ability to protect our intellectual property rights by legal recourse or otherwise may be limited, particularly in countries where laws or enforcement practices are less protective than those in the United States. Our inability to obtain sufficient protection for our intellectual property, or to effectively maintain or enforce our intellectual property rights, could lead to reputational harm and/or adversely impact our competitive position, business, financial condition or results of operations.

Competitors and others may also initiate litigation or other proceedings to challenge the scope, validity or enforceability of our intellectual property or allege that we infringed, misappropriated or otherwise violated their intellectual property. Any litigation or proceedings to defend ourselves against allegations of infringement, misappropriation, or other violations of intellectual property rights, regardless of merit, could be costly, divert attention of management and may not ultimately be resolved in our favor. If we are unable to successfully defend against claims that we have infringed the intellectual property rights of others, we may be prevented from using certain intellectual property or offering certain products, or may be liable for substantial damages, which in turn could materially adversely affect our business, financial condition or results of operations. We may also be required to develop an alternative, non-infringing product that could be costly, time-consuming or impossible, or seek a license from a third party, which may not be available on terms that are favorable to us, or at all. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock may be negatively affected and we may default on outstanding debt obligations.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. In addition, beginning with our second annual report on Form 10-K, we expect we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). Our independent registered public accounting firm will also be required to express an opinion as to the effectiveness of our internal control over financial reporting. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating.

The process of designing, implementing and testing the internal control over financial reporting required to comply with this obligation is time-consuming, costly and complicated. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our historical combined financial statements and harm our results of operations. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be negatively affected and we may default on outstanding debt obligations. We could also become subject to investigations by the NYSE, the Securities and Exchange Commission (the “SEC”), or other regulatory authorities, which could require additional financial and management resources.

 

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Risks Related to Legal and Regulatory Issues

Sales of counterfeit versions of our products, as well as unauthorized sales of our products, may adversely affect our reputation, business, financial condition, results of operations and cash flows.

Third parties may illegally make, distribute and sell counterfeit versions of our products that do not meet the standards of our design, development, manufacturing and distribution processes. Such counterfeit products divert sales from genuine products, often are of lower cost and quality and may pose safety risks. If illegal sales of counterfeit products result in adverse product liability or negative consumer experiences, we may be associated with negative publicity resulting from such incidents. Although we proactively monitor the existence of counterfeit products and initiate actions to seize, remove them from sale or destroy, we may not be able to prevent third parties from manufacturing, selling or purporting to sell counterfeit products competing with our products, which may negatively impact our sales, brand reputation, business, financial condition or results of operations.

Our products are subject to statutory and regulatory requirements that can significantly increase our costs and could have a material adverse impact on our results of operations, financial condition and cash flows.

Our products are subject to many laws and regulations in the jurisdictions in which we operate. We routinely incur costs in order to comply with these laws and regulations. We may be adversely impacted by new or changing laws and regulations that affect both our operations and our ability to develop and sell products that meet our customers’ requirements. The discovery of noncompliance issues could have a material adverse impact on our business, financial condition or results of operations.

Developing products to meet more stringent and changing regulatory requirements, with different implementation timelines and requirements, makes developing products efficiently for multiple markets complicated and could result in substantial additional costs that may be difficult to recover in certain markets. The successful development and introduction of new and enhanced products in order to comply with new regulatory requirements are subject to other risks, such as delays in product development, cost overruns and unanticipated technical and manufacturing difficulties.

In addition to these risks, the nature and timing of government implementation and enforcement of increasingly stringent regulatory standards in our worldwide markets are unpredictable and subject to change. Any delays in implementation or enforcement could result in a loss of our competitive advantage and could have a material adverse impact on our business, financial condition or results of operations.

We operate our business on a global basis and changes in international, national and regional trade laws, regulations, and policies affecting and/or restricting international trade, including sanctions resulting from Russia’s military operation in Ukraine, could adversely impact the demand for our products and our competitive position.

We manufacture, sell and service products globally and rely upon a global supply chain to deliver the raw materials, components, systems and parts that we need to manufacture and service our products. Changes in laws, regulations and government policies on foreign trade and investment can affect the demand for our products and services, causing customers and end-users to shift preferences toward domestically manufactured or branded products and impact the competitive position of our products or prevent us from being able to sell products in certain countries. Our business benefits from free trade agreements, such as the United States-Mexico-Canada Agreement, the U.S. trade relationships with China, Brazil and France and the Comprehensive Economic Partnership Agreement between India and South Korea. Efforts to withdraw from, or substantially modify such agreements or arrangements, in addition to the implementation of more restrictive trade policies, such as more detailed inspections, higher tariffs (including, but not limited to, additional tariffs on the import of steel or aluminum and imposition of new or retaliatory tariffs against certain countries, including based on developments in U.S. — China, U.S. — Russia and EU — Russia relations), import or export licensing requirements, and exchange controls or new barriers to entry, could limit our ability to capitalize on current and future growth opportunities in international markets, impair our ability to ship media from our plant in South Korea directly to our joint venture partners, impair our ability to expand the business by offering new

 

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technologies, products, and services, and could adversely impact our production costs, customer and end-user demand and our relationships with customers and suppliers. Any of these consequences could have a material adverse effect on our business, financial condition or results of operations.

Embargoes, sanctions and export controls imposed by the U.S. and other governments restricting or prohibiting transactions with certain persons or entities, including financial institutions, to certain countries or regions, or involving certain products, may limit the sales of our products. Embargoes, sanctions, and export control laws are changing rapidly for certain geographies, including with respect to China and Russia. In particular, changing U.S. and European export controls and sanctions on China, as well as other restrictions affecting transactions involving China and Chinese parties and Russia and Russian parties, could affect our ability to collect receivables, provide aftermarket and warranty support for our products, sell products, and otherwise impact our reputation and business, any of which could have a material adverse effect on our business, financial condition or results of operations. Moreover, the enforceability of contracts in China, especially with governmental entities, including state-owned enterprises, is relatively uncertain. If counterparties repudiated our contracts or defaulted on their obligations, we might not have adequate remedies. Such uncertainties or inability to enforce our contracts could materially and adversely affect our business, financial condition or results of operations.

Additionally, the ongoing crisis related to Russia’s military operation in Ukraine has resulted in the application of enhanced sanctions against Russia by a number of jurisdictions, including the United States, United Kingdom, and European Union. On March 17, 2022, the Cummins Board of Directors made the decision to suspend all commercial operations in Russia indefinitely. We took steps to wind down operations expeditiously, and this may expose us to customer claims and other inherent risks. Additionally, although we seek to comply with all applicable regulations, these laws and regulations are complex, frequently changing, and increasing in number and there is a risk that we will not be compliant with all relevant regulations at all times. Such potential violations could have material adverse effects on our reputation, brand, business, financial condition or results of operations.

Unanticipated changes in our effective tax rate, the adoption of new tax legislation or exposure to additional income tax liabilities could adversely affect our profitability and cash flow. In addition, audits by tax authorities could result in additional tax payments for prior periods.

We are subject to income taxes in the U.S. and numerous international jurisdictions. Our income tax provision and cash tax liability in the future could be adversely affected by the adoption of new tax legislation, changes in the amounts or composition of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and the discovery of new information in the course of our tax return preparation process. Additionally, we may be subject to tax audits. These audits can involve complex issues, which may require an extended period of time to resolve and can be highly judgmental. Tax authorities may disagree with certain tax reporting positions taken by us and, as a result, assess additional taxes against us. We may have to engage in litigation to achieve the results reflected in our tax estimates, and such litigation may be time consuming and expensive. We regularly assess the likely outcomes of any audits in order to determine the appropriateness of our tax provision. The amounts ultimately paid upon resolution of these or subsequent tax audits could be materially different from the amounts previously included in our income tax provisions and accruals, which could materially and adversely affect our business, financial condition or results of operations.

Changes in tax law relating to multinational corporations could adversely affect our tax position.

The U.S. Congress, government agencies in non-U.S. jurisdictions where we and our affiliates do business, and the Organisation for Economic Co-operation and Development (“OECD”) have recently focused on issues related to the taxation of multinational corporations. One example is in the area of “base erosion and profit shifting,” where profits are claimed to be earned for tax purposes in low-tax jurisdictions, or payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. The OECD has released several components of its comprehensive plan to create an agreed set of international rules for addressing base erosion and profit shifting. As a result, the tax laws in the United States and other countries in which we do business could change on a prospective or retroactive basis, and any such changes could adversely affect our business, financial condition or results of operations.

 

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Our global operations are subject to laws and regulations that impose significant compliance costs and create reputational and legal risk.

Due to the international scope of our operations, we are subject to a complex system of commercial regulations around the world. Recent years have seen an increase in the development and enforcement of laws regarding trade compliance as well as new regulatory requirements regarding privacy and data protection, such as the European Union General Data Protection Regulation. Our foreign subsidiaries and affiliates are governed by laws, rules and business practices that differ from those of the U.S. The activities of these entities may not comply with U.S. laws or business practices or our Code of Business Conduct. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business and result in an adverse effect on our reputation, business and results of operations, financial condition and cash flows. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted.

We are subject to national and international anti-corruption laws and regulations laws, such as the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act (the “Bribery Act”) and export controls and economic sanctions programs, including those administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), relating to our business and our employees. As part of our business, we deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA’s prohibition on providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. In addition, the provisions of the Bribery Act extend beyond bribery of foreign public officials and also apply to transactions with individuals that a government does not employ. Some of the international locations in which we operate lack a developed legal system and have higher than normal levels of corruption. Our continued expansion outside the United States, including in China, India and developing countries, and our development of new partnerships worldwide, could increase the risk of FCPA, OFAC or Bribery Act violations in the future. Despite our policies, procedures and compliance programs, our internal control and compliance systems may not be able to protect us from prohibited acts willfully committed by our employees, agents or business partners that would violate such applicable laws and regulations. Additionally, there can be no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage or provide a defense to any alleged violation. In particular, we may be held liable for the actions that our joint venture partners take inside or outside of the United States, even though our partners may not be subject to these laws. Any such improper acts could damage our reputation, subject us to civil or criminal judgments, fines or penalties, and could otherwise disrupt our business.

Our operations are also subject to certain antitrust and competition laws in the jurisdictions in which we conduct our business, in particular the United States and Europe. These laws prohibit, among other things, anticompetitive agreements and practices. If any of our commercial agreements or practices are found to violate or infringe such laws, we may be subject to civil and other penalties. We may also be subject to third-party claims for damages. Further, agreements that infringe antitrust and competition laws may be void and unenforceable, in whole or in part, or require modification in order to be lawful and enforceable. Accordingly, any violation of these laws could harm our reputation and could have a material adverse effect on our business, financial condition or results of operations.

From time to time, we are subject to litigation or other commercial disputes and other legal and regulatory proceedings relating to our business, including actual or perceived failure to comply with the laws and regulations mentioned above. Due to the inherent uncertainties of any litigation, commercial disputes or other legal or regulatory proceedings, we cannot accurately predict their ultimate outcome, including the outcome of any related appeals. An unfavorable outcome could materially adversely impact our business, financial condition and results of operations. Furthermore, as required by U.S. GAAP, we establish reserves based on our assessment of contingencies, including contingencies related to legal claims asserted against us. Subsequent developments in legal proceedings may affect our assessment and estimates of the loss contingency recorded as a reserve and require us to make payments in excess of our reserves, which could have an adverse effect on our business, financial condition or results of operations.

 

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We may be adversely impacted by the effects of climate change and may incur increased costs and experience other impacts due to climate change.

The scientific consensus indicates that emissions of GHG continue to alter the composition of Earth’s atmosphere in ways that are affecting, and are expected to continue to affect, the global climate. The potential impacts of climate change on our customers and end-users, product offerings, operations, facilities and suppliers are accelerating and uncertain, as they will be particular to local, customer-specific circumstances. These potential impacts may include, among other things, rising sea levels and the frequency and severity of weather events as well as customer and end-user product changes either through preference or regulation.

Concerns regarding climate change may lead to additional international, national, regional and local legislative and regulatory responses. For example, recent proposed SEC rulemaking to enhance disclosures regarding the effects of climate change could increase our reporting and compliance costs. Similarly, enhanced mandatory climate reporting requirements came into force in 2019 and again in 2022 in the United Kingdom and broader sustainability reporting requirements (including climate) will apply to certain European Union entities on a staged basis from 2024 and to their non-European Union parent undertakings from 2028. We believe these reporting requirements could increase our reporting and compliance costs. Various stakeholders, including legislators and regulators, shareholders and non-governmental organizations, are continuing to look for ways to reduce GHG emissions, including limits on GHG emissions and measures intended to incentivize GHG reduction such as fuel taxes, carbon taxes and subsidies. As the impact of any future GHG legislative or regulatory requirements on our global businesses and products is dependent on the timing, scope and design of the mandates or standards, we are currently unable to predict the potential impact. Moreover, as discussed in “— Risks Related to Our Business Operations — Evolving customer needs and developing technologies may threaten our existing business and growth”, certain consequences of climate change, such as shifts in customer and end-user preferences and the pace and extent to which customers and end-users adopt alternative power, including electrified vehicles, could impact demand for our products and could have a material adverse effect on our business, financial condition or results of operations.

Our operations are subject to increasingly stringent environmental laws and regulations, and we are also subject to laws requiring cleanup of contaminated property.

Our plants and operations are subject to increasingly stringent environmental laws and regulations in all of the countries in which we operate, including laws and regulations governing air emissions, wastewater and storm water discharges and the generation, handling, storage, transportation, treatment and disposal of waste materials. While we believe that we are in compliance in all material respects with these environmental laws and regulations, there can be no assurance that we will not be adversely impacted by costs, liabilities or claims with respect to existing or subsequently acquired operations, under either present laws and regulations or those that may be adopted or imposed in the future. We are also subject to laws requiring the cleanup of contaminated property, including laws that impose strict liability for contamination at owned property and for hazardous materials or wastes generated by our plants and operations or those of our predecessors. If a release of hazardous substances occurs at or from any of our (or our predecessors’) current or former properties or at a landfill or another location where we or our predecessors have disposed of (or arranged for the disposal of) hazardous materials, we may be held liable for the contamination and the amount of such liability could be material.

Risks Related to Cybersecurity and Information Technology Infrastructure

Our information technology environment and our products are exposed to potential security breaches or other disruptions, which may adversely impact our operations.

We rely on the capacity, reliability and security of our information technology environment and data security infrastructure in connection with various aspects of our business activities. We also rely on our ability to expand and continually update these technologies and related infrastructure in response to the changing needs of our business. As we implement new technologies, they may not perform as expected. We face the challenge of supporting our older technologies and implementing necessary

 

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upgrades. In addition, some of these technologies are managed by third-party service providers and are not under our direct control. If we experience a problem with an important technology, including during upgrades and/or new implementations of technologies, the resulting disruptions could have an adverse effect on our business and reputation. As customers and end-users adopt and rely on cloud-based digital technologies and services we offer, any disruption of the confidentiality, integrity or availability of those services could have an adverse effect on our business and reputation.

Our operations routinely involve collecting, receiving, storing, processing and transmitting personal, sensitive and other confidential information pertaining to our business, customers, end-users, dealers, suppliers, employees and other sensitive matters. The data handled by our technologies is vulnerable to security threats. In addition, our products contain interconnected and increasingly complex technologies that monitor and transmit data and these technologies are potentially subject to cyber-attacks and disruption. For example, we have developed the filtration intelligence technology (FIT) system, which embeds sensors and software within the filtration equipment system designed to optimize filtration maintenance and monitor equipment health. In addition, as a result of the COVID-19 pandemic a large percentage of our salaried employees continue to work remotely full or part-time. This remote working environment may pose a heightened risk for security breaches or other disruptions of our information technology environment. The impact of a significant information technology event on either our information technology environment or our products could negatively affect the performance of our products, our reputation, and competitive position.

While we continually work to safeguard our information technology environment and mitigate potential risks, there is no assurance that these actions will be sufficient to timely detect or prevent information technology security threats, such as security breaches, computer malware, ransomware attacks and other cyber-attacks, which are increasing in both frequency and sophistication, along with power outages or hardware failures. These threats could result in unauthorized access, use, modification, disclosure, loss or theft of information, including intellectual property, costly investigations, remediation efforts, notification requirements, privacy or data protection-related compliance obligations, legal claims or proceedings, government enforcement actions, civil or criminal penalties, fines, diversion of management attention, operational changes or other response measures, loss of customer confidence in our security measures, loss of business partners, and negative publicity that could adversely affect our brand, reputation, business, results of operations and financial condition. As of the date hereof, we are insured under Cummins’ general liability and cyber liability insurance policies. Pursuant to the separation agreement and certain other agreements with Cummins, we will continue to be insured under Cummins’ insurance policies until the distribution. Following the distribution, we will be responsible for obtaining and maintaining at our own cost our own insurance coverage. Prior to the distribution, Cummins’ existing insurance policies, and following the distribution, the insurance policies we expect to enter into, may not cover, or may cover only a portion of, any potential claims related to such events or may not be adequate to indemnify us for all or any portion of liabilities that may be imposed or defense costs incurred. We also cannot be certain that prior to the distribution Cummins’ existing insurance coverage will continue to be available, or that following the distribution we will be able to find insurance coverage, on acceptable terms or in amounts sufficient to cover the potentially significant losses that may result from a security incident or breach or that the insurer will not deny coverage of any future claim.

A number of our operations depend on sophisticated information technology and infrastructure, which may be disrupted by the separation.

Prior to the completion of this offering and in connection with the separation, we will substantially change a number of our business processes, including changes in our financial reporting and supply chain processes and with respect to where and from whom we obtain information technology systems. In order to support the new business processes under the terms of our transitional services agreement with Cummins, we will make significant configuration, process and data changes within many of the information technology systems we use. If our information technology systems and processes are not sufficient to support our business and financial reporting functions, or if we fail to properly implement our new business processes, manufacturing, shipping, invoicing or other critical operating activities may be interrupted or negatively affected, and our financial reporting may be delayed or inaccurate and, as a result, our business, financial condition and results of operations may be materially adversely

 

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affected. Even if we are able to successfully configure and change our systems, all technology systems, even with implementation of security measures, are vulnerable to disability, failures or unauthorized access. If our information technology systems were to fail or be breached, this could materially adversely affect our reputation and our ability to perform critical business functions, and sensitive and confidential data could be compromised.

Risks Related to Finance and Financial Market Conditions

We are subject to foreign currency exchange rate and other related risks.

We conduct operations in many areas of the world involving transactions denominated in a variety of currencies. We are subject to foreign currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. In addition, since our financial statements are denominated in U.S. dollars, changes in foreign currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations, financial condition and cash flows. For example, 38% of our net sales in 2022 were denominated in a currency other than the U.S. dollar. Additionally, the appreciation of the U.S. dollar against foreign currencies could have a negative impact on our consolidated results of operations due to translation impacts. Cummins has a hedging program to mitigate foreign currency exchange rate risk across its businesses, which included foreign currency exchange rate risk faced by the filtration business. Although Atmus has implemented certain aspects of its own hedging program, it is still evaluating other aspects, such as cash flow hedges, and there can be no assurances that we will be able to establish the same program as Cummins or at similar costs.

We have recorded goodwill as a result of prior acquisitions, and an economic downturn could cause these balances to become impaired, requiring write-downs that would reduce our operating income.

Goodwill amounted to approximately $84.7 million as of December 31, 2022. As required under current accounting rules, we assess goodwill for impairment at least annually and whenever changes in circumstances indicate that the carrying amount may not be recoverable from estimated future cash flows. As of December 31, 2022, management has deemed there is no impairment of our recorded goodwill. However, if future operating performance at one or more of our operating units were to fall significantly below forecast levels or if market conditions for one or more of our acquired businesses were to decline, we could be required to incur a non-cash charge to operating income for impairment. Management will continue to monitor our operating results, our market capitalization, and the impact of the economy to determine if there is an impairment of goodwill in future periods.

Risks Related to Macroeconomic and Geopolitical Conditions

Political, economic and social uncertainty in geographies where we have significant operations or large offerings of our products could significantly change the dynamics of our competition, customer and end-user base and product offerings and impact our growth opportunities globally.

Our business is subject to the political, economic and other risks that are inherent in operating in numerous countries, including:

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public health crises, including the spread of a contagious disease, such as COVID-19 and other catastrophic events;

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the difficulty of enforcing agreements and collecting receivables through foreign legal systems;

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trade protection measures and import or export licensing requirements;

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the imposition of taxes on foreign income and tax rates in certain foreign countries that exceed those in the U.S.;

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the imposition of tariffs, exchange controls, sanctions or other restrictions;

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difficulty in staffing and managing widespread operations and the application of foreign labor regulations;

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required compliance with a variety of foreign laws and regulations; and

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changes in general economic and political conditions, including changes in relationship with the U.S., in countries where we operate, particularly in China, Russia and other emerging markets.

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As we continue to operate and grow our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other related risks. There can be no assurance that the consequences of these and other factors relating to our multinational operations will not have a material adverse effect upon us.

In addition, there continues to be significant uncertainty about the future relationships between the U.S. and China and the U.S. and Russia, including with respect to trade policies, treaties, government regulations and tariffs.

We currently have significant operations in China, including a joint venture and our wholly-owned subsidiary Cummins Filtration China. In 2022, total sales in China, including consolidated and non-consolidated sales from our joint venture, were approximately $233.0 million, a decrease of $97.0 million compared to approximately $330 million in 2021. In the first half of 2022, the resurgence of COVID-19 in China led to lockdowns in several cities that negatively impacted the economy and our end markets. Among the cities impacted by these lockdowns was Shanghai, which resulted in the shutdowns of our and our China JV’s Shanghai-based facilities, and the results from our China operations were adversely impacted for the year ended December 31, 2022 as a result of the shutdowns. Equity, royalty and interest income from our China JV for 2022 was $5.3 million, a decrease of $4.9 million compared to $10.2 million for 2021. To the extent lockdowns continue to be used to combat COVID-19, we expect they would contribute to further disruptions in the global supply chain, which may negatively impact both our net sales and profitability going forward. Given the unpredictable nature of COVID-19 and the response to it, we cannot predict the impact on future quarters at this time. In addition, any increased trade barriers or restrictions on global trade, especially trade with China, could adversely impact our competitive position, results of operations, financial condition and cash flows.

In 2022, prior to Russia’s military operation in Ukraine, we had a retail presence in Russia, with less than 1.0% of our net sales being generated there in 2022, down from 2.5% in 2021. As a result of the sanctions announced to date against Russia by the U.S. and other countries, including restrictions on selling or importing goods, services or technology in or from affected regions and travel bans and asset freezes impacting connected individuals and political, military, business and financial organizations in Russia, we have suspended our activities in Russia. The U.S. and other countries could impose wider sanctions and take other actions should the conflict escalate further. It is not possible to predict the broader consequences of this conflict, which could impact our sales, cash flow, and results of operations. Following the Cummins Board of Directors’ decision on March 17, 2022 to suspend all commercial operations in Russia indefinitely, we have taken action to wind down our operations in Russia. As a result of this suspension, we incurred costs of approximately $2.3 million in 2022. See Note 3, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” to the combined financial statements for additional details. The aggregate impact of winding down our business and operations in Russia was not material to our overall business because we had no assets or capital in Russia at risk, and historically our operations have been limited to the distribution and sale of our products, for which Russia represented less than 1.0% of our net sales in 2022. However, such impact is not yet known and there is a risk that, despite our expectation, such winding-down could negatively impact our business, financial condition, cash flows and results of operations in this region.

Risks arising from uncertainty in worldwide and regional market and economic conditions may harm our business and make it difficult to project long-term performance.

Our business is sensitive to global macroeconomic conditions. Future macroeconomic downturns may have an adverse effect on our business, results of operations and financial condition, as well as on our distributors, customers, end-users and suppliers, and on activity in many of the industries and markets we serve. Among the economic factors which may have such an effect are: public health crises such as pandemics and epidemics, including the COVID-19 pandemic, currency exchange rates,

 

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difficulties entering new markets, tariffs and governmental trade and monetary policies, and general economic conditions such as inflation, deflation, interest rates and credit availability.

For example, as a result of the global economic downturn triggered by the COVID-19 pandemic, we experienced a 3.8% decline in net sales during 2020 compared to the previous year. Most economies across the world slowed and, although we saw a recovery in 2021 (16.7% growth in net sales in 2021 compared to 2020) and 2022 (8.6% growth in net sales in 2022 compared to 2021), there is still uncertainty as to whether the recovery will be sustained. If any or all of these major markets that we sell to were to endure a continued slowdown or recession due to the impacts of the COVID-19 pandemic, other public health crises, epidemics or pandemics or otherwise decline, it could have a material adverse effect on our results of operations, financial condition and cash flows. Additionally, in response to rising rates of inflation, the Federal Reserve Board increased the benchmark federal funds interest rates multiple times in 2022, and has signaled that there may be additional federal funds interest rate increases during 2023. This rising rate environment and the speed with which it has been occurring could have a material adverse effect on our business, financial condition or results of operations.

In addition, we face several risks associated with international business and are subject to global events beyond our control, including war, trade disputes, economic sanctions, trade wars and their collateral impacts and other international events. Any of these events could have a material adverse effect on our reputation, business, financial condition or results of operations. There may be changes to our business if there is instability, disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest; and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease.

In February 2022, Russian military forces launched significant military action against Ukraine. The impact to Ukraine and Russia, as well as actions taken by other countries, including new and stricter sanctions by the U.S., Canada, the United Kingdom, the European Union and other countries and organizations against officials, individuals, regions, and industries in Russia, Ukraine and Belarus. Each country’s potential response to such sanctions, tensions, and military actions could have a material adverse effect on our business, financial condition and results of operations. It is not possible to predict the broader consequences of this conflict, including related geopolitical tensions, and the measures and retaliatory actions taken by the U.S. and other countries in respect thereof as well as any counter measures or retaliatory actions by Russia or Belarus in response, including, for example, potential cyberattacks or the disruption of energy exports. These consequences are likely to cause regional instability, geopolitical shifts, and could materially adversely affect global trade, currency exchange rates, regional economies and the global economy. Although we have increased our cybersecurity monitoring and taken other steps to manage contingency planning in response to the conflict, the situation remains uncertain. While it is difficult to predict the impact of any of the foregoing, the conflict and actions taken in response to the conflict could impact our business, financial condition or results of operations.

The COVID-19 pandemic disrupted our operations and may have a material adverse effect on our business and financial condition if governments impose restrictive measures to prevent future outbreaks that affect our operations.

The outbreak of COVID-19 in early 2020, along with the response to the pandemic by governmental and other actors, disrupted our operations and may have negative impacts on our operations in the future, which impact may be material. The pandemic triggered a significant downturn in our markets globally, which negatively impacted our sales and results of operations during 2020. While the majority of the negative impacts to demand largely subsided in 2021, we still experienced supply chain disruptions and the related financial impacts reflected as increased cost of sales in 2022. As we head into 2023, cases of coronavirus and other respiratory diseases could increase, the severity of which could provoke government lockdowns and impact our existing supply chain by delaying the delivery of materials used in our products. Additionally, we are unable to predict the impact of the ongoing governmental regulations that may be imposed in response to this or other pandemics.

Further, our industry was, and to some extent, continues to be, impacted by supply chain constraints leading to shortages across multiple components categories and limiting our collective ability to meet end-user demand. Our customers also are experiencing other supply chain issues and slowing production.

 

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Should the supply chain issues continue for an extended period of time, or the improvement we are seeing reverse course, the impact on our production and supply chain could have a material adverse effect on our results of operations, financial condition and cash flows. Our management team continues to monitor and evaluate all of these factors and the related impacts on our business and operations. We worked diligently to minimize the supply chain impacts to our business and to our customers in response to the risks and negative impacts associated with the COVID-19 pandemic, and we are continuing to do so. However, the financial impact to us cannot be forecasted accurately at this time and there can be no assurance that these improvements that we are seeing will continue in the future.

Risks Related to the Separation, the Distribution and our Relationship with Cummins

The anticipated benefits of the separation may not be achieved and the separation may adversely affect our business.

The anticipated benefits of the separation may not be achieved due to inherent risks associated with the separation. If these risks materialize, they may prevent us from achieving the anticipated benefits of the separation and our results of operation, financial conditions, prospects and business could be materially and adversely affected. These risks include, among others:

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as a current part of Cummins, our businesses benefit from Cummins’ size and purchasing power in procuring certain goods, services and technologies. After the separation, as a separate entity, we may be unable to obtain these goods, services and technologies at prices or on terms as favorable as those Cummins obtained prior to the separation;

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•

the actions required to separate our and Cummins’ respective businesses could disrupt our and Cummins’ operations and divert management’s attention away from operating and growing our business;

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•

certain costs and liabilities that were otherwise less significant to Cummins as a whole will be more significant for us as a separate company;

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•

we will incur one-time costs in connection with the transition to being a separate, publicly-traded company, and those costs may be higher than anticipated;

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•

we may also incur recurring costs for certain functions previously performed by Cummins, such as accounting, tax, legal, human resources and other general administrative functions that are higher than the amounts reflected in our historical financial statements;

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•

following the separation, we may be more susceptible to capital market fluctuations and other adverse events than if we were still a part of Cummins;

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•

following the separation, our business will be less diversified than Cummins’ business prior to the separation;

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•

to preserve the tax-free treatment of the separation and distribution for U.S. federal income tax purposes to Cummins, if pursued, under the tax matters agreement that we will enter into with Cummins, we will be restricted from taking any action that prevents such transactions from being tax-free for U.S. federal income tax purposes. These restrictions may limit our ability to pursue certain strategic transactions or engage in other transactions that might increase the value of our business; and

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•

the separation will require us to implement interim operational arrangements in certain markets, such as Mexico, due to regulatory requirements, the need to obtain consents from local governmental authorities, and other business reasons, which may introduce additional complexity to our business than if we were still part of Cummins.

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If we fail to achieve some or all of the benefits expected to result from the separation, or if such benefits are delayed, our business, financial condition or results of operations could be adversely affected.

As a result of the separation, we will lose Cummins’ reputation, economies of scale, capital base and other resources and may experience difficulty operating as a standalone company.

 

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Our association with Cummins has contributed to the relationships we have with certain significant customers and suppliers due to the relationship those customers and suppliers had with Cummins. Currently, Cummins cooperates in selling our products to its customers. After the separation, we may not be able to attract new customers of Cummins, or retain existing customers, without Cummins’ support. If this occurs, it could result in reduced sales of our products.

The loss of Cummins’ scale, capital base and financial strength may also prompt suppliers to reprice, modify or terminate their relationships with us, in particular if such suppliers had placed a premium on the Cummins brand or our relationship with Cummins. In addition, Cummins’ reduction of its ownership of our company could potentially cause some of our existing agreements and licenses to be terminated. We cannot predict with certainty the effect that this offering, the separation or the distribution will have on our business, our clients, vendors or other persons, or whether our Fleetguard brand will experience dilution in the marketplace.

Further, because we have no experience operating as a standalone company in the past, we may encounter difficulties doing so in the future. For example, if we do not accurately estimate the level of resources required to operate as a standalone company, we may need to acquire additional assets and resources, which could be costly, and in connection with the separation, may also face difficulty in separating certain aspects of our business from Cummins, including incurring accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring or reassigning our personnel, costs related to establishing a new brand identity in the marketplace and costs to separate information systems and creating standalone administrative units in our business post-separation. Our business, financial condition and results of operations could be materially adversely affected if we have difficulty operating as a standalone company, fail to acquire assets that prove to be important to our operations, or incur unexpected costs as we separate our assets from Cummins’ assets or integrate newly-acquired assets.

For so long as Cummins controls a majority of the voting power of our outstanding common stock, we will qualify for, and intend to rely on, certain exemptions from NYSE corporate governance requirements. Stockholders will not have the same protections afforded to stockholders of companies that are subject to all NYSE corporate governance requirements.

Upon completion of this offering, we will qualify as a “controlled company” within the meaning of the corporate governance standards of the NYSE because Cummins will control a majority of the voting power of our outstanding common stock entitled to vote in the election of directors. A “controlled company” may elect not to comply with certain corporate governance requirements of the NYSE. Consistent with this, the separation agreement will provide that, for so long as we are a “controlled company,” we will take advantage of available “controlled company” exemptions from compliance with certain corporate governance requirements under NYSE rules, including:

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the requirement that a majority of the board of directors consist of independent directors;

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the requirement that our governance and nominating committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities or if no such committee exists, that our director nominees be selected or recommended by independent directors constituting a majority of the Board’s independent directors in a vote in which only independent directors participate;

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the requirement that our talent management and compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

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the requirement for an annual performance evaluation of our governance and nominating committee and talent management and compensation committee.

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Following this offering, we intend to utilize certain of these exemptions. While these exemptions are available to us as a controlled company, we recognize the value of independent directors as we establish a new company and intend to transition to a majority independent board, majority independent talent management and compensation committee and majority independent governance and

 

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nominating committee. We expect to have a majority independent audit committee upon this offering and will transition to a fully independent audit committee within the first twelve months after this offering.

Following the completion of the offering, Cummins will continue to have significant control over us for a period of time, which could continue indefinitely, preventing you and other stockholders from influencing significant decisions.

Immediately following the completion of this offering, Cummins will own approximately    % of our outstanding common stock (or     % if the underwriters exercise their option to purchase additional shares in full). Cummins has indicated that, following completion of the offering, it intends to divest its interest in us. However, Cummins is under no obligation to do so or to dispose of any of its shares of our common stock, whether pursuant to the distribution or otherwise. A determination whether to effect the distribution or other disposal of any of our shares of common stock, and the timing thereof, is within Cummins’ sole discretion. If the distribution does not occur, or if Cummins does not otherwise dispose of its shares of our common stock, the risks relating to Cummins’ control of us will continue to be relevant to our stockholders. These risks include reduced liquidity of our shares of common stock and extended control of our business by Cummins. The liquidity of shares of our common stock in the market would be more constrained than if the distribution had occurred, as up to    % of our common stock would continue to be held by Cummins, which would reduce liquidity and could depress the price of our common stock.

For so long as Cummins controls the majority of the voting power of our outstanding common stock, it will determine the outcome of all corporate actions requiring stockholder approval. Even if Cummins were to dispose of certain of its shares of our common stock such that it would control less than a majority of the voting power of our outstanding common stock, it would likely be able to influence the outcome of corporate actions so long as it retains a significant portion of our common stock. During the period of Cummins’ significant ownership, investors in this offering may not be able to affect the outcome of such corporate actions. For such time as Cummins owns a controlling interest in or a significant portion of our common stock, it generally will be able to control or significantly influence, directly or indirectly and subject to applicable law, all matters affecting us, including:

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the election of directors;

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determinations with respect to our business direction and policies, including the appointment and removal of officers;

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determinations with respect to corporate transactions, such as mergers, business combinations or the acquisition or the disposition of assets;

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our financing and dividend policy;

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termination of, changes to or determinations under our agreements with Cummins relating to the separation;

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changes to any other agreements that may adversely affect us;

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determinations with respect to our tax returns; and

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compensation and benefits programs and other human resources policy decisions.

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Because Cummins’ interests may differ from ours or from those of our other shareholders, actions that Cummins takes with respect to us, as our controlling shareholder, may not necessarily be in the best interest of our other shareholders.

We, or Cummins, may fail to perform under various transaction agreements that will be executed as part of the separation or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.

The separation agreement and other agreements to be entered into in connection with the separation will determine the allocation of assets and liabilities between Cummins and us following the separation for those respective areas and will include any necessary indemnifications related to liabilities and obligations. The transition services agreement will provide for the performance of certain services by

 

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Cummins and us for the benefit of the other for a period of time after the separation. We will rely on Cummins after the separation to satisfy its performance and payment obligations under these agreements. If Cummins is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses. If we do not have in place our own systems and services, or if we do not have agreements with other providers of these services once certain transaction agreements expire, we may not be able to operate our businesses effectively and our profitability may decline. We are in the process of creating our own, or engaging third parties to provide, systems and services to replace many of the systems and services that Cummins currently provides to us. However, we may not be successful in implementing these systems and services or in transitioning data from Cummins’ systems to us. In addition, we have historically received certain informal support from Cummins, including customer relationship management, marketing, communications, technical support, market intelligence and market data, which may not be addressed in our transition services agreement. The level of this informal support may diminish following this offering and may be eliminated following the distribution.

In addition, we expect this process to be complex, time-consuming and costly. We also are establishing or expanding our own tax, treasury, internal audit, investor relations, corporate governance and listed company compliance and other corporate functions. We expect to incur one-time costs to replicate, or outsource from other providers, these corporate functions to replace the corporate services that Cummins historically provided us prior to the separation. Any failure or significant downtime in our own financial, administrative or other support systems or in the Cummins financial, administrative or other support systems during the transitional period during which Cummins provides us with support could negatively impact our results of operations or prevent us from paying our suppliers and employees, executing business combinations and foreign currency transactions or performing administrative or other services on a timely basis, which could negatively affect our results of operations.

In particular, our day-to-day business operations rely on our information technology systems. A significant portion of the communications among our personnel, customers and suppliers take place on our information technology platforms. We expect the separation of information technology systems from Cummins to be complex, time-consuming and costly. There is risk of data loss in the process of transferring information technology. As a result of our reliance on information technology systems, the cost of such information technology integration and transfer and any such loss of key data could have an adverse effect on our business, financial condition and results of operations.

In addition, our historical combined financial statements include the attribution of certain assets and liabilities that historically have been held at the Cummins corporate level but which are specifically identifiable or attributable to the businesses being transferred to us in connection with the separation. The value of the assets and liabilities we assume in connection with the separation could ultimately be materially different than such attributions, which could have a material adverse effect on our business, financial condition or results of operations.

After the separation, certain of our executive officers and directors may have actual or potential conflicts of interest because of their equity interest in Cummins. Also, certain of Cummins’ current executive officers also serve as directors of our company, which may create conflicts of interest, or the appearance of conflicts of interest.

Because of their current or former positions with Cummins, certain of our executive officers and directors own equity interests in Cummins. Continuing ownership of shares of Cummins common stock and equity awards could create, or appear to create, potential conflicts of interest if we and Cummins face decisions that could have implications for both Cummins and us, after the separation. In addition, certain of Cummins’ current executive officers also serve as directors of our company, and this could create, or appear to create, potential conflicts of interest when we and Cummins encounter opportunities or face decisions that could have implications for both companies following the separation or in connection with the allocation of such directors’ time between Cummins and us. These potential conflicts could arise, for example, over matters such as the desirability of changes in our business and operations, funding and capital matters, regulatory matters, matters arising with respect to the separation agreement and other agreements with Cummins relating to the separation or otherwise, employee retention or recruiting or our dividend policy.

 

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Cummins and its directors and officers will have limited liability to us or you for breach of fiduciary duty.

Subject to any contractual provision to the contrary, Cummins will have no obligation to refrain from engaging in certain actions that may not be in our best interests.

Under our amended and restated certificate of incorporation, neither Cummins nor any officer or director of Cummins, including our directors who are also Cummins employees, except as provided therein, will be liable to us or to our stockholders for breach of any fiduciary duty by reason of any of these activities.

If Cummins completes the distribution, and there is later a determination that the separation, the debt-for-equity exchange and/or the distribution is taxable for U.S. federal income tax purposes because the facts, assumptions, representations or undertakings underlying the IRS private letter ruling and/or any tax opinion of a nationally recognized law or accounting firm are incorrect or for any other reason, then Cummins and its stockholders could incur significant U.S. federal income tax liabilities, and we could incur significant liabilities.

Cummins received a private letter ruling from the IRS substantially to the effect that, among other things, the separation and distribution will qualify as a transaction that is tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code (the “Code”). If the distribution is pursued, completion by Cummins of the distribution may be conditioned on, among other things, the receipt of an opinion of a nationally recognized law or accounting firm, to the effect that, among other things, the distribution will qualify as a transaction that is tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. The private letter ruling Cummins received relies, and if the distribution is pursued the opinion of a nationally recognized law or accounting firm would rely, on certain facts, assumptions, representations and undertakings from Cummins and us regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not otherwise satisfied, Cummins and its stockholders may not be able to rely on the private letter ruling or the opinion of a nationally recognized law or accounting firm and could be subject to significant tax liabilities. Notwithstanding the private letter ruling and opinion of a nationally recognized law or accounting firm, the IRS could determine on audit that the separation, the debt-for-equity exchange and/or the distribution is taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinions that are not covered by the private letter ruling, or for other reasons, including as a result of certain significant changes in the stock ownership of Cummins or us after the distribution. If the separation, the debt-for-equity exchange and/or the distribution is determined to be taxable for U.S. federal income tax purposes, Cummins and/or its stockholders could incur significant U.S. federal income tax liabilities, and we could also incur significant liabilities.

We may be affected by significant restrictions in the tax matters agreement, including on our ability to engage in certain corporate transactions for a two-year period after the distribution in order to avoid triggering significant tax-related liabilities for Cummins.

To preserve the tax-free treatment for U.S. federal income tax purposes to Cummins of the separation, debt-for-equity exchange and distribution (if pursued), under the tax matters agreement that we will enter into with Cummins, we will be restricted from taking any action that prevents the separation, debt-for-equity exchange and distribution (if pursued) from being tax-free for U.S. federal income tax purposes. Under the tax matters agreement, for the two-year period following the distribution (if pursued), as described in the section entitled “Certain Relationships and Related Party Transactions — Relationship with Cummins — Tax Matters Agreement — Preservation of the Tax-Free Status of Certain Aspects of the Separation and Distribution,” we will be subject to specific restrictions on our ability to discontinue the active conduct of our trade or business, issue or sell stock or other securities (including securities convertible into our stock but excluding certain compensatory arrangements), sell our assets outside the ordinary course of business and enter into any other corporate transaction which would cause us to undergo a 50% or greater change in our stock ownership (taking into account any change as a result of the debt-for-equity exchange). These restrictions may limit our

 

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ability to pursue certain strategic transactions or other transactions that we may believe to be in the best interests of our stockholders or that might increase the value of our business, and generally reduce our strategic and operating flexibility. These restrictions will not limit the acquisition of other businesses by us for cash consideration. We may be required to indemnify Cummins against tax liabilities arising as a result of a failure to comply with these restrictions under the tax matters agreement, even if such failure is outside of our control. For example, we may be required to indemnify Cummins under the tax matters agreement against tax liabilities arising as a result of the acquisition of our stock during the two-year period following the distribution (if pursued). For more information, please refer to the section entitled “Certain Relationships and Related Party Transactions — Relationship with Cummins — Tax Matters Agreement.”

Potential indemnification liabilities to Cummins pursuant to the separation agreement could materially and adversely affect our businesses, financial condition, results of operations and cash flows.

The separation agreement, among other things, provides for indemnification obligations designed to make us financially responsible for liabilities that may exist relating to our business activities, whether incurred prior to or after the separation. If we are required to indemnify Cummins under the circumstances set forth in the separation agreement, we may be subject to substantial liabilities. Please refer to the section entitled “Certain Relationships and Related Party Transactions — Relationship with Cummins — Separation Agreement.”

In connection with our separation and distribution from Cummins, Cummins will indemnify us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that Cummins’ ability to satisfy its indemnification obligation will not be impaired in the future.

Pursuant to the separation agreement and certain other agreements with Cummins, Cummins will agree to indemnify us for certain liabilities as discussed further in “Certain Relationships and Related Party Transactions — Relationship with Cummins — Separation Agreement — Release of Claims and Indemnification.” However, third parties could also seek to hold us responsible for any of the liabilities that Cummins has agreed to retain, and there can be no assurance that the indemnity from Cummins will be sufficient to protect us against the full amount of such liabilities, or that Cummins will be able to fully satisfy its indemnification obligations. In addition, Cummins’ insurance will not necessarily be available to us for liabilities associated with occurrences of indemnified liabilities prior to the distribution, and in any event Cummins’ insurers may deny coverage to us for liabilities associated with certain occurrences of indemnified liabilities prior to the distribution. Moreover, even if we ultimately succeed in recovering from Cummins or such insurance providers any amounts for which we are held liable, we may be temporarily required to bear these losses. Each of these risks could negatively affect our business, financial condition or results of operations.

We may have received better terms from unaffiliated third parties than the terms we will receive in our agreements with Cummins.

The agreements we will enter into with Cummins in connection with the separation, including the separation agreement, transition services agreement, employee matters agreement, tax matters agreement, intellectual property license agreement, first-fit supply agreement, aftermarket supply agreement, transitional trademark license agreement and the registration rights agreement were prepared in the context of our separation from Cummins while we were still a wholly-owned subsidiary of Cummins. Accordingly, during the period in which the terms of those agreements were prepared, we did not have a separate or independent board of directors or a management team that was separate from or independent of Cummins. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. Arm’s-length negotiations between Cummins and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party. For more information, please refer to the section entitled “Certain Relationships and Related Party Transactions — Relationship with Cummins — Separation Agreement.”

 

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Risks Related to Our Capital Structure

Changes in the capital and credit markets may negatively affect our ability to access financing to support strategic initiatives.

Disruption of the global financial and credit markets may have an effect on our long-term liquidity and financial condition. There can be no assurance that the cost or availability of future borrowings will not be impacted by future capital market disruptions. The term loan agreement and revolving credit facility each contain covenants to maintain certain financial ratios that, under certain circumstances, could restrict our ability to incur additional indebtedness, make investments and other restricted payments, create liens and sell assets.

Upon completion of this offering, we will have substantial indebtedness, consisting of the term loan and the revolving credit facility, and may incur substantial additional debt from time to time, which may impact our ability to service all our indebtedness and react to changes in our industry and limit our ability to seek further financing on favorable terms.

Upon completion of this offering, we will have approximately $650 million of outstanding indebtedness consisting of the term loan and amounts drawn under the revolving credit facility. See “Description of Material Indebtedness.”

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, alter our dividend policy, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The instruments that will govern our indebtedness may restrict our ability to dispose of assets and may restrict the use of proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when due.

In addition, we conduct operations through our subsidiaries and joint ventures. Accordingly, repayment of our indebtedness will depend on the generation of cash flow by these entities, and their ability to make such cash available to us, by dividend, debt repayment or otherwise. These entities may not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. These entities may not be able to, or may not be permitted to, make adequate distributions to enable us to make payments in respect of our indebtedness. Each of these entities is a distinct legal entity and, under certain circumstances, legal, tax and contractual restrictions may limit our ability to obtain cash from them. In the event that we do not receive distributions from these entities, we may be unable to make required principal and interest payments on our indebtedness.

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, may materially adversely affect our business, financial condition and results of operations and our ability to satisfy our obligations under our indebtedness or pay dividends on our common stock.

We may incur substantial additional debt from time to time, including secured indebtedness, to finance working capital, capital expenditures, research and development, investments or acquisitions or for other purposes. If we do so, the risks related to our high level of debt could intensify. Specifically, our high level of debt could have important consequences, including:

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making it more difficult for us to satisfy our obligations with respect to our debt;

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limiting our ability to obtain additional financing to fund future working capital, capital expenditures, business development or other general corporate requirements, including dividends;

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increasing our vulnerability to general adverse economic and industry conditions;

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exposing us to the risk of increased interest rates as certain of our borrowings are and may in the future be at variable rates of interest;

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limiting our flexibility in planning for and reacting to changes in our industry;

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impacting our effective tax rate; and

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increasing our cost of borrowing.

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Risks Related to Our Initial Public Offering and Ownership of Our Common Stock

We have not yet determined whether or the extent to which we will pay any dividends on our common stock or the timing or amount of any such dividends.

We have not yet determined whether or the extent to which we will pay any dividends on our common stock after completion of this offering. The declaration, amount and payment of any future dividends will be at the discretion of our board of directors in accordance with applicable law. Our board of directors may take into account general economic and business conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if we commence paying dividends. For more information, please refer to the section entitled “Dividend Policy.”

Applicable laws and regulations, provisions of our amended and restated certificate of incorporation and our bylaws and certain contractual rights granted to Cummins may discourage takeover attempts and business combinations that stockholders might consider in their best interests.

Applicable laws, provisions of our amended and restated certificate of incorporation and our bylaws, as will be in effect upon the closing of this offering, will provide certain contractual rights that will be granted to Cummins under the separation agreement may delay, deter, prevent or render more difficult a takeover attempt that our stockholders might consider in their best interests. For example, they may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.

Our amended and restated certificate of incorporation and our bylaws, as will be in effect upon the closing of this offering, will provide provisions that are intended to encourage prospective acquirers to negotiate with our board of directors and management team, rather than to attempt a hostile takeover, which could deter coercive takeover practices and inadequate takeover bids. These provisions provide for:

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a classified board of directors, with our board of directors divided into three classes and with each class serving a staggered three-year term;

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advance notice requirements regarding how our stockholders may present proposals or nominate directors for election at stockholder meetings (except for Cummins’ designation of persons for nomination by the board of directors);

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the right of our board of directors to issue one or more series of preferred stock with such powers, rights and preferences as the board of directors shall determine;

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after Cummins no longer owns a majority of the outstanding shares of our common stock, the inability of stockholders to call special meetings of stockholders and the requirement that all stockholder action be taken at a meeting rather than by written consent;

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after Cummins no longer owns a majority of the outstanding shares of our common stock, directors to be removed only by a 75% stockholder vote; and

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a 75% stockholder vote requirement to amend the section of our amended and restated certificate of incorporation and bylaws related to (i) our board of directors, including related to our classified board and the removal of directors only for cause; (ii) our stockholders, including related to the inability of stockholders to call special meetings of stockholders and the inability of stockholders to act by written consent; and (iii) the ability of our board of directors and our stockholders to amend or repeal our bylaws.

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We are also subject to Section 203 of the Delaware General Corporation Law (the “DGCL”), an anti-takeover statute. In general, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder.

These limitations may adversely affect the prevailing market price and market for our common stock if they are viewed as limiting the liquidity of our stock or discouraging takeover attempts in the future.

The provision of our amended and restated certificate of incorporation designating the Court of Chancery in the State of Delaware and the federal district courts for the District of Delaware as the exclusive forums for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.

Our amended and restated certificate of incorporation, as will be in effect upon the closing of this offering, will provide that, unless we consent in writing to the selection of an alternative forum, to the extent permitted by law, the Court of Chancery of the State of Delaware be the sole and exclusive forum for: (1) any derivative action or proceeding brought on behalf of our company, (2) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of our company to us or our stockholders, (3) any action arising pursuant to any provision of our amended and restated certificate of incorporation or our bylaws or (4) any action asserting a claim governed by the internal affairs doctrine. It will further provide that, unless we consent in writing to the selection of an alternative forum, to the extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the “Securities Act”). The exclusive forum clauses described above shall not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or any other claim for which the federal courts have exclusive jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the exclusive forum provisions in our amended and restated certificate of incorporation.

Although we believe these provisions benefit us by providing increased consistency in the application of applicable law in the types of lawsuits to which they apply, the provisions may have the effect of discouraging lawsuits against our directors and officers and may limit a stockholder’s ability to bring a claim in a judicial forum it finds favorable for disputes with us or our directors, officers or employees. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings and there is uncertainty as to whether a court would enforce such provisions, in particular with respect to causes of action arising under the Securities Act. In addition, investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. It is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in such action. If so, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

 

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After the expiration of the lock-up period, there may be sales of a substantial amount of our common stock by our current stockholders and these sales could cause the price of our common stock to decline.

Cummins and our executive officers and directors will enter into lock-up agreements with the underwriters under which they will agree, subject to specific exceptions, not to sell, directly or indirectly, any shares of common stock without the consent of Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC for a period of 180 days following the date of this prospectus. We refer to such period as the “lock-up period”. When the lock-up period expires, we and our stockholders subject to a lock-up agreement will be able to sell shares of our common stock in the public market. In addition, Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC may release all or some portion of the shares subject to lock-up agreements at any time and for any reason. See “Shares Eligible for Future Sale.” Sales of a substantial number of such shares upon expiration of the lock-up agreements, the perception that such sales may occur, or early release of these agreements, could cause our market price to decline or make it more difficult for you to sell your common stock at a time and price that you deem appropriate.

An active trading market for our common stock may not develop and you may not be able to sell your common stock at or above the initial public offering price.

Prior to the completion of this offering, there has been no public market for our common stock. An active trading market for shares of our common stock may never develop or be sustained following this offering. If an active trading market does not develop, you may have difficulty selling your shares of common stock at an attractive price, or at all. The price for our common stock in this offering will be determined by negotiations among Cummins, us and the representatives of the underwriters and it may not be indicative of prices that will prevail in the open market following this offering. An inactive market may also impair our ability to raise capital by selling our common stock and it may impair our ability to attract and motivate our employees through equity incentive awards and our ability to acquire other companies, products or technologies by using our common stock as consideration.

The price of our common stock may fluctuate substantially.

You should consider an investment in our common stock to be risky and you should invest in our common stock only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks mentioned in this section of the prospectus, are:

•

our announcements or our competitors’ announcements regarding new products, enhancements, significant contracts, acquisitions or strategic investments;

​

•

changes in earnings estimates or recommendations by securities analysts, if any, who cover our common stock;

​

•

failure to meet external expectations or management guidance;

​

•

fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

​

•

changes in our capital structure or dividend policy, including as a result of the distribution, future issuances of securities, sales of large blocks of common stock by our shareholders, including Cummins, or our incurrence of additional debt;

​

•

reputational issues;

​

•

changes in general economic and market conditions in or any of the regions in which we conduct our business;

​

•

changes in industry conditions or perceptions;

​

•

changes in applicable laws, rules or regulations and other dynamics; and

​

•

announcements or actions taken by Cummins as our principal shareholder.

​

 

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In addition, if the market for stocks in our industry or related industries, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could significantly decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management and could also require us to make substantial payments to satisfy judgments or settle litigation.

You will incur immediate dilution as a result of this offering.

The initial public offering price per share of our common stock will be substantially higher than our pro forma net tangible book value per share immediately after this offering. As a result, you will pay a price per share of common stock that substantially exceeds the per share book value of our tangible assets after subtracting our liabilities. Assuming an offering price of $      per share of our common stock, which is the midpoint of the range on the cover page of this prospectus, you will incur immediate and substantial dilution in an amount of $      per share of common stock. See “Dilution”.

Our historical combined financial statements are not necessarily representative of the results we would have achieved as a standalone company and may not be a reliable indicator of our future results.

Our historical combined financial statements included in this prospectus do not reflect the financial condition, results of operations or cash flows we would have achieved as a standalone company during the periods presented or those we will achieve in the future. This is primarily the result of the following factors:

•

our historical combined financial statements do not reflect the separation;

​

•

our historical combined financial statements reflect expense allocations for certain support functions that are provided on a centralized basis within Cummins, such as expenses for executive oversight, treasury, legal, finance, human resources, tax, internal audit, financial reporting, information technology and investor relations that may be higher or lower than the comparable expenses we would have actually incurred, or will incur in the future, as a standalone company;

​

•

our cost of debt and our capital structure will be different from that reflected in our historical combined financial statements;

​

•

significant increases may occur in our cost structure as a result of this offering, including costs related to public company reporting, investor relations and compliance with the Sarbanes-Oxley Act; and

​

•

this offering may have a material effect on our customers and other business relationships, including supplier relationships, and may result in the loss of preferred pricing available by virtue of our reduced relationship with Cummins.

​

Our financial condition and future results of operations, after giving effect to the separation, will be materially different from amounts reflected in our historical combined financial statements included elsewhere in this prospectus. As a result of the separation, it may be difficult for investors to compare our future results to historical results or to evaluate our relative performance or trends in our business.

The pro forma and non-GAAP financial measures included in this prospectus are presented for informational purposes only and may not be an indication of our financial condition or results of operations in the future.

The unaudited pro forma combined financial statements included in this prospectus are presented for informational purposes only and are not necessarily indicative of what our actual financial condition or results of operations would have been had the transactions been completed on the date indicated. The assumptions used in preparing the pro forma financial information may not prove to be accurate and other factors may affect our financial condition or results of operations. Accordingly, our financial condition and results of operations in the future may not be consistent with, or evident from, such pro forma

 

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financial information. The non-GAAP financial measures included in this prospectus, consisting of EBITDA. EBITDA margin and Adjusted EBITDA, include information that we use to evaluate our past performance, but you should not consider such information in isolation or as an alternative to measures of our performance determined under U.S. GAAP. For further information regarding such limitations, see “Prospectus Summary — Summary Historical and Unaudited Pro Forma Combined Financial Data.”

As a standalone public company, we may expend additional time and resources to comply with rules and regulations that do not currently apply to us, and failure to comply with such rules may lead investors to lose confidence in our financial data.

As a standalone public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and regulations of the NYSE. We have established all of the procedures and practices required as a subsidiary of Cummins, but we must implement others as a separate, standalone public company. Establishing such procedures and practices will increase our legal, accounting and financial compliance costs, will make some activities more difficult, time-consuming and costly and could be burdensome on our personnel, systems and resources. We will devote significant resources to address these public company requirements, including compliance programs and investor relations, as well as our financial reporting obligations. As a result, we have and will continue to incur significant legal, accounting and other expenses that we did not previously incur to comply with these rules and regulations. Furthermore, the need to establish the corporate infrastructure necessary for a standalone public company may divert some of management’s attention from operating our business and implementing our strategy. However, the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, we cannot predict or estimate the amount of additional costs we may incur in order to comply with these requirements.

We have made, and will continue to make, changes to our internal control and procedures for financial reporting and accounting systems to meet our reporting obligations. In particular, as a public company, our management will be required to conduct an annual evaluation of our internal control over financial reporting and include a report of management on our internal control in our annual reports on Form 10-K. Under current rules, we will be subject to these requirements beginning with our annual report on Form 10-K for the year ending December 31, 2024. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting pursuant to Auditing Standard No. 5 beginning with our annual report on Form 10-K for the year ending December 31, 2024. If we are unable to conclude that we have effective internal control over financial reporting, or if our registered public accounting firm is unable to provide us with an attestation and an unqualified report as to the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our common stock.

If Cummins sells a controlling interest in our company to a third party in a private transaction, you may not realize any change-of-control premium on shares of our common stock and we may become subject to the control of a presently unknown third party.

Following the completion of this offering, Cummins will continue to own approximately    % of our outstanding common stock (or     % if the underwriters exercise their option to purchase additional shares in full). Subject to the provisions of the lock-up agreement to be entered into in connection with this offering, Cummins will not be restricted from selling some or all of its shares of our common stock in a privately negotiated transaction or otherwise, and a sale of its shares, if sufficient in size, could result in a change of control of our company.

The ability of Cummins to privately sell its shares of our common stock, with no requirement for a concurrent offer to be made to acquire all of the shares of our common stock held by our other stockholders, could prevent you from realizing any change-of-control premium on your shares of our common stock that may otherwise accrue to Cummins on its private sale of our common stock. Additionally, if Cummins privately sells its controlling equity interest in our company, we may become subject to the control of a presently unknown third party. Such third party may have conflicts of interest

 

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with those of other stockholders. In addition, if Cummins sells a controlling interest in our company to a third party, our indebtedness may be subject to acceleration, and our other commercial agreements and relationships, including any remaining agreements with Cummins, could be impacted, all of which may adversely affect our ability to run our business as described herein and may have a material adverse effect on our business, financial condition or results of operations.

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The unaudited pro forma combined financial information has been prepared in accordance with Article 11 of Regulation S-X and has been derived from our historical combined financial statements included in this prospectus. While the historical combined financial statements reflect the past financial results of the combined businesses operating within Cummins’ filtration division prior to the separation, the unaudited pro forma combined financial information gives effect to the separation of that business into an independent, publicly traded company.

Specifically, the pro forma adjustments to reflect the separation, distribution and related transactions from and with Cummins include autonomous entity adjustments and transaction accounting adjustments. Management adjustments are included in the footnotes to the pro forma financial information.

The pro forma adjustments, as described below, are based on the available information and assumptions our management believes are reasonable; however, such adjustments are subject to change as the costs of operating as a standalone company are determined. In addition, such adjustments are estimates and may not prove to be accurate. The unaudited pro forma combined financial information includes certain adjustments to give effect to events that are directly attributable to the separation, distribution and related transactions.

The unaudited pro forma combined statement of net income for the year ended December 31, 2022 presents the pro forma effect of the separation and the related adjustments described below as if they had been completed on January 1, 2022. The unaudited pro forma combined balance sheet as of December 31, 2022 presents the pro forma effect of the separation and related adjustments described below as if they had occurred on that date. The unaudited pro forma combined statement of net income does not purport to represent, and is not necessarily indicative of, what the actual results of operations of Atmus would have been had the transaction taken place on January 1, 2022, nor is it indicative of the results of operations of Atmus for any future period. The unaudited pro forma combined balance sheet does not purport to represent, and is not necessarily indicative of, what the actual financial condition of Atmus would have been had the transactions taken place on December 31, 2022, nor is it indicative of the financial condition of Atmus as of any future date.

In addition, for the periods presented in the unaudited pro forma combined financial information, the operations of Atmus were conducted and accounted for as part of Cummins. The historical combined financial statements and unaudited pro forma combined financial information of Atmus have been derived from Cummins’ historical accounting record and reflect certain allocations of expenses. All of the allocations and estimates in such financial statements are based on assumptions that management believes are reasonable.

Autonomous Entity Adjustments

As a standalone public company, we expect to incur incremental recurring costs that could be materially different from the allocations of Cummins costs included within the historical combined financial statements. We expect to incur recurring costs associated with being a standalone public company in the following areas:

•

costs to perform financial reporting and regulatory compliance and costs associated with accounting, auditing, tax, legal, information technology, human resources, investor relations, risk management, treasury and other general and administrative related functions;

​

•

compensation including equity-based awards, and benefits with respect to new and existing positions, including the board of directors;

​

•

insurance premiums for items such as property insurance and directors and officers insurance;

​

•

license fees and other expenses related to information technology investments; and

​

•

depreciation and amortization related to information technology infrastructure investments.

​

Certain of the above costs — specifically accounting activities, financial reporting activities, some legal services, some human resource functions, the use of Cummins’ established information technology

 

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systems, and other general and administrative related functions are covered by the transition services agreement (“TSA”) for a period of time. Other costs, such as our own board of directors, company specific compensation and insurance plans, and certain information technology systems, are not covered by the TSA. We are in the process of establishing all of these functions on a standalone basis.

We have made autonomous entity adjustments to reflect:

•

the estimated difference between the Corporate Allocation included in the historical financial statements and the expected costs of the TSA with Cummins that will be in place at the time of the separation, for the same activities (refer to Note 1(a) below), as well as the costs that have been formally agreed to, as of the date of this filing (refer to Note 1(b) below). Actual costs and expenses could be materially different from the TSA.

​

•

pro forma adjustments are not being made for agreements, other than the TSA, which will govern certain aspects of our relationship with Cummins following the separation, as described under “The Separation and Distribution Transactions” and “Certain Relationships and Related Party Transactions” included elsewhere in this prospectus. These agreements detail how matters will be separated and addressed on a prospective basis but generally do not have operational impacts different than historical practices.

​

Transaction Accounting Adjustments

We currently expect we will acquire certain assets and assume liabilities and related expenses associated with the separation and in becoming a standalone public company. We have made pro forma adjustments for these items which have been formally agreed to, and such adjustments are included in the transaction accounting adjustments. Actual costs and expenses could differ from this estimate. These adjustments primarily relate to the following:

•

the transfer from Cummins to Atmus of the assets and liabilities that will comprise Atmus’s business going forward;

​

•

agreed to non-recurring costs to establish certain information technology systems;

​

the issuance of approximately       million shares of Atmus common stock with estimated net proceeds of $       million based on an assumed initial public offering price of $       per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), after deducting the underwriting discounts and commissions and estimated offering expenses payable by us; and

​

•

total cash liquidity of approximately $         million, which includes a net cash amount of $         million (as described below) and approximately $         expected to be available in undrawn capacity under our revolving credit facility. This net cash amount of $       million will be retained after we pay to Cummins upon the completion of this offering, as partial consideration for the filtration business that Cummins is contributing to us in connection with the separation:

​

•

the amount of existing cash; plus

​

•

the net proceeds from the term loan that we will enter into prior to the closing of this offering plus any amounts drawn under the revolving credit facility; less

​

•

an amount of cash to be retained by us in an amount to be determined by Cummins.

​

The net cash retained by Atmus will be an amount determined by Cummins and is viewed as a capital contribution from Cummins that will be used for ongoing working capital requirements and capital expenditures and takes into account Atmus’s on-going investments in joint ventures.

See Note 2 below.

 

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NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

Note 1: Autonomous Entity Adjustments

Adjustments included in the column under the heading “Autonomous Entity Adjustments” represent the following:

(a)

The unaudited pro forma combined financial statements have been adjusted to reflect Atmus as an autonomous entity. In connection with the separation, Atmus will enter into a TSA. Pursuant to the TSA, for a period of time after the separation, generally ranging from six to twenty-four months, services will be provided to Atmus, as described above, for pre-determined rates. A favorable adjustment of $12.9 million (of which $2.5 million is included in cost of sales and $10.4 million is included in selling, general, and administrative expenses) has been made to the unaudited pro forma combined statements of net income for the year ended December 31, 2022, to reflect the difference between specific costs expected to be incurred under the TSA and the corporate allocation from Cummins, related to similar services, that is included in the historical financial statements.

​

(b)

Atmus has also formally agreed to additional costs that are required to operate as a standalone public company. At the time of this filing, these formally agreed to costs of approximately $16.2 million are included in selling, general and administrative expenses, and are associated with internal and external audit, tax services, the board of directors and executive leadership compensation adjustments, some of which are outlined in the section entitled “Executive and Director Compensation”.

​

(e)

Reflects the tax effects of the pro forma adjustments at the applicable statutory income tax rates in the respective jurisdictions. The effective tax rate of Atmus could be different (either higher or lower) depending on activities subsequent to the distribution.

​

Note 2: Transaction Accounting Adjustments

Adjustments included in the column under the heading “Transaction Accounting Adjustments” represent the following:

(c)

Atmus has also formally agreed to additional, non-recurring costs that are required to operate as a standalone public company. At the time of this filing, these formally agreed to costs are included in selling, general and administrative expenses, and are associated with consulting fees in conjunction with the implementation of some information technology systems;

​

(d)

An adjustment to interest expense has been reflected within the unaudited pro forma combined statements of net income, assuming the new debt had been raised as of January 1, 2022. Interest is calculated as the Secured Overnight Financing Rate (SOFR) + a Credit Spread Adjustment plus 1.25%. A 0.125% change in SOFR would have a $0.8 million annual impact on interest expense;

​

(e)

Reflects the tax effects of the pro forma adjustments at the applicable statutory income tax rates in the respective jurisdictions. The effective tax rate of Atmus could be different (either higher or lower) depending on activities subsequent to the distribution.

​

(f)

The issuance of approximately           million shares of Atmus common stock (as initially estimated);

​

(g)

The net cash retained from the following:

​

a.

the amount of existing cash, plus

​

b.

the net proceeds from the term loan that we will enter into prior to the closing of this offering plus any amounts drawn under the revolving credit facility, less

​

c.

an amount of cash to be retained by us in an amount to be determined by Cummins.

​

 

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(h)

The entry by Atmus into the term loan and the revolver, net of borrowing costs;

​

(i)

In connection with the separation, a portion of certain defined benefit pension plan obligations in Mexico will be transferred to Atmus. The Cummins plans were accounted for on a multiemployer basis in Atmus’s historical combined financial statements. Accordingly, no pension assets or liabilities were recorded in Atmus’s historical combined balance sheet to recognize the funded status of these plans. However, benefit expenses related to these plans attributable to Atmus’s business, as applicable, were recorded in Atmus’s historical combined statements of net income.

​

The pro forma adjustment in the unaudited pro forma combined balance sheet as of December 31, 2022 reflects the underfunded status of the defined benefit plan obligations that are expected to be assumed by Atmus.

(j)