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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report includes forward-looking statements based on the Company’s current assumptions, expectations and projections about future events. When used in this report, the words “believes,” “anticipates,” “may,” “expect,” “intend,” “estimate,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. In this report, the Company discloses important factors that could cause actual results to differ materially from management’s expectations. For more information on these and other factors, see “Forward-Looking Information” herein.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with “Item 1A. Risk Factors,” and the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

Business Overview

AMETEK’s operations are affected by global, regional and industry economic factors. However, the Company’s strategic geographic and industry diversification, and its mix of products and services, have helped to mitigate the potential adverse impact of any unfavorable developments in any one industry or the economy of any single country on its consolidated operating results. In 2021, the Company posted record sales, operating income, operating margins, net income, diluted earnings per share, backlog, and orders. The Company's record backlog, contributions from recent acquisitions, and continued focus on and implementation of Operating Excellence initiatives, had a positive impact on 2021 results. The Company also benefited from its strategic initiatives under AMETEK's four key strategies: Operational Excellence, Strategic Acquisitions, Global & Market Expansion and New Products.

Highlights of 2021 were:

•Net sales for 2021 were a record $5,546.5 million, an increase of $1,006.5 million or 22.2%, compared with net sales of $4,540.0 million in 2020. The increase in net sales for 2021 was due to a 15% organic sales increase, a 7% increase from acquisitions, and a favorable 1% effect of foreign currency translation, partially offset by an unfavorable divestiture impact.

•Net income for 2021 was a record $990.1 million, an increase of $117.7 million or 13.5%, compared with $872.4 million in 2020.

•Diluted earnings per share for 2021 were a record $4.25, an increase of $0.48 or 12.7%, compared with $3.77 per diluted share in 2020.

•Orders for 2021 were a record $6,474.4 million, an increase of $1,850.0 million or 40.0%, compared with $4,624.4 million in 2020. The increase in orders was due to a 26% organic order increase, a favorable 15% from acquisitions, partially offset by an unfavorable 1% effect of foreign currency translation. As a result, the Company's backlog of unfilled orders at December 31, 2021 was a record $2,730.1 million.

•During 2021, the Company spent $1,959.2 million in cash, net of cash acquired, to purchase six businesses:

•In February 2021, AMETEK acquired EGS Automation ("EGS"), a designer and manufacturer of highly engineered, customized robotic solutions used in critical applications for the medical, food and beverage, and general industrial markets.

•In March 2021, AMETEK acquired Magnetrol International ("Magnetrol"), a leading provider of level and flow control solutions for challenging process applications across a diverse set of end markets including medical, pharmaceutical, oil and gas, food and beverage, and general industrial.

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•In March 2021, AMETEK acquired Crank Software, a leading provider of embedded graphical user interface software and services.

•In April 2021, AMETEK acquired NSI-MI Technologies ("NSI-MI"), a leading provider of radio frequency and microwave test and measurement systems for niche applications across the aerospace, defense, automotive, wireless communications, and research markets.

•In April 2021, AMETEK acquired Abaco Systems, Inc. ("Abaco"), specializing in open-architecture computing and electronic systems for aerospace, defense, and specialized industrial markets and is a leading provider of mission critical embedded computing systems.

•In November 2021, AMETEK acquired Alphasense, a leading provider of gas and particulate sensors for use in environmental, health and safety, and air quality applications.

•Cash flow provided by operating activities for 2021 was $1,160.5 million. Free cash flow (cash flow provided by operating activities less capital expenditures) was $1,049.8 million in 2021.

•EBITDA (earnings before interest, income taxes, depreciation, and amortization) was a record $1,594.3 million in 2021, compared with $1,421.6 million in 2020.

•The Company continued its emphasis on investment in research, development and engineering, spending $299.6 million in 2021. Sales from products introduced in the past three years were $1,244.0 million.

Impact of COVID-19 Pandemic on our Business

The COVID-19 pandemic resulted in significant global economic disruption and had an adverse impact on our financial results throughout 2020. As the global economy has begun to recover, we eliminated certain of the temporary cost saving actions put in place in 2020, but continue to closely monitor fixed costs, capital expenditure plans, inventory, and capital resources to respond to changing conditions and to ensure we have the resources to meet our future needs. We have experienced sequential improvement in our financial results since the third quarter of 2020, and this trend has continued throughout 2021. The current economic environment in which we operate is characterized by increased material cost inflation, logistics challenges, labor availability issues, and component part shortages. As we move into 2022, we continue to monitor and closely manage through these conditions and have taken steps to mitigate the impacts of the challenging economic environment.

We are closely tracking developments regarding vaccine mandates. Until it was prohibited by a federal court order in December 2021, we had taken steps to comply with the federal contractor vaccine mandate, requiring employees in our U.S. workforce to be fully vaccinated against COVID-19 by January 18, 2022, except in limited circumstances. Although the federal contractor mandate has been temporarily suspended, pending the outcome of an appeal, we continue to encourage all employees to be vaccinated, including booster shots. If the mandate is reinstated, or new mandates implemented, it is uncertain to what extent compliance with such vaccine mandates may result in workforce attrition.

Our top priority during this pandemic is the health and safety of our employees. All global manufacturing facilities remained fully operational during 2021 and continue to operate with safety protocols in place to ensure the health and safety of our employees and communities. We will continue to evaluate the nature and extent of future impacts of the COVID-19 pandemic on its business. Please refer to "Risk Factors", Part I, Item 1A of this Form 10-K for more information.

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Results of Operations

The following table sets forth net sales and income by reportable segment and on a consolidated basis:

Year Ended December 31,

(In thousands)

Net sales:

Operating income and income before income taxes:

Segment operating income:

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The following “Results of Operations of the year ended December 31, 2021 compared with the year ended December 31, 2020” section presents an analysis of the Company’s consolidated operating results displayed in the Consolidated Statement of Income. A discussion regarding our financial condition and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission on February 18, 2021.

Results of Operations for the year ended December 31, 2021 compared with the year ended December 31, 2020

Net sales for 2021 were a record $5,546.5 million, an increase of $1,006.5 million or 22.2%, compared with net sales of $4,540.0 million in 2020. The increase in net sales for 2021 was due to a 15% organic sales increase, a 7% increase from acquisitions, and a favorable 1% effect of foreign currency translation, partially offset by an unfavorable divestiture impact. EIG net sales were $3,763.8 million in 2021, an increase of 25.9%, compared with $2,989.9 million in 2020. EMG net sales were $1,782.8 million in 2021, an increase of 15.0%, compared with $1,550.1 million in 2020.

Total international sales for 2021 were a record $2,745.6 million or 49.5% of net sales, an increase of $535.7 million or 24.2%, compared with international sales of $2,209.9 million or 48.7% of net sales in 2020. The increase in international sales was primarily driven by strong demand in Europe and Asia as well as contributions from recent acquisitions. Export shipments from the United States, which are included in total international sales, were $1,475.6 million in 2021, an increase of $279.2 million or 23.3%, compared with $1,196.4 million in 2020.

Orders for 2021 were a record $6,474.4 million, an increase of $1,850.0 million or 40.0% compared with $4,624.4 million in 2020. The increase in orders was due to a 26% organic order increase, a favorable 15% from acquisitions, partially offset by an unfavorable 1% effect of foreign currency translation. The Company’s backlog of unfilled orders at December 31, 2021 was a record $2,730.1 million, an increase of $927.9 million or 51.5%, compared with $1,802.2 million at December 31, 2020.

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Segment operating income for 2021 was $1,395.6 million, an increase of $300.0 million or 27.4%, compared with segment operating income of $1,095.6 million in 2020. Segment operating income, as a percentage of net sales, increased to 25.2% in 2021, compared with 24.1% in 2020. The Company recorded 2020 realignment costs of $43.7 million in response to the impact of a weak global economy as a result of the COVID-19 pandemic. The 2020 realignment costs were composed of $35.3 million in severance costs for a reduction of workforce and $8.4 million of asset write-downs, primarily inventory, which decreased margins by 100 basis points. Segment operating income and segment operating margins were positively impacted in 2021 by the increase in net sales discussed above as well as the Company's Operational Excellence initiatives, including ongoing savings from the 2020 realignment actions.

Cost of sales for 2021 was $3,633.9 million or 65.5% of net sales, an increase of $637.4 million or 21.3%, compared with $2,996.5 million or 66.0% of net sales for 2020. The cost of sales increase was primarily due to the net sales increase discussed above. The 2020 cost of sales included the realignment costs discussed above.

Selling, general and administrative expenses for 2021 were $603.9 million or 10.9% of net sales, an increase of $88.3 million or 17.1%, compared with $515.6 million or 11.4% of net sales in 2020. Selling, general and administrative expenses increased primarily due to the increase in net sales discussed above.

Consolidated operating income was a record $1,308.7 million or a record 23.6% of net sales for 2021, an increase of $280.8 million or 27.3%, compared with $1,027.9 million or 22.6% of net sales in 2020. The consolidated operating income and operating income margins were positively impacted in 2021 by the increase in net sales discussed above as well as the benefits of the Company's Operational Excellence initiatives. The 2021 acquisitions of Abaco, Magnetrol, NSI-MI, Crank Software, EGS, and Alphasense diluted operating margins by 110 basis points. Excluding the acquisitions, operating income margins would have been 24.7% for 2021. The consolidated operating income margins were negatively impacted by 100 basis points in 2020 due to the realignment costs discussed above.

Other expense, net was $5.1 million for 2021, compared with $140.5 million of other income in 2020, a change of $145.6 million. In March 2020, the Company completed the sale of its Reading Alloys business ("Reading") to Kymera International for net proceeds of $245.3 million in cash. The sale resulted in a pre-tax gain of $141.0 million.

The effective tax rate for 2021 was 19.1%, compared with 19.4% in 2020. See Note 9 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further details.

Net income for 2021 was a record $990.1 million, an increase of $117.7 million or 13.5%, compared with $872.4 million in 2020. The net of tax gain of $109.6 million on the sale of Reading and net of tax expense of $33.6 million on the 2020 realignment costs are included in net income in 2020.

Diluted earnings per share for 2021 were a record $4.25, an increase of $0.48 or 12.7%, compared with $3.77 per diluted share in 2020. The net of tax gain of $0.47 per diluted share on the sale of Reading and net of tax expense of $0.15 per diluted share on the 2020 realignment costs are included in diluted earnings per share in 2020.

Segment Results

EIG’s net sales totaled $3,763.8 million for 2021, an increase of $773.9 million or 25.9%, compared with $2,989.9 million in 2020. The net sales increase was due to a 14% organic sales increase, an 11% increase from acquisitions, and a favorable 1% effect of foreign currency translation.

EIG’s operating income was $958.2 million for 2021, an increase of $187.6 million or 24.3%, compared with $770.6 million in 2020. EIG’s operating margins were 25.5% of net sales for 2021, compared with 25.8% of net sales in 2020. EIG’s operating income and operating margins in 2021 were positively impacted by the sales increase discussed above as well as the Company's Operational Excellence initiatives. The 2021 acquisitions of Abaco, Magnetrol, NSI-MI, Crank Software, and Alphasense diluted operating margins by 180 basis points. Excluding the

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acquisitions, EIG operating margins would have been 27.3% for 2021. EIG's operating margins were negatively impacted in 2020 by 70 basis points due to the 2020 realignment costs discussed above.

EMG’s net sales totaled $1,782.8 million for 2021, an increase of $232.7 million or 15.0%, compared with $1,550.1 million in 2020. The net sales increase was due to a 15% organic sales increase, a favorable 1% effect of foreign currency translations, partially offset by an unfavorable 1% impact from the Reading divestiture.

EMG’s operating income was $437.4 million for 2021, an increase of $112.4 million or 34.6%, compared with $325.0 million in 2020. EMG’s operating margins were 24.5% of net sales for 2021, compared with 21.0% of net sales in 2020. EMG’s operating income and operating margins in 2021 were positively impacted by the sales increase discussed above as well as the Company's Operational Excellence initiatives. EMG’s 2020 operating margins were negatively impacted by 130 basis points due to the 2020 realignment costs discussed above.

Liquidity and Capital Resources

Cash provided by operating activities totaled $1,160.5 million in 2021, a decrease of $120.5 million or 9.4%, compared with $1,281.0 million in 2020. The decrease in cash provided by operating activities for 2021 was primarily due to higher working capital requirements, partially offset by higher net income, net of the gain on the sale of the Reading business in 2020.

Free cash flow (cash flow provided by operating activities less capital expenditures) was $1,049.8 million in 2021, compared with $1,206.8 million in 2020. EBITDA (earnings before interest, income taxes, depreciation and amortization) was a record $1,594.3 million in 2021, compared with $1,421.6 million in 2020. Free cash flow and EBITDA are presented because the Company is aware that they are measures used by third parties in evaluating the Company. (See "Non-GAAP Financial Measures" for a reconciliation of U.S. GAAP measures to comparable non-GAAP measures).

Cash used by investing activities totaled $2,055.8 million in 2021, compared with cash provided by investing activities of $61.6 million in 2020. In 2021, the Company paid $1,959.2 million, net of cash acquired, to purchase Abaco Systems, Magnetrol International, NSI-MI Technologies, Crank Software, EGS Automation, and Alphasense compared to $116.5 million to acquire IntelliPower in 2020. In 2020, the Company received proceeds of $245.3 million from the sale of its Reading business. Additions to property, plant and equipment totaled $110.7 million in 2021, compared with $74.2 million in 2020.

Cash provided by financing activities totaled $39.3 million in 2021, compared with $539.4 million of cash used by financing activities in 2020. At December 31, 2021, total debt, net was $2,544.2 million, compared with $2,413.7 million at December 31, 2020. In 2021, total borrowings increased by $183.9 million, driven by the 2021 acquisitions, compared with a decrease of $430.9 million in 2020. At December 31, 2021, the Company had available borrowing capacity of $2,447.5 million under its revolving credit facility and term loan, including the $500 million accordion feature.

On April 26, 2021, the Company along with certain of its foreign subsidiaries amended its credit agreement dated as of September 22, 2011, as amended and restated as of March 10, 2016 and as further amended and restated as of October 30, 2018, with the lenders, JPMorgan Chase Bank, N.A., as Administrative Agent and Bank of America, N.A., PNC Bank, National Association, Trust Bank and Wells Fargo Bank, National Association, as Co-Syndication Agents. The credit agreement amends the Company’s existing revolving credit facility to add a new five-year, delayed draw, term loan for up to $800 million. The credit agreement places certain restrictions on allowable additional indebtedness. In November 2021, the Company further amended the Credit Agreement to address the cessation of LIBOR on certain currencies. At December 31, 2021, the Company had $150.0 million outstanding on the term loan.

In the fourth quarter of 2021, 55 million Swiss franc ($59.7 million) 2.44% senior note matured and was paid. In the third quarter of 2020, an 80 million British pound ($102.9 million) 4.68% senior note matured and was paid. The debt-to-capital ratio was 27.0% at December 31, 2021, compared with 28.9% at December 31, 2020. The net

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debt-to-capital ratio (total debt, net less cash and cash equivalents divided by the sum of net debt and stockholders’ equity) was 24.2% at December 31, 2021, compared with 16.8% at December 31, 2020. The net debt-to-capital ratio is presented because the Company is aware that this measure is used by third parties in evaluating the Company. (See "Non-GAAP Financial Measures" for a reconciliation of U.S. GAAP measures to comparable non-GAAP measures).

In 2021, the Company repurchased approximately 113,000 shares of its common stock for $14.7 million, compared with $4.7 million used for repurchases of approximately 55,000 shares in 2020. At December 31, 2021, $469.7 million was available under the Company’s Board of Directors authorization for future share repurchases.

Additional financing activities for 2021 included cash dividends paid of $184.6 million, compared with $165.0 million in 2020. On February 11, 2021, the Company’s Board of Directors approved an 11% increase in the quarterly cash dividend on the Company’s common stock to $0.20 per common share from $0.18 per common share. Proceeds from the exercise of employee stock options were $60.3 million in 2021, compared with $64.9 million in 2020.

As a result of all of the Company’s cash flow activities in 2021, cash and cash equivalents at December 31, 2021 totaled $346.8 million, compared with $1,212.8 million at December 31, 2020. At December 31, 2021, the Company had $334.0 million in cash outside the United States, compared with $344.0 million at December 31, 2020. The Company utilizes this cash to fund its international operations, as well as to acquire international businesses. The Company is in compliance with all covenants, including financial covenants, for all of its debt agreements. The Company believes it has sufficient cash-generating capabilities from domestic and unrestricted foreign sources, available credit facilities and access to long-term capital funds to enable it to meet its operating needs and contractual obligations for the foreseeable future.

Subsequent Event

Effective February 9, 2022, the Company’s Board of Directors approved a 10% increase in the quarterly cash dividend on the Company’s common stock to $0.22 per common share from $0.20 per common share.

Contractual Obligations and Other Commitments

Material contractual obligations arising in the normal course of business primarily consist of purchase obligations, long-term debt and related interest payments, and leases. See Note 10 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information on the nature and timing of debt obligations.

Leases expire over a range of years from 2022 to 2032, except for a single land lease with 62 years remaining. Most of the leases contain renewal or purchase options, subject to various terms and conditions. See Note 14 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information on the nature and timing of lease obligations.

Purchase obligations primarily consist of contractual commitments to purchase certain inventories at fixed prices. At December 31, 2021, the Company had $840.4 million of purchase obligations due within one year and $50.5 million of purchase obligations due in more than one year.

The Company has standby letters of credit and surety bonds of $56.2 million related to performance and payment guarantees at December 31, 2021. Based on experience with these arrangements, the Company believes that any obligations that may arise will not be material to its financial position.

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Non-GAAP Financial Measures

EBITDA represents earnings before interest, income taxes, depreciation and amortization. EBITDA is presented because the Company is aware that it is used by rating agencies, securities analysts, investors and other parties in evaluating the Company. It should not be considered, however, as an alternative to operating income as an indicator of the Company’s operating performance or as an alternative to cash flows as a measure of the Company’s overall liquidity as presented in the Company’s consolidated financial statements. Furthermore, EBITDA measures shown for the Company may not be comparable to similarly titled measures used by other companies. The following table presents the reconciliation of net income reported in accordance with U.S. generally accepted accounting principles (“GAAP”) to EBITDA:

Year Ended December 31,

(In millions)

Add (deduct):

Interest income (1.4) (2.1) (4.0)

Free cash flow represents cash flow from operating activities less capital expenditures. Free cash flow is presented because the Company is aware that it is used by rating agencies, securities analysts, investors and other parties in evaluating the Company. The following table presents the reconciliation of cash flow from operating activities reported in accordance with U.S. GAAP to free cash flow:

Year Ended December 31,

(In millions)

Net debt represents total debt, net minus cash and cash equivalents. Net debt is presented because the Company is aware that it is used by rating agencies, securities analysts, investors and other parties in evaluating the Company. The following table presents the reconciliation of total debt, net reported in accordance with U.S. GAAP to net debt:

December 31,

(In millions)

Less: Cash and cash equivalents (346.8) (1,212.8)

Capitalization (net debt plus stockholders’ equity) $ 9,069.3 $ 7,150.2

Net debt as a percentage of capitalization 24.2 % 16.8 %

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Internal Reinvestment

Capital Expenditures

Capital expenditures were $110.7 million or 2.0% of net sales in 2021, compared with $74.2 million or 1.6% of net sales in 2020. In 2021, approximately 63% of capital expenditures were for improvements to existing equipment or additional equipment to increase productivity and expand capacity. Capital expenditures in 2022 are expected to be approximately 2% of net sales, with a continued emphasis on spending to improve productivity.

Research, Development and Engineering

The Company is committed to, and has consistently invested in, research, development and engineering activities to design and develop new and improved products and solutions. Research, development and engineering costs before customer reimbursement were $299.6 million in 2021, $246.2 million in 2020 and $260.3 million in 2019. These amounts included research and development expenses of $194.2 million, $158.9 million and $161.9 million in 2021, 2020, and 2019, respectively. All such expenditures were directed toward the development of new products and solutions and the improvement of existing products and solutions.

Environmental Matters

Information with respect to environmental matters is set forth in Note 13 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

Critical accounting policies are those policies that can have a significant impact on the presentation of the Company’s financial condition and results of operations and that require the use of complex and subjective estimates based on the Company’s historical experience and management’s judgment. Because of the uncertainty inherent in such estimates, actual results may differ materially from the estimates used. Below are the policies used in preparing the Company's financial statements that management believes are the most dependent upon the application of estimates and assumptions. A complete list of the Company’s significant accounting policies is in Note 1 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

•Business Combinations. The Company allocates the purchase price of an acquired company, including when applicable, the acquisition date fair value of contingent consideration between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill. Third party appraisal firms and other consultants are engaged to assist management in determining the fair values of certain assets acquired and liabilities assumed. Estimating fair values requires significant judgments, estimates and assumptions, including but not limited to: discount rates, future cash flows and the economic lives of trade names, technology, and customer relationships. These estimates are based on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.

•Goodwill and Other Intangible Assets. Goodwill and other intangible assets with indefinite lives, primarily trademarks and trade names, are not amortized; rather, they are tested for impairment at least annually. The Company can elect to perform a qualitative analysis to determine if it is more likely than not that the fair values of its reporting units are less than the respective carrying values of those reporting units. The Company elected to bypass performing the qualitative screen and performed the quantitative analysis of the goodwill impairment test in the current year. The Company may elect to perform the qualitative analysis in future periods.

The Company principally relies on a discounted cash flow analysis to determine the fair value of each reporting unit, which considers forecasted cash flows discounted at an appropriate discount rate. The

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Company believes that market participants would use a discounted cash flow analysis to estimate the fair value of its reporting units in a sale transaction. The annual goodwill impairment test requires the Company to make a number of assumptions and estimates concerning future levels of revenue growth, operating margins, depreciation, amortization and working capital requirements, which are based on the Company’s long-range plan and are considered level 3 inputs. The Company’s long-range plan is updated as part of its annual planning process and is reviewed and approved by management. The discount rate is an estimate of the overall after-tax rate of return required by a market participant whose weighted average cost of capital includes both equity and debt, including a risk premium. While the Company uses the best available information to prepare its cash flow and discount rate assumptions, actual future cash flows or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances. While there are always changes in assumptions to reflect changing business and market conditions, the Company’s overall methodology and the population of assumptions used have remained unchanged. In order to evaluate the sensitivity of the goodwill impairment test to changes in the fair value calculations, the Company applied a hypothetical 10% decrease in fair values of each reporting unit. The 2021 results (expressed as a percentage of carrying value for the respective reporting unit) showed that, despite the hypothetical 10% decrease in fair value, the fair values of the Company’s reporting units still exceeded their respective carrying values by 118% to 534%.

The impairment test for indefinite-lived intangibles other than goodwill (primarily trademarks and trade names) consists of a comparison of the estimated fair value of the indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. The Company can elect to perform a qualitative analysis to determine if it is more likely than not that the fair values of its indefinite-lived intangible assets are less than the respective carrying values of those assets. The Company elected to bypass performing the qualitative screen. The Company may elect to perform the qualitative analysis in future periods. The Company estimates the fair value of its indefinite-lived intangibles using the relief from royalty method using level 3 inputs, which is a widely used valuation technique for such assets. The fair value derived from the relief from royalty method is determined by applying a royalty rate to a projection of net revenues discounted using an appropriate discount rate. Each royalty rate is determined based on the profitability of the trade name to which it relates and observed market royalty rates. Certain impairment models have discount rates calculated based on a debt/equity cost of capital. While the Company uses the best available information to prepare its cash flow and discount rate assumptions, actual future cash flows or market conditions could differ significantly resulting in future impairment charges related to recorded intangible balances. While there are always changes in assumptions to reflect changing business and market conditions, the Company’s overall methodology and the population of assumptions used have remained unchanged.

The Company’s acquisitions have generally included a significant goodwill component and the Company expects to continue to make acquisitions. At December 31, 2021, goodwill and other indefinite-lived intangible assets totaled $6,113.1 million or 51.4% of the Company’s total assets. The Company completed its required annual impairment tests in the fourth quarter of 2021 and determined that the carrying values of the Company’s goodwill and indefinite-lived intangibles were not impaired. There can be no assurance that goodwill or indefinite-lived intangibles impairment will not occur in the future.

•Pensions. The Company has U.S. and foreign defined benefit and defined contribution pension plans. The most significant elements in determining the Company’s pension income or expense are the assumed pension liability discount rate and the expected return on plan assets. The pension discount rate reflects the current interest rate at which the pension liabilities could be settled at the valuation date. At the end of each year, the Company determines the assumed discount rate to be used to discount plan liabilities. In estimating this rate for 2021, the Company considered rates of return on high-quality, fixed-income investments that have maturities consistent with the anticipated funding requirements of the plan. In estimating the U.S. and foreign discount rates, the Company’s actuaries developed a customized discount rate appropriate to the plans’ projected benefit cash flow based on yields derived from a database of long-term bonds at consistent maturity dates. The Company determines the expected long-term rate of return based primarily on its expectation of future returns for the pension plans’ investments. Additionally, the

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Company considers historical returns on comparable fixed-income and equity investments and adjusts its estimate as deemed appropriate.

•Income Taxes. The process of providing for income taxes and determining the related balance sheet accounts requires management to assess uncertainties, make judgments regarding outcomes and utilize estimates. The Company conducts a broad range of operations around the world and is therefore subject to complex tax regulations in numerous international taxing jurisdictions, resulting at times in tax audits, disputes and potential litigation, the outcome of which is uncertain. Management must make judgments currently about such uncertainties and determine estimates of the Company’s tax assets and liabilities. To the extent the final outcome differs, future adjustments to the Company’s tax assets and liabilities may be necessary.

The Company assesses the realizability of its deferred tax assets, taking into consideration the Company’s forecast of future taxable income, available net operating loss carryforwards and available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this assessment, management must evaluate the need for, and the amount of, valuation allowances against the Company’s deferred tax assets. To the extent facts and circumstances change in the future, adjustments to the valuation allowances may be required.

The Company assesses the uncertainty in its tax positions, by applying a minimum recognition threshold which a tax position is required to meet before a tax benefit is recognized in the financial statements. Once the minimum threshold is met, using a more likely than not standard, a series of probability estimates is made for each item to properly measure and record a tax benefit. The tax benefit recorded is generally equal to the highest probable outcome that is more than 50% likely to be realized after full disclosure and resolution of a tax examination. The underlying probabilities are determined based on the best available objective evidence such as recent tax audit outcomes, published guidance, external expert opinion, or by analogy to the outcome of similar issues in the past. There can be no assurance that these estimates will ultimately be realized given continuous changes in tax policy, legislation and audit practice. The Company recognizes interest and penalties accrued related to uncertain tax positions in income tax expense.

Recent Accounting Pronouncements

See Note 2, Recent Accounting Pronouncements, to the Company’s Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for information regarding recently issued accounting pronouncements.

Forward-Looking Information

Certain matters discussed in this Form 10-K are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (“PSLRA”), which involve risk and uncertainties that exist in the Company’s operations and business environment and can be affected by inaccurate assumptions, or by known or unknown risks and uncertainties. Many such factors will be important in determining the Company’s actual future results. The Company wishes to take advantage of the “safe harbor” provisions of the PSLRA by cautioning readers that numerous important factors in some cases have caused, and in the future could cause, the Company’s actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Some, but not all, of the factors or uncertainties that could cause actual results to differ from present expectations are set forth above and under Item 1A. Risk Factors. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, subsequent events or otherwise, unless required by the securities laws to do so.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary exposures to market risk are fluctuations in interest rates, foreign currency exchange rates and commodity prices, which could impact its financial condition and results of operations. The Company addresses its exposure to these risks through its normal operating and financing activities. The Company’s differentiated and global business activities help to reduce the impact that any particular market risk may have on its operating income as a whole.

The Company’s short-term debt carries variable interest rates and generally its long-term debt carries fixed rates. These financial instruments are more fully described in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

The foreign currencies to which the Company has the most significant exchange rate exposure are the Euro, the British pound, the Japanese yen, the Chinese renminbi, the Canadian dollar, and the Mexican peso. Exposure to foreign currency rate fluctuation is modest, monitored, and when possible, mitigated through the use of local borrowings and occasional derivative financial instruments in the foreign currency affected. The effect of translating foreign subsidiaries’ balance sheets into U.S. dollars is included in other comprehensive income within stockholders’ equity. Foreign currency transactions have not had a significant effect on the operating results reported by the Company because revenues and costs associated with the revenues are generally transacted in the same foreign currencies.

The primary commodities to which the Company has market exposure are raw material purchases of nickel, aluminum, copper, steel, titanium, and gold. Exposure to price changes in these commodities are generally mitigated through adjustments in selling prices of the ultimate product and purchase order pricing arrangements, although forward contracts are sometimes used to manage some of those exposures.

Based on a hypothetical ten percent adverse movement in interest rates, commodity prices or foreign currency exchange rates, the Company’s best estimate is that the potential losses in future earnings, fair value of risk-sensitive financial instruments and cash flows are not material, although the actual effects may differ materially from the hypothetical analysis.

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Item 8. Financial Statements and Supplementary Data

Page

Index to Financial Statements (Item 15(a)(1))

Reports of Management 35

Notes to Consolidated Financial Statements 45

Financial Statement Schedules (Item 15(a)(2))

Financial statement schedules have been omitted because either they are not applicable, or the required information is included in the financial statements or the notes thereto.

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Management’s Responsibility for Financial Statements

Management has prepared and is responsible for the integrity of the consolidated financial statements and related information. The statements are prepared in conformity with U.S. generally accepted accounting principles consistently applied and include certain amounts based on management’s best estimates and judgments. Historical financial information elsewhere in this report is consistent with that in the financial statements.

In meeting its responsibility for the reliability of the financial information, management maintains a system of internal accounting and disclosure controls, including an internal audit program. The system of controls provides for appropriate division of responsibility and the application of written policies and procedures. That system, which undergoes continual reevaluation, is designed to provide reasonable assurance that assets are safeguarded, and records are adequate for the preparation of reliable financial data.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. AMETEK, Inc. maintains a system of internal controls that is designed to provide reasonable assurance as to the fair and reliable preparation and presentation of the consolidated financial statements; however, there are inherent limitations in the effectiveness of any system of internal controls.

Management recognizes its responsibility for conducting the Company’s activities according to the highest standards of personal and corporate conduct. That responsibility is characterized and reflected in a code of business conduct for all employees and in a financial code of ethics for the Chief Executive Officer and Senior Financial Officers, as well as in other key policy statements publicized throughout the Company.

The Audit Committee of the Board of Directors, which is composed solely of independent directors who are not employees of the Company, meets with the independent registered public accounting firm, the internal auditors and management to satisfy itself that each is properly discharging its responsibilities. The report of the Audit Committee is included in the Company’s Proxy Statement for the 2022 Annual Meeting of Stockholders. Both the independent registered public accounting firm and the internal auditors have direct access to the Audit Committee.

The Company’s independent registered public accounting firm, Ernst & Young LLP, is engaged to render an opinion as to whether management’s financial statements present fairly, in all material respects, the Company’s financial position and operating results. This report is included herein.

Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, AMETEK, Inc. conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on that evaluation, our management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2021.

The Company acquired Magnetrol International ("Magnetrol") in March 2021, NSI-MI Technologies ("NSI-MI") and Abaco Systems, Inc. ("Abaco") in April 2021, and Alphasense in November 2021. As permitted by the U.S. Securities and Exchange Commission staff interpretative guidance for newly acquired businesses, the Company excluded Magnetrol, NSI-MI, Abaco, and Alphasense from management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. Magnetrol, NSI-MI, Abaco, and Alphasense constituted 17.4% of total assets as of December 31, 2021 and 6.0% of net sales for the year then ended.

The Company’s internal control over financial reporting as of December 31, 2021 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

/s/ DAVID A. ZAPICO /s/ WILLIAM J. BURKE

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Stockholders of AMETEK, Inc.:

Opinion on Internal Control over Financial Reporting

We have audited AMETEK, Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, AMETEK, Inc.(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Magnetrol, NSI-MI, Abaco, and Alphasense, which are included in the 2021 consolidated financial statements of the Company and constituted 17.4% of total assets as of December 31, 2021 and 6.0% of net sales for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Magnetrol, NSI-MI, Abaco, and Alphasense.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of AMETEK, Inc. as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 22, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ ERNST & YOUNG LLP

Philadelphia, Pennsylvania

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON FINANCIAL STATEMENTS

To the Board of Directors and Stockholders of AMETEK, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of AMETEK, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

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Accounting for the Acquisition of Abaco Systems, Inc.

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/s/ ERNST & YOUNG LLP

We have served as the Company’s auditor since 1930.

Philadelphia, Pennsylvania

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AMETEK, Inc.

Consolidated Statement of Income

(In thousands, except per share amounts)

Year Ended December 31,

Diluted earnings per share $ 4.25 $ 3.77 $ 3.75

Weighted average common shares outstanding:

See accompanying notes.

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AMETEK, Inc.

Consolidated Statement of Comprehensive Income

(In thousands)

Year Ended December 31,

Other comprehensive income (loss):

Foreign currency translation:

Defined benefit pension plans:

See accompanying notes.

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AMETEK, Inc.

Consolidated Balance Sheet

(In thousands, except share amounts)

December 31,

ASSETS

Current assets:

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Stockholders’ equity:

Preferred stock,$0.01 par value; authorized 5,000,000 shares; none issued — —

See accompanying notes.

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AMETEK, Inc.

Consolidated Statement of Stockholders’ Equity

(In thousands)

Year Ended December 31,

Capital stock

Preferred stock, $0.01 par value $ — $ — $ —

Common stock, $0.01 par value

Capital in excess of par value

Retained earnings

Other (1) — —

Accumulated other comprehensive (loss) income

Foreign currency translation:

Defined benefit pension plans:

Treasury stock

Issuance of common stock under employee stock plans 6,981 13,879 7,644

See accompanying notes.

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AMETEK, Inc.

Consolidated Statement of Cash Flows

(In thousands)

Year Ended December 31,

Cash provided by (used for):

Operating activities:

Adjustments to reconcile net income to total operating activities:

Gain on sale of facilities — (7,523) (5,332)

Changes in assets and liabilities, net of acquisitions:

Investing activities:

Financing activities:

Proceeds from long-term borrowings — — 100,000

Acquisition contingent consideration — — (3,000)

Cash and cash equivalents:

See accompanying notes.

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Significant Accounting Policies

Basis of Consolidation

The accompanying consolidated financial statements reflect the results of operations, financial position and cash flows of AMETEK, Inc. (the “Company”), and include the accounts of the Company and subsidiaries, after elimination of all intercompany transactions in the consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and assumptions.

Cash Equivalents, Securities and Other Investments

All highly liquid investments with maturities of three months or less when purchased are considered cash equivalents.

Accounts Receivable

The Company maintains allowances for estimated credit losses resulting from the inability of customers to meet their financial obligations to the Company. The Company recognizes an allowance for credit losses, on all accounts receivable and contract assets, which considers risk of future credit losses based on factors such as historical experience, contract terms, as well as general and market business conditions, country, and political risk. Balances are written off when considered uncollectible. Bad debt expense was $1.2 million in 2021, $3.6 million in 2020 and $2.8 million in 2019. At December 31, 2021 and 2020, the allowance for estimated credit losses was $11.2 million and $12.7 million, respectively.

Inventories

The Company uses the first-in, first-out (“FIFO”) method of accounting, which approximates current replacement cost, for approximately 89% of its inventories at December 31, 2021. The last-in, first-out (“LIFO”) method of accounting is used to determine cost for the remaining 11% of the Company’s inventory at December 31, 2021. For inventories where cost is determined by the LIFO method, the FIFO value would have been $29.8 million and $22.8 million higher than the LIFO value reported in the consolidated balance sheet at December 31, 2021 and 2020, respectively. The Company provides estimated inventory reserves for slow-moving and obsolete inventory based on current assessments about future demand, market conditions, customers who may be experiencing financial difficulties and related management initiatives.

Business Combinations

The Company allocates the purchase price of an acquired company, including when applicable, the acquisition date fair value of contingent consideration between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill. The results of operations of the acquired business are included in the Company’s operating results from the date of acquisition.

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Expenditures for additions to plant facilities, or that extend their useful lives, are capitalized. The cost of minor tools, jigs and dies, and maintenance and repairs is charged to expense as incurred. Depreciation of plant and equipment is calculated principally on a straight-line basis over the estimated useful lives of the related assets. The range of lives for depreciable assets is generally three to 10 years for machinery and equipment, five to 27 years for leasehold improvements and 25 to 50 years for buildings. Depreciation expense was $108.5 million, $101.3 million and $101.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets with indefinite lives, primarily trademarks and trade names, are not amortized; rather, they are tested for impairment at least annually.

The Company identifies its reporting units at the component level, which is one level below its operating segments. Generally, goodwill arises from acquisitions of specific operating companies and is assigned to the reporting unit in which the operating company resides. The Company’s reporting units are divisions that are one level below its operating segments and for which discrete financial information is prepared and regularly reviewed by segment management.

The Company principally relies on a discounted cash flow analysis to estimate the fair value of each reporting unit, which considers forecasted cash flows discounted at an appropriate discount rate. The Company believes that market participants would use a discounted cash flow analysis to determine the fair value of its reporting units in a sale transaction. The annual goodwill impairment test requires the Company to make several assumptions and estimates concerning future levels of revenue growth, operating margins, depreciation, amortization and working capital requirements, which are based on the Company’s long-range plan and are considered level 3 inputs. The Company’s long-range plan is updated as part of its annual planning process and is reviewed and approved by management. The discount rate is an estimate of the overall after-tax rate of return required by a market participant whose weighted average cost of capital includes both equity and debt, including a risk premium. While the Company uses the best available information to prepare its cash flow and discount rate assumptions, actual future cash flows or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances.

The Company completed its required annual impairment tests in the fourth quarter of 2021, 2020 and 2019 and determined that the carrying values of the Company’s goodwill were not impaired. The Company completed its required annual impairment tests in the fourth quarter of 2021, 2020 and 2019 and determined that the carrying values of the Company’s other intangible assets with indefinite lives were not impaired.

Other intangible assets with finite lives are evaluated for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of other intangible assets with finite lives is considered impaired when the total projected undiscounted cash flows from the asset group are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of those assets. Fair value is determined primarily using present value techniques based on projected cash flows from the asset group.

Intangible assets, other than goodwill, with definite lives are amortized over their estimated useful lives. Patents and technology are being amortized over useful lives of nine to 20 years, with a weighted average life of 14

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

years. Customer relationships are being amortized over a period of ten to 20 years, with a weighted average life of 19 years. On a quarterly basis, the Company evaluates the reasonableness of the estimated useful lives of these intangible assets.

Financial Instruments and Foreign Currency Translation

Assets and liabilities of foreign operations are translated using exchange rates in effect at the balance sheet date and their results of operations are translated using average exchange rates for the year. Certain transactions of the Company and its subsidiaries are denominated in currencies other than their functional currency. Exchange gains and losses from those transactions are included in operating results for the year.

The Company makes infrequent use of derivative financial instruments. Forward contracts are entered into from time to time to hedge certain inventory purchases, export sales, debt or foreign currency transactions, thereby minimizing the Company’s exposure to raw material commodity price or foreign currency fluctuation.

In instances where transactions are designated as hedges of an underlying item, the gains and losses on those transactions are included in accumulated other comprehensive income within stockholders’ equity to the extent they are effective as hedges. An evaluation of hedge effectiveness is performed by the Company on an ongoing basis and any changes in the hedge are made as appropriate.

Revenue Recognition

Revenue is derived from sales of products and services. The Company’s products and services are marketed and sold worldwide through two operating groups: EIG and EMG. See Note 15 Descriptive Information about Reportable Segments.

The majority of the Company’s revenues on product sales were recognized at a point in time when the customer obtains control of the product. The transfer in control of the product to the customer was typically evidenced by one or more of the following: the customer having legal title to the product, the Company’s present right to payment, the customer’s physical possession of the product, the customer accepting the product, or the customer having the benefits of ownership or risk of loss. For a small percentage of sales where title and risk of loss transfers at the point of delivery, the Company recognized revenue upon delivery to the customer, which is the point that control transferred, assuming all other criteria for revenue recognition were met.

Research and Development

Research and development costs are included in Cost of sales as incurred and were $194.2 million in 2021, $158.9 million in 2020 and $161.9 million in 2019.

Shipping and Handling Costs

Shipping and handling costs are included in Cost of sales and were $86.1 million in 2021, $56.8 million in 2020 and $66.7 million in 2019.

Share-Based Compensation

The Company expenses the fair value of share-based awards made under its share-based plans in the consolidated financial statements over their requisite service period of the grants.

Income Taxes

The Company’s process of providing for income taxes and determining the related balance sheet accounts requires management to assess uncertainties, make judgments regarding outcomes and utilize estimates. The Company conducts a broad range of operations around the world and is therefore subject to complex tax regulations in numerous international taxing jurisdictions, resulting at times in tax audits, disputes and potential litigation, the outcome of which is uncertain. Management must make judgments currently about such uncertainties and determine

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

estimates of the Company’s tax assets and liabilities. To the extent the final outcome differs, future adjustments to the Company’s tax assets and liabilities may be necessary. The Company recognizes interest and penalties accrued related to uncertain tax positions in income tax expense.

The Company assesses the realizability of its deferred tax assets, taking into consideration the Company’s forecast of future taxable income, available net operating loss carryforwards and available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this assessment, management must evaluate the need for, and amount of, valuation allowances against the Company’s deferred tax assets. To the extent facts and circumstances change in the future, adjustments to the valuation allowances may be required.

Pensions

The Company has U.S. and foreign defined benefit and defined contribution pension plans. The most significant assumptions in determining the Company’s pension income or expense are the assumed pension liability discount rate and the expected return on plan assets. All unrecognized prior service costs, remaining transition obligations or assets and actuarial gains and losses have been recognized, net of tax effects, as a charge to accumulated other comprehensive income in stockholders’ equity and will be amortized as a component of net periodic pension cost. The Company uses a measurement date of December 31 (its fiscal year end) for its U.S. and foreign defined benefit plans.

Earnings Per Share

The calculation of basic earnings per share is based on the weighted average number of common shares considered outstanding during the periods. The calculation of diluted earnings per share reflects the effect of all potentially dilutive securities (principally outstanding stock options and restricted stock grants).The number of weighted average shares used in the calculation of basic earnings per share and diluted earnings per share was as follows for the years ended December 31:

(In thousands)

Weighted average shares:

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2. Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncement

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740. The Company prospectively adopted ASU 2019-12, effective January 1, 2021, and the adoption did not have a significant impact on the Company’s consolidated results of operations, financial position, cash flows and financial statement disclosures.

Recent Accounting Pronouncement

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 8050): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which provides a single comprehensive accounting model for the acquisition of contract balances under ASC 805. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company will adopt the ASU on January 1, 2022, and the amendments in this ASU will be applied on a prospective basis to all periods presented. The adoption of ASU 2021-08 is not expected to impact the Company’s consolidated results of operations, financial position, cash flows or financial statement disclosures.

3. Revenues

The majority of the Company’s revenues on product sales are recognized at a point in time when the customer obtains control of the product. The Company determined that revenues from certain of its customer contracts met the criteria of satisfying its performance obligations over time, primarily in the areas of the manufacture of custom-made equipment and for service repairs of customer-owned equipment. Recognizing revenue over time for custom-manufactured equipment is based on the Company’s judgment that, in certain contracts, the product does not have an alternative use and the Company has an enforceable right to payment for performance completed to date.

The Company recognizes incremental cost of obtaining contracts as an expense when incurred if the amortization period of the contract cost assets that the Company would have otherwise recognized is one year or less. These costs are included in Selling, general and administrative expenses in the consolidated statement of income.

The determination of the revenue to be recognized in each period for performance obligations satisfied over time is based on the input method. The Company recognizes revenue over time as it performs on these contracts because the transfer of control to the customer occurs over time. Revenue is recognized based on the extent of progress towards completion of the performance obligation. The Company generally uses the total cost-to-cost input method of progress because it best depicts the transfer of control to the customer that occurs as costs are incurred. Under the cost-to-cost method, the extent of progress towards completion is measured based on the proportion of costs incurred to date to the total estimated costs at completion of the performance obligation. On certain contracts, labor hours are used as the measure of progress when it is determined to be a better depiction of the transfer of control to the customer due to the timing and pattern of labor hours incurred.

Performance obligations also include post-delivery service, installation and training. Post-delivery service revenues are recognized over the contract term. Installation and training revenues are recognized over the period the service is provided. Warranty terms in customer contracts can also be considered separate performance obligations if the warranty provides services beyond assurance that a product complies with agreed-upon specification or if a warranty can be purchased separately. The Company does not incur significant obligations for customer returns and refunds.

The Company has certain contracts with variable consideration in the form of volume discounts, rebates and early payment options, which may affect the transaction price used as the basis for revenue recognition. In these contracts, the amount of the variable consideration is allocated among the various performance obligations in the

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

customer contract based on the relative standalone selling price of each performance obligation to the total standalone value of all the performance obligations.

Payment terms generally begin upon shipment of the product. The Company does have contracts with multiple billing terms that are all due within one year from when the product is delivered. No significant financing component exists. Payment terms are generally 30-60 days from the time of shipment or customer acceptance, but terms can be shorter or longer, not exceeding one year. For customer contracts that have revenue recognized over time, revenue is generally recognized prior to a payment being due from the customer. In such cases, the Company recognizes a contract asset at the time the revenue is recognized. When payment becomes due based on the contract terms, the Company reduces the contract asset and records a receivable. In contracts with billing milestones or in other instances with a long production cycle or concerns about credit, customer advance payments are received. The Company may receive a payment in excess of revenue recognized to that date. In these circumstances, a contract liability is recorded. Contract liabilities are derecognized when the performance obligations are satisfied, and revenue is recognized.

The outstanding contract asset and liability accounts were as follows:

(In thousands)

Change in contract assets – (decrease) increase 26,303 (4,068)

Change in contract liabilities – increase (113,723) (47,787)

The net change in 2021 and 2020 was primarily driven by the receipt of advance payments from customers significantly exceeding the recognition of revenue and customer advance payments from acquired businesses. For the years ended December 31, 2021 and 2020, the Company recognized revenue of $184 million and $133 million, respectively, that was previously included in the beginning balance of contract liabilities.

Contract assets are reported as a component of Other current assets in the consolidated balance sheet. At December 31, 2021 and 2020, $30.1 million and $20.5 million, respectively, of Customer advanced payments (contract liabilities) were recorded in Other long-term liabilities in the consolidated balance sheet.

The remaining performance obligations exceeding one year as of December 31, 2021 and 2020 were $342.5 million and $300.8 million, respectively. Remaining performance obligations represent the transaction price of firm, non-cancelable orders, with expected delivery dates to customers greater than one year from the balance sheet date, for which the performance obligation is unsatisfied or partially unsatisfied. These performance obligations will be substantially satisfied within two to three years.

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Geographic Areas

Net sales were attributed to geographic areas based on the location of the customer. Information about the Company’s operations in different geographic areas was as follows for the year ended December 31:

EIG EMG Total

(In thousands)

International(1):

_________________

(1)Includes U.S. export sales of $1,475.6 million.

EIG EMG Total

(In thousands)

International(1):

_________________

(1)Includes U.S. export sales of $1,196.4 million.

EIG EMG Total

(In thousands)

International(1):

_________________

(1)Includes U.S. export sales of $1,306.2 million

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Major Products and Services

The Company’s major products and services in the reportable segments were as follows for the year ended December 31:

EIG EMG Total

(In thousands)

EIG EMG Total

(In thousands)

EIG EMG Total

(In thousands)

Timing of Revenue Recognition

The Company’s timing of revenue recognition was as follows for the year ended December 31:

EIG EMG Total

(In thousands)

EIG EMG Total

(In thousands)

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

EIG EMG Total

(In thousands)

Product Warranties

The Company provides limited warranties in connection with the sale of its products. The warranty periods for products sold vary among the Company’s operations, but the majority do not exceed one year. The Company calculates its warranty expense provision based on its historical warranty experience and adjustments are made periodically to reflect actual warranty expenses. Product warranty obligations are reported as a component of Accrued liabilities and other in the consolidated balance sheet.

Changes in the accrued product warranty obligation were as follows:

(In thousands)

4. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the Company’s assets that are measured at fair value on a recurring basis, consistent with the fair value hierarchy, at December 31:

Fair Value Fair Value

(In thousands)

The fair value of mutual fund investments, which are valued as level 1 investments, was based on quoted market prices. The mutual fund investments are shown as a component of long-term assets in the consolidated balance sheet.

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For the years ended December 31, 2021 and 2020, gains and losses on the investments detailed above were not significant.

Financial Instruments

Cash, cash equivalents and mutual fund investments are recorded at fair value at December 31, 2021 and 2020 in the accompanying consolidated balance sheet.

The following table provides the estimated fair values of the Company’s financial instrument liabilities, for which fair value is measured for disclosure purposes only, compared to the recorded amounts at December 31:

Recorded Amount Fair Value Recorded Amount Fair Value

(In thousands)

The fair value of short-term borrowings, net approximates the carrying value. Short-term borrowings, net are valued as level 2 liabilities as they are corroborated by observable market data. The Company’s long-term debt, net is all privately held with no public market for this debt, therefore, the fair value of long-term debt, net was computed based on comparable current market data for similar debt instruments and is considered to be a level 3 liability. See Note 10 for long-term debt principal amounts, interest rates and maturities.

Foreign Currency

At December 31, 2021 and 2020, the Company had no foreign currency forward contracts outstanding. At December 31, 2019, the Company had a Canadian dollar forward contract for a total notional value of 14.0 million Canadian dollars ($0.1 million fair value unrealized loss at December 31, 2019). For the year ended December 31, 2021 and 2020, realized gains and losses on foreign currency forward contracts were not significant. The Company does not typically designate its foreign currency forward contracts as accounting hedges.

5. Hedging Activities

The Company has designated certain foreign-currency-denominated long-term borrowings as hedges of the net investment in certain foreign operations. As of December 31, 2021, and 2020, these net investment hedges included British-pound and Euro-denominated long-term debt. These borrowings were designed to create net investment hedges in each of the designated foreign subsidiaries. The Company designated the British-pound- and Euro-denominated loans referred to above as hedging instruments to offset translation gains or losses on the net investment due to changes in the British pound and Euro exchange rates. These net investment hedges are evidenced by management’s contemporaneous documentation supporting the hedge designation. Any gain or loss on the hedging instruments (the debt) following hedge designation is reported in accumulated other comprehensive income in the same manner as the translation adjustment on the hedged investment based on changes in the spot rate, which is used to measure hedge effectiveness.

At December 31, 2021 and 2020, the Company had $304.6 million and $307.3 million, respectively, of British-pound denominated loans, which were designated as a hedge against the net investment in British pound functional currency foreign subsidiaries. At December 31, 2021 and 2020, the Company had $654.1 million and $699.7 million, respectively, in Euro-denominated loans, which were designated as a hedge against the net investment in Euro functional currency foreign subsidiaries. As a result of the British-pound and Euro-denominated loans being designated and 100% effective as net investment hedges, $51.7 million of pre-tax currency remeasurement losses and $60.5 million of pre-tax currency remeasurement losses have been included in the foreign currency translation component of other comprehensive income for the years ended December 31, 2021 and 2020, respectively.

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6. Acquisitions and Divestiture

Acquisitions

The Company spent $1,959.2 million in cash, net of cash acquired, to acquire Magnetrol International ("Magnetrol"), Crank Software, and EGS Automation ("EGS") in March 2021, and NSI-MI Technologies ("NSI-MI"), Abaco Systems, Inc. ("Abaco") in April 2021, and Alphasense in November 2021. Magnetrol is a leading provider of level and flow control solutions for challenging process applications across a diverse set of end markets including medical, pharmaceutical, oil and gas, food and beverage, and general industrial. Crank Software is a leading provider of embedded graphical user interface software and services. EGS is an automation solutions provider that designs and manufactures highly engineered, customized robotic solutions used in critical applications for the medical, food and beverage, and general industrial markets. NSI-MI is a leading provider of radio frequency and microwave test and measurement systems for niche applications across the aerospace, defense, automotive, wireless communications, and research markets. Abaco specializes in open-architecture computing and electronic systems for aerospace, defense, and specialized industrial markets and is a leading provider of mission critical embedded computing systems. Alphasense is a leading provider of gas and particulate sensors for use in environmental, health and safety, and air quality applications. Magnetrol, Crank Software, NSI-MI, Abaco, and Alphasense are part of EIG. EGS is part of EMG.

The following table represents the allocation of the purchase price for the net assets of the acquisitions based on the estimated fair values at acquisition (in millions):

Abaco Other Acquisitions Total

(in millions)

Property, plant and equipment $ 56.2 $ 45.5 $ 101.7

Net working capital and other(1) 51.5 (4.1) 47.4

______________________

(1)Includes $70.6 million in accounts receivable, whose fair value, contractual cash flows and expected cash flows are approximately equal as well as $71.6 million of customer advance payments.

The amounts allocated to goodwill are reflective of the benefits the Company expects to realize from the 2021 acquisitions. Abaco's computing and electronic solutions expand and complement the Company's existing aerospace and defense businesses. NSI-MI strengthens the Company's test and measurement platform. Magnetrol's solutions combined with the Company’s existing Sensors, Test and Calibration business, becomes an industry leading differentiated sensor platform with a broad range of level and flow measurement solutions. Alphasense complements the Company's existing sensor business expanding the Company's presence in the environmental health and safety market. Crank Software expands the Company's growing portfolio of software solutions. EGS complements the Company's existing Dunkermotoren business providing highly customizable engineering design and automation capabilities. The Company expects approximately $123.2 million of the goodwill relating to the 2021 acquisitions will be tax deductible in future years.

At December 31, 2021, the purchase price allocated to other intangible assets of $940.7 million consists of $126.2 million of indefinite-lived intangible trade names, which are not subject to amortization. The remaining $814.5 million of other intangible assets consists of $614.6 million of customer relationships, which are being amortized over a period of 15 to 20 years and $199.9 million of purchased technology, which is being amortized over a period of 11 to 20 years. Amortization expense for each of the next five years for the 2021 acquisitions is expected to be $45.1 million per year.

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The Company finalized the measurements of its tangible and intangible assets and liabilities for its 2021 acquisitions of EGS, Crank Software, Abaco, and NSI-MI, excluding the accounting for income taxes for Abaco, Magnetrol, and NSI-MI, which had no material impact to the consolidated statement of income and balance sheet. The Company is in the process of finalizing its measurements of certain tangible and intangible assets and liabilities for its November 2021 acquisition of Alphasense.

The acquisitions had an immaterial impact on reported sales, net income, and diluted earnings per share for the year ended December 31, 2021. Had the acquisitions been made at the beginning of 2021 or 2020, pro forma net income and diluted earnings per share for the year ended December 31, 2021 and 2020, would not have been materially different than the amounts reported. Pro forma net sales would not have been materially different than the amounts reported for the year ended December 31, 2021 and would have been approximately 12% higher than the reported amounts for the year ended December 31, 2020.

In 2020, the Company spent $116.5 million in cash, net of cash acquired, to acquire IntelliPower in January 2020. IntelliPower designs and manufactures a broad portfolio of ruggedized solutions including uninterruptible power systems, external battery packs, power distribution units and power conditioners. IntelliPower was privately held and is headquartered in Orange, California. IntelliPower is part of EIG.

In 2019, the Company spent $1,061.9 million in cash, net of cash acquired, to acquire Pacific Design Technologies, Inc. (“PDT”) in September 2019 and Gatan in October 2019. PDT designs and manufactures a complete range of custom-engineered, liquid cooling systems and components used in a broad set of current and next-generation commercial aerospace, defense and space platforms. Gatan is a leading manufacturer of instrumentation and software used to enhance and extend the operation and performance of electron microscopes. PDT is part of EMG and Gatan is part of EIG.

Divestiture

The Company completed its sale of Reading Alloys to Kymera International in March 2020 for net cash proceeds of $245.3 million. The transaction resulted in a pre-tax gain of $141.0 million, recorded in Other Income (expense) in the Consolidated Statement of Income, and income tax expense of $31.4 million in connection with the sale. Reading Alloys revenue and costs were reported within the EMG segment through the date of sale.

7. Goodwill and Other Intangible Assets

The changes in the carrying amounts of goodwill by segment were as follows:

EIG EMG Total

(In millions)

Purchase price allocation adjustments and other 74.6 — 74.6

Foreign currency translation adjustments 26.2 19.3 45.5

Purchase price allocation adjustments and other 1.9 — 1.9

Foreign currency translation adjustments (16.3) (15.6) (31.9)

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Other intangible assets were as follows at December 31:

(In thousands)

Definite-lived intangible assets (subject to amortization):

Accumulated amortization:

Indefinite-lived intangible assets (not subject to amortization):

Amortization expense was $183.6 million, $154.0 million and $132.6 for the years ended December 31, 2021, 2020 and 2019, respectively. Amortization expense for each of the next five years is expected to approximate $198 million per year, not considering the impact of potential future acquisitions.

8. Other Consolidated Balance Sheet Information

December 31,

(In thousands)

INVENTORIES, NET

PROPERTY, PLANT AND EQUIPMENT, NET

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December 31,

(In thousands)

ACCRUED LIABILITIES AND OTHER

9. Income Taxes

The components of income before income taxes and the details of the provision for income taxes were as follows for the years ended December 31:

(In thousands)

Income before income taxes:

Provision for income taxes:

Current:

Deferred:

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Significant components of the deferred tax (asset) liability were as follows at December 31:

(In thousands)

Non-current deferred tax (asset) liability:

Foreign Tax Credit Carryforwards (2,291) (261)

Portion included in non-current assets 26,999 12,103

______________________

(1)Presented net of deferred tax asset of approximately $33.3 million and $32.4 million at December 31, 2021 and 2020, respectively, resulting from lease obligations.

The Company’s effective tax rate reconciles to the U.S. Federal statutory rate as follows for the years ended December 31:

U.S. Federal statutory rate 21.0 % 21.0 % 21.0 %

State income taxes, net of federal income tax benefit 1.5 2.3 1.8

Foreign operations, net (0.4) (1.4) (0.9)

U.S. Benefits for Manufacturing, Export and credits (2.6) (1.9) (2.0)

Uncertain Tax Items (0.1) (1.3) (1.0)

Stock compensation (1.7) (1.0) (1.5)

U.S. Tax on Foreign Earnings 3.9 2.2 2.6

U.S. General Basket FTC (2.9) (0.1) (0.3)

Consolidated effective tax rate 19.1 % 19.4 % 19.5 %

The Company elected to pay the cash tax cost of the one-time mandatory tax on previously deferred earnings of non-U.S. subsidiaries over an eight-year period. As of December 31, 2021, the Company has a remaining cash tax obligation of $35.9 million, all of which is classified as non-current.

The Company has evaluated the impact of the global intangible low-taxed income (“GILTI”) section of the Tax Act and has made a tax accounting policy election to record the annual tax cost of GILTI as a current period expense when incurred and, as such, will not be measuring an impact of GILTI in its determination of deferred taxes.

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As a result of the one-time mandatory deemed repatriation and the taxable inclusions under the GILTI provisions of the Tax Act, the Company has approximately $714.6 million in previously taxed income (“PTI”) as of December 31, 2021 which can be repatriated without incremental U.S. Federal tax. The Company intends to reinvest its earnings indefinitely in operations outside the United States except to the extent of the PTI. There has been no provision for U.S. deferred income taxes for the undistributed earnings over PTI of approximately $186.4 million and $411.0 million at December 31, 2021 and 2020 respectively because determination of the amount of the unrecognized deferred income tax liability on these undistributed earnings is not practicable.

As of December 31, 2021, and 2020, the Company recorded deferred income taxes totaling $11.4 million and $10.7 million respectively in state income and foreign withholding taxes expected to be incurred when the cash amounts related to the mandatory tax are ultimately repatriated to the U.S.

The Company is acquisitive and at times acquires entities with tax attributes (net operating losses or tax credits) that carry over to post-acquisition tax periods of the Company. At December 31, 2021, the Company had tax effected benefits, net of uncertain tax positions of $44.1 million related to net operating loss carryforwards, which will be available to offset future income taxes payable, subject to certain annual or other limitations based on foreign and U.S. tax laws. This amount includes net operating loss carryforwards of $11.7 million for federal income tax purposes with no valuation allowance for the U.S. consolidated group, $12.0 million for state income tax purposes with a valuation allowance of $2.9 million, and $20.4 million for foreign income tax purposes with a valuation allowance of $1.4 million. These net operating loss carryforwards, if not used, will expire between 2022 and 2041.

At December 31, 2021, the Company had tax effected benefits of $11.8 million related to tax credit carryforwards, which will be available to offset future income taxes payable, subject to certain annual or other limitations based on foreign and U.S. tax laws. This amount includes tax credit carryforwards of $5.4 million for federal income tax purposes with a valuation allowance of $3.3 million, $6.4 million for state income tax purposes with a valuation allowance of $2.4 million, and no remaining credit carryforwards for foreign income tax purposes. These tax credit carryforwards, if not used, will expire between 2022 and 2041.

The Company maintains a valuation allowance (VA) to reduce certain deferred tax assets to amounts that are more likely than not to be realized. This allowance primarily relates to deferred tax assets established for state non-deductible interest expense, federal and state credits and state net operating loss carryforwards. In 2021, the Company recorded an increase of $5.4 million in the valuation allowance of which $2.1 million mostly relates to foreign tax credit carryforwards and $3.3 million relates to state net operating losses and credits that are not expected to be utilized.

At December 31, 2021, the Company had gross unrecognized tax benefits of $147.0 million, of which $110.0 million, if recognized, would impact the effective tax rate. At December 31, 2020, the Company had gross unrecognized tax benefits of $100.7 million, of which $60.6 million, if recognized, would impact the effective tax rate.

At December 31, 2021 and 2020, the Company reported $9.1 million and $11.6 million, respectively, related to interest and penalty exposure as accrued income tax expense in the consolidated balance sheet. During 2021, and 2020, the Company recognized a net benefit of $2.5 million, and $2.6 million respectively for interest and penalties related to uncertain tax positions in the consolidated statement of income as a component of income tax expense.

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Approximately 62% of the Company’s overall tax liability is incurred in the United States. The Company files income tax returns in various other state and foreign tax jurisdictions, in some cases for multiple legal entities per jurisdiction. Generally, the Company has open tax years subject to tax audit on average of between three and six years in these jurisdictions. At December 31, 2021, the Company was notified by the Internal Revenue Service ("IRS") that the U.S. consolidated tax group and a separate company filer was selected for audit for the 2019 tax year. A preliminary meeting with the IRS and company representative has been scheduled. The Company has not materially extended any other statutes of limitation for any significant location and has reviewed and accrued for, where necessary, tax liabilities for open periods including state and foreign jurisdictions that remain subject to examination. There have been no penalties asserted or imposed by the IRS related to substantial understatement of income, gross valuation misstatement or failure to disclose a listed or reportable transaction.

During 2021, the Company added $58.6 million of tax, interest and penalties related to identified uncertain tax positions and reversed $35.2 million of tax and interest related to statute expirations and settlement of prior uncertain positions. During 2020, the Company added $24.3 million of tax, interest and penalties related to identified uncertain tax positions and reversed $35.3 million of tax and interest related to statute expirations and settlement of prior uncertain positions.

The following is a reconciliation of the liability for uncertain tax positions at December 31:

(In millions)

Additions for tax positions related to the current year 41.4 15.6 17.5

Additions for tax positions of prior years 34.9 6.2 2.8

Reductions for tax positions of prior years (1.5) (0.3) (1.3)

Reductions related to settlements with taxing authorities (0.1) (0.5) (0.9)

Reductions due to statute expirations (28.4) (29.4) (28.3)

In 2021, the additions above primarily reflect the increase in tax liabilities for uncertain tax positions related to certain higher transfer pricing risks. The reductions above primarily relate to statute expirations. The net increase of $46.3 million in uncertain tax positions resulted in an increase of $18.9 million to income tax expense and the remainder primarily in goodwill. At December 31, 2021, tax, interest and penalties of $134.2 million were classified as a non-current liability and $22.0 million was reflected as a reduction against deferred tax assets.

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10. Debt

Long-term debt, net consisted of the following at December 31:

(In thousands)

Other, principally foreign 1,976 —

Less: Debt issuance costs (5,919) (6,007)

Maturities of long-term debt borrowings outstanding at December 31, 2021 were as follows: none in 2023; $300.0 million in 2024; $425.0 million in 2025; $441.3 million in 2026; $335.3 million in 2027; and $732.1 million in 2028 and thereafter.

In the fourth quarter of 2021, the Company paid in full, at maturity, a 55 million Swiss franc ($59.7 million) in aggregate principal amount of 2.44% senior note.

In the third quarter of 2020, the Company paid in full, at maturity, an 80 million British pound ($102.9 million) in aggregate principal amount of 4.68% senior note.

In December 2018, the Company completed a private placement agreement to sell $575 million and 75 million Euros in senior notes to a group of institutional investors (the “2018 Private Placement”) utilizing two funding dates. The first funding occurred in December 2018 for $475 million and 75 million Euros ($85.3 million at December 31, 2021). The second funding was in January 2019 for $100 million. The 2018 Private Placement senior notes carry a weighted average interest rate of3.93% and are subject to certain customary covenants, including financial covenants that, among other things, require the Company to maintain certain debt-to-EBITDA (earnings before interest, income taxes, depreciation and amortization) and interest coverage ratios.

In September 2014, the Company issued $300 million in aggregate principal amount of 3.73% senior notes due September 2024, $100 million in aggregate principal amount of 3.83% senior notes due September 2026 and $100 million in aggregate principal amount of 3.98% senior notes due September 2029. In June 2015, the Company issued $50 million in aggregate principal amount of 3.91% senior notes due June 2025. In August 2015, the

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Company issued $100 million in aggregate principal amount of 3.96% senior notes due August 2025 and $50 million in aggregate principal amount of 4.45% senior notes due August 2035.

In September 2010, the Company issued an 80 million British pound 4.68% senior note due September 2020 (paid in full, at maturity, as previously noted). In December 2011, the Company issued a 55 million Swiss franc (paid in full, at maturity, as previously noted) 2.44% senior note due December 2021. In October 2016, the Company issued 300 million Euros ($341.3 million at December 31, 2021) in aggregate principal amount of 1.34% senior notes due October 2026 and 200 million Euros ($227.5 million at December 31, 2021) in aggregate principal amount of 1.53% senior notes due October 2028. In November 2016, the Company issued 150 million British pounds ($203.0 million at December 31, 2021) in aggregate principal amount of 2.59% senior notes due November 2028 and 75 million British pounds ($101.5 million at December 31, 2021) in aggregate principal amount of 2.70% senior notes due November 2031.

In April 2021, the Company along with certain of its foreign subsidiaries amended its credit agreement dated as of September 22, 2011, as amended and restated as of March 10, 2016 and as further amended and restated as of October 30, 2018 (the “Credit Agreement”). The Credit Agreement amends the Company’s existing revolving credit facility to add a new five-year, delayed draw, term loan for up to $800.0 million. The Credit Agreement consists of a five-year revolving credit facility in an aggregate principal amount of $1.5 billion with a final maturity date in October 2023. The revolving credit facility total borrowing capacity excludes an accordion feature that permits the Company to request up to an additional $500 million in revolving credit commitments at any time during the life of the Credit Agreement under certain conditions. The credit agreement places certain restrictions on allowable additional indebtedness. In November 2021, the Company further amended the Credit Agreement to address the cessation of LIBOR on certain currencies. At December 31, 2021, the Company had available borrowing capacity of $2,447.5 million under its revolving credit facility and term loan, including the $500 million accordion feature. At December 31, 2021, the Company had $150.0 million outstanding on the term loan with a maturity date of June 2026. The proceeds from the term loan were used to fund the Company's 2021 acquisitions.

Interest rates on outstanding borrowings under the revolving credit facility are at the applicable benchmark rate plus a negotiated spread or at the U.S. prime rate. At December 31, 2021 and 2020 the Company had $314.5 million and $72.1 million of borrowings outstanding under the revolving credit facility, respectively. The weighted average interest rate on the revolving credit facility for the years ended December 31, 2021 and 2020 was 1.34% and 1.84%, respectively. The Company had outstanding letters of credit primarily under the revolving credit facility totaling $38.0 million and $30.2 million at December 31, 2021 and 2020, respectively.

The private placements, the senior notes and the revolving credit facility are subject to certain customary covenants, including financial covenants that, among other things, require the Company to maintain certain debt-to-EBITDA and interest coverage ratios. The Company was in compliance with all provisions of the debt arrangements at December 31, 2021.

Foreign subsidiaries of the Company had available credit facilities with local foreign lenders of $56.8 million and $53.0 million at December 31, 2021 and 2020, respectively. At December 31, 2021, foreign subsidiaries had $2.0 million in debt borrowings outstanding, which was reported in short-term borrowings. At December 31, 2020, foreign subsidiaries had no debt borrowings outstanding.

The weighted average interest rate on total debt borrowings outstanding at December 31, 2021 and 2020 was 3.1% and 3.0%, respectively.

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11. Share-Based Compensation

Under the terms of the Company’s stockholder-approved share-based plans, performance restricted stock units (“PRSUs”), incentive and non-qualified stock options and restricted stock have been, and may be, issued to the Company’s officers, management-level employees and members of its Board of Directors. Stock options granted prior to 2018 generally vest at a rate of one-fourth on each of the first four anniversaries of the grant date and have a maximum contractual term of seven years. Beginning in 2018, stock options granted generally vest at a rate of one-third on each of the first three anniversaries of the grant date and have a maximum contractual term of ten years. Restricted stock granted to employees prior to 2018 generally vests four years after the grant date (cliff vesting) and is subject to accelerated vesting due to certain events, including doubling of the grant price of the Company’s common stock as of the close of business during any five consecutive trading days. Beginning in 2018, restricted stock granted to employees generally vests one-third on each of the first three anniversaries of the grant date. Restricted stock granted to non-employee directors generally vests two years after the grant date (cliff vesting) and is subject to accelerated vesting due to certain events, including doubling of the grant price of the Company’s common stock as of the close of business during any five consecutive trading days.

Share Based Compensation Expense

The Company measures and records compensation expense related to all stock awards by recognizing the grant date fair value of the awards over their requisite service periods in the financial statements. For grants under any of the Company’s plans that are subject to graded vesting based on a service condition, the Company recognizes expense on a straight-line basis over the requisite service period for the entire award.

Total share-based compensation expense was as follows for the years ended December 31:

(In thousands)

Pre-tax share-based compensation expense is included in the consolidated statement of income in either Cost of sales or Selling, general and administrative expenses, depending on where the recipient’s cash compensation is reported.

Stock Options

The fair value of each stock option grant is estimated on the date of grant using a Black-Scholes-Merton option pricing model. The following weighted average assumptions were used in the Black-Scholes-Merton model to estimate the fair values of stock options granted during the years indicated:

Expected term (years) 5.0 5.0 5.0

Black-Scholes-Merton fair value per stock option granted $ 25.63 $ 11.01 $ 16.85

Expected volatility is based on the historical volatility of the Company’s stock over the stock options’ expected term. The Company used historical exercise data to estimate the stock options’ expected term, which represents the period of time that the stock options granted are expected to be outstanding. Management anticipates that the future stock option holding periods will be similar to the historical stock option holding periods. The risk-free interest rate for periods within the expected term of the stock option is based on the U.S. Treasury yield curve at

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the time of grant. The expected dividend yield is calculated by dividing the Company’s annual dividend, based on the most recent quarterly dividend rate, by the Company’s closing common stock price on the grant date. Compensation expense recognized for all share-based awards is net of estimated forfeitures. The Company’s estimated forfeiture rates are based on its historical experience.

The following is a summary of the Company’s stock option activity and related information for the year ended December 31, 2021:

(In thousands) (Years) (In millions)

Outstanding at the beginning of the year 3,950 $ 65.16

The aggregate intrinsic value of stock options exercised during 2021, 2020 and 2019 was $59.1 million, $63.7 million and $88.2 million, respectively. The total fair value of stock options vested during 2021, 2020 and 2019 was $13.7 million, $12.9 million and $11.8 million, respectively.

The following is a summary of the Company’s non-vested stock option activity and related information for the year ended December 31, 2021:

Shares Weighted Average Grant Date Fair Value

(In thousands)

Non-vested stock options outstanding at the beginning of the year 1,906 $ 13.34

Non-vested stock options outstanding at the end of the year 1,292 $ 18.41

As of December 31, 2021, there was approximately $14 million of expected future pre-tax compensation expense related to the 1.3 million non-vested stock options outstanding, which is expected to be recognized over a weighted average period of less than two years.

Restricted Stock

The fair value of restricted shares under the Company’s restricted stock arrangement is determined by the product of the number of shares granted and the Company’s closing common stock price on the grant date. Upon the grant of restricted stock, the fair value of the restricted shares (unearned compensation) at the grant date is charged as a reduction of capital in excess of par value in the Company’s consolidated balance sheet and is amortized to expense on a straight-line basis over the vesting period, which is the same as the calculated derived service period as determined on the grant date.

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AME US Equity

AME · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

AME US Equity☆

AME · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

AME US Equity