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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-specific 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 2022, the Company posted record sales, operating income, operating margins, net income, diluted earnings per share, backlog, and orders. 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 in 2022 were:

•Net sales for 2022 were a record $6,150.5 million, an increase of $604.0 million or 10.9%, compared with net sales of $5,546.5 million in 2021. The increase in net sales for 2022 was due to an 11% organic sales increase, a 2% increase from acquisitions, partially offset by an unfavorable 2% effect of foreign currency translation.

•Net income for 2022 was a record $1,159.5 million, an increase of $169.4 million or 17.1%, compared with $990.1 million in 2021.

•Diluted earnings per share for 2022 were a record $5.01, an increase of $0.76 or 17.8%, compared with $4.25 per diluted share in 2021.

•Orders for 2022 were a record $6,639.1 million, an increase of $164.7 million or 2.5%, compared with $6,474.4 million in 2021. The increase in orders was due to a 9% organic order increase, partially offset by a 3% unfavorable effect of foreign currency translation, as well as a 3% decrease from the year-over-year impact of acquisitions. As a result, the Company's backlog of unfilled orders at December 31, 2022 was a record $3,218.6 million.

•During 2022, the Company spent $429.7 million in cash, net of cash acquired, to purchase two businesses:

•In September 2022, AMETEK acquired Navitar, Inc. ("Navitar"), a designer and manufacturer of customized, fully integrated optical imaging systems, components, and software.

•In October 2022, AMETEK acquired RTDS Technologies Inc. ("RTDS"), a leading provider of real-time power simulation systems used by utilities, and research and education institutions in the development and testing of the electric power grid and renewable energy applications.

•Cash flow provided by operating activities for 2022 was $1,149.4 million. Free cash flow (cash flow provided by operating activities less capital expenditures) was $1,010.4 million in 2022.

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•EBITDA (earnings before interest, income taxes, depreciation, and amortization) was a record $1,829.7 million in 2022, compared with $1,594.3 million in 2021.

•The Company continued its emphasis on investment in research, development and engineering, spending $322.1 million in 2022. Sales from products introduced in the past three years were $1,674.2 million.

Recent Events and Market Conditions

Recent events and market conditions impacting our business include the inflationary cost environment, rising interest rates, supply chain constraints, the COVID-19 pandemic, and the ongoing conflict in Ukraine. As a result of these events and conditions, we anticipate the challenging global economic environment to continue into 2023.

Beginning in 2021, we experienced heightened levels of inflation in material and transportation costs. We have taken steps to mitigate the impacts of material and transportation cost inflation by implementing pricing actions. We experienced additional pressure in our supply chain due to component shortages and strained transportation capacity, as well as the impact of continued elevated customer demand. In response to these supply chain pressures, we have taken actions to build inventory and seek alternative sources of supply to support sales and backlog growth. The inflationary environment has also resulted in central banks raising short-term interest rates. We expect inflation to continue into 2023 and will continue to take actions to mitigate this inflationary pressure.

There still remains uncertainty concerning the COVID-19 pandemic, its effect on labor, government mandated lockdowns and other restrictive measures, and the pandemic's ultimate duration. Lockdowns in China during 2022 limited our ability to access customer sites, operate certain facilities, and placed additional constraints on our supply chain. Depending on the course of the pandemic, additional lockdowns in China or elsewhere could impact our operations and results of operations.

The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty. While we do not have operations in Russia or Ukraine and do not have significant exposure to customers and vendors in those countries, a significant expansion of the conflict's current scope could further complicate the economic environment.

While the ultimate impact of these events remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition, and results of operations.

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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, 2022 compared with the year ended December 31, 2021” 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, 2021 compared to the year ended December 31, 2020 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission on February 22, 2022.

Results of Operations for the year ended December 31, 2022 compared with the year ended December 31, 2021

Net sales for 2022 were a record $6,150.5 million, an increase of $604.0 million or 10.9%, compared with net sales of $5,546.5 million in 2021. The increase in net sales for 2022 was due to an 11% organic sales increase, a 2% increase from acquisitions, partially offset by an unfavorable 2% effect of foreign currency translation. EIG net sales were $4,229.4 million in 2022, an increase of 12.4%, compared with $3,763.8 million in 2021. EMG net sales were $1,921.2 million in 2022, an increase of 7.8%, compared with $1,782.8 million in 2021.

Total international sales for 2022 were $2,996.3 million or 48.7% of net sales, an increase of $250.7 million or 9.1%, compared with international sales of $2,745.6 million or 49.5% of net sales in 2021. The increase in international sales was primarily driven by strong demand in all regions as well as contributions from recent acquisitions. Export shipments from the United States, which are included in total international sales, were $1,688.7 million in 2022, an increase of $213.1 million or 14.4%, compared with $1,475.6 million in 2021.

Orders for 2022 were a record $6,639.1 million, an increase of $164.7 million or 2.5% compared with $6,474.4 million in 2021. The increase in orders was due to a 9% organic order increase, partially offset by a 3% unfavorable effect of foreign currency translation, as well as a 3% decrease from the year-over-year impact of acquisitions. The Company’s backlog of unfilled orders at December 31, 2022 was a record $3,218.6 million, an increase of $488.5 million or 17.9%, compared with $2,730.1 million at December 31, 2021.

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Segment operating income for 2022 was $1,593.3 million, an increase of $197.7 million or 14.2%, compared with segment operating income of $1,395.6 million in 2021. Segment operating income was positively impacted in 2022 by the increased sales discussed above. Segment operating income, as a percentage of net sales, increased to 25.9% in 2022, compared with 25.2% in 2021. Segment operating margins for 2022 were negatively impacted by the dilutive impact of the 2021 acquisitions. Excluding the dilutive impact of recent acquisitions, segment operating margins for the core businesses increased 120 basis points compared to 2021, due to the Company's Operational Excellence initiatives.

Cost of sales for 2022 was $4,005.3 million or 65.1% of net sales, an increase of $371.4 million or 10.2%, compared with $3,633.9 million or 65.5% of net sales for 2021. The cost of sales increase was primarily due to the net sales increase discussed above.

Selling, general and administrative expenses for 2022 were $644.6 million or 10.5% of net sales, an increase of $40.7 million or 6.7%, compared with $603.9 million or 10.9% of net sales in 2021. Selling, general and administrative expenses increased primarily due to the increase in net sales discussed above.

Consolidated operating income was $1,500.7 million or a record 24.4% of net sales for 2022, an increase of $192.0 million or 14.7%, compared with $1,308.7 million or 23.6% of net sales in 2021.

Other income, net was $11.2 million for 2022, compared with $5.1 million of other expense in 2021, a change of $16.3 million. During 2022, the Company recorded higher pension income of $9.9 million and lower acquisition-related due diligence expense compared to 2021.

The effective tax rate for 2022 was 18.8%, compared with 19.1% in 2021. 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 2022 was a record $1,159.5 million, an increase of $169.4 million or 17.1%, compared with $990.1 million in 2021.

Diluted earnings per share for 2022 were a record $5.01, an increase of $0.76 or 17.8%, compared with $4.25 per diluted share in 2021.

Segment Results

EIG’s net sales totaled a record $4,229.4 million for 2022, an increase of $465.6 million or 12.4%, compared with $3,763.8 million in 2021. The net sales increase was due to an 11% organic sales increase, a 4% increase from acquisitions, partially offset by an unfavorable 3% effect of foreign currency translation.

EIG’s operating income was a record $1,089.7 million for 2022, an increase of $131.5 million or 13.7%, compared with $958.2 million in 2021. EIG’s operating margins were 25.8% of net sales for 2022, compared with 25.5% of net sales in 2021. EIG's operating margins in 2022 were negatively impacted by the dilutive impact of the 2021 acquisitions. Excluding the dilutive impact of the 2021 acquisitions, EIG operating margins increased 100 basis points compared to 2021, due to the increase in net sales discussed above, as well as continued benefits from the Company's Operational Excellence initiatives.

EMG’s net sales totaled a record $1,921.2 million for 2022, an increase of $138.4 million or 7.8%, compared with $1,782.8 million in 2021. The net sales increase was due to an 11% organic sales increase, partially offset by an unfavorable 3% effect of foreign currency translations.

EMG’s operating income was a record $503.6 million for 2022, an increase of $66.2 million or 15.1%, compared with $437.4 million in 2021. EMG's operating income included a $7.1 million gain on the sale of a facility during 2022. EMG’s operating margins were a record 26.2% of net sales for 2022, compared with 24.5% of net sales in 2021. Excluding the gain on the sale of a facility, EMG operating margins increased 130 basis points compared to

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2021, due to the increase in net sales discussed above, as well as continued benefits from the Company's Operational Excellence initiatives.

Liquidity and Capital Resources

Cash provided by operating activities totaled $1,149.4 million in 2022, a decrease of $11.1 million or 1.0%, compared with $1,160.5 million in 2021. The decrease in cash provided by operating activities for 2022 was due to higher working capital levels, primarily driven by higher investments in inventory to support sales and backlog growth, and to mitigate inventory supply chain constraints, partially offset by higher net income.

Free cash flow (cash flow provided by operating activities less capital expenditures) was $1,010.4 million in 2022, compared with $1,049.8 million in 2021. EBITDA (earnings before interest, income taxes, depreciation and amortization) was a record $1,829.7 million in 2022, compared with $1,594.3 million in 2021. 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 $552.8 million in 2022, compared with cash used by investing activities of $2,055.8 million in 2021. In 2022, the Company paid $429.7 million, net of cash acquired, to purchase Navitar, Inc. and RTDS Technologies Inc., compared to $1,959.2 million, net of cash acquired, to purchase Abaco Systems, Magnetrol International, NSI-MI Technologies, Crank Software, EGS Automation, and Alphasense in 2021. Additions to property, plant and equipment totaled $139.0 million in 2022, compared with $110.7 million in 2021.

Cash used by financing activities totaled $575.7 million in 2022, compared with $39.3 million of cash provided by financing activities in 2021. At December 31, 2022, total debt, net was $2,385.0 million, compared with $2,544.2 million at December 31, 2021. In 2022, total borrowings decreased by $73.7 million, compared with an increase of $183.9 million in 2021. At December 31, 2022, the Company had available borrowing capacity of $2,745.2 million under its revolving credit facility and term loan, including the $700 million accordion feature.

On May 12, 2022, the Company along with certain of its foreign subsidiaries amended and restated 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 and restates the Company’s existing revolving credit facility to increase the size from $1.5 billion to $2.3 billion and terminates the $800 million term loan. 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, 2022, the Company had $219.0 million outstanding on the revolver with a maturity date of May 2027.

In the fourth quarter of 2021, a 55 million Swiss franc ($59.7 million) 2.44% senior note matured and was paid. The debt-to-capital ratio was 24.2% at December 31, 2022, compared with 27.0% at December 31, 2021. The net debt-to-capital ratio (total debt, net less cash and cash equivalents divided by the sum of net debt and stockholders’ equity) was 21.4% at December 31, 2022, compared with 24.2% at December 31, 2021. 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 2022, the Company repurchased approximately 2.7 million shares of its common stock for $332.8 million, compared with $14.7 million used for repurchases of approximately 113,000 shares in 2021. Effective May 5, 2022, the Company's Board of Directors approved a $1 billion share repurchase authorization. This authorization replaces an earlier $500 million share repurchase authorization approved by the Board in February 2019. At December 31, 2022, $823.9 million was available under the Company’s Board of Directors authorization for future share repurchases.

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Additional financing activities for 2022 included cash dividends paid of $202.2 million, compared with $184.6 million in 2021. On 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. Proceeds from the exercise of employee stock options were $49.9 million in 2022, compared with $60.3 million in 2021.

As a result of all of the Company’s cash flow activities in 2022, cash and cash equivalents at December 31, 2022 totaled $345.4 million, compared with $346.8 million at December 31, 2021. At December 31, 2022, the Company had $334.1 million in cash outside the United States, compared with $344.0 million at December 31, 2021. 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, 2023, the Company’s Board of Directors approved a 14% increase in the quarterly cash dividend on the Company’s common stock to $0.25 per common share from $0.22 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 2023 to 2032. 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, 2022, the Company had $1,003.9 million of purchase obligations due within one year and $115.8 million of purchase obligations due in more than one year.

The Company has standby letters of credit and surety bonds of $64.9 million related to performance and payment guarantees at December 31, 2022. 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 (1.7) (1.4) (2.1)

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 (345.4) (346.8)

Capitalization (net debt plus stockholders’ equity) $ 9,516.1 $ 9,069.3

Net debt as a percentage of capitalization 21.4 % 24.2 %

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Internal Reinvestment

Capital Expenditures

Capital expenditures were $139.0 million or 2.3% of net sales in 2022, compared with $110.7 million or 2.0% of net sales in 2021. In 2022, approximately 64% of capital expenditures were for improvements to existing equipment or additional equipment to increase productivity and expand capacity. Capital expenditures in 2023 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 $322.1 million in 2022, $299.6 million in 2021 and $246.2 million in 2020. These amounts included research and development expenses of $198.8 million, $194.2 million and $158.9 million in 2022, 2021, and 2020, 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 performs either a qualitative or quantitative 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.

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Company analyzes actual and forecasted net sales and selling profit for each reporting unit, as well as historical performance and the results of prior quantitative tests performed. Additionally, the Company assesses critical areas that may impact its business, including macroeconomic conditions, industry and market conditions, cost factors, or any relevant events and factors that may impact projected financial results.

If performed, the quantitative goodwill impairment test uses a discounted cash flow analysis to determine the fair value of each reporting unit, which considers cash flows discounted at an appropriate discount rate. 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 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 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 perform its annual goodwill impairment test using the quantitative analysis method. The Company may elect to perform the quantitative 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, 2022, goodwill and other indefinite-lived intangible assets totaled $6,262.2 million or 50.4% of the Company’s total assets. The Company completed its required annual indefinite-lived intangibles impairment tests in the fourth quarter of 2022 and determined that the carrying values of certain of the Company’s indefinite-lived intangibles were impaired as a result of higher discount rates driven by higher interest rates. As a result, in the fourth quarter of 2022, the Company recorded an immaterial non-cash impairment charge related to certain of the Company's trade names. The Company completed its annual qualitative goodwill impairment test in the fourth quarter of 2022 and determined the carrying values of its goodwill 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 2022, 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

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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 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 44

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 2023 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, 2022 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, 2022.

The Company acquired Navitar, Inc. ("Navitar") in September 2022 and RTDS Technologies Inc. ("RTDS") in October 2022. As permitted by the U.S. Securities and Exchange Commission staff interpretative guidance for newly acquired businesses, the Company excluded Navitar and RTDS from management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. Navitar, and RTDS constituted 3.5% of total assets as of December 31, 2022 and 0.4% of net sales for the year then ended.

The Company’s internal control over financial reporting as of December 31, 2022 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, 2022, 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, 2022, 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 Navitar, Inc. and RTDS Technologies Inc., which are included in the 2022 consolidated financial statements of the Company and constituted 3.5% of total assets as of December 31, 2022 and 0.4% 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 Navitar, Inc. and RTDS Technologies Inc.

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, 2022 and 2021, 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, 2022, and the related notes and our report dated February 21, 2023 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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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 21, 2023 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 Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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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 $ 5.01 $ 4.25 $ 3.77

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) (1) —

Accumulated other comprehensive (loss) income

Foreign currency translation:

Defined benefit pension plans:

Treasury stock

Issuance of common stock under employee stock plans 2,857 6,981 13,879

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 (7,054) — (7,523)

Changes in assets and liabilities, net of acquisitions:

Investing activities:

Financing activities:

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 $3.7 million in 2022, $1.2 million in 2021 and $3.6 million in 2020. At December 31, 2022 and 2021, the allowance for estimated credit losses was $14.1 million and $11.2 million, respectively.

Inventories

The Company uses the first-in, first-out (“FIFO”) method of accounting, which approximates current replacement cost, for approximately 90% of its inventories at December 31, 2022. The last-in, first-out (“LIFO”) method of accounting is used to determine cost for the remaining 10% of the Company’s inventory at December 31, 2022. For inventories where cost is determined by the LIFO method, the FIFO value would have been $40.3 million and $29.8 million higher than the LIFO value reported in the consolidated balance sheet at December 31, 2022 and 2021, 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.

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.

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Depreciation expense was $113.7 million, $108.5 million and $101.3 million for the years ended December 31, 2022, 2021 and 2020, 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.

When testing goodwill for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If the Company performs a qualitative assessment and determines that an impairment is more likely than not, then performance of a quantitative impairment test is required. In conducting a qualitative assessment, the Company analyzes actual and forecasted net sales and selling profit for each reporting unit, as well as historical performance and the results of prior quantitative tests performed. Additionally, the Company assesses critical areas that may impact its business, including macroeconomic conditions, industry and market conditions, cost factors, or any relevant events and factors that may impact projected financial results.

If performed, the quantitative goodwill impairment test is performed using a discounted cash flow analysis to determine the fair value of each reporting unit, which considers cash flows discounted at an appropriate discount rate. 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 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.

During the fourth quarter of 2022, the Company completed its annual goodwill impairment tests and elected to perform a qualitative assessment.

The Company completed its required annual impairment tests in the fourth quarter of 2022, 2021, and 2020 and determined that the carrying values of the Company's goodwill were not impaired. The Company completed its required annual indefinite-lived intangibles impairment test as of October 1, 2022 and determined that the carrying values of certain of the Company's trademarks and trade names with indefinite lives were impaired as a result of higher discount rates driven by higher interest rates. As a result, during the fourth quarter of 2022, the Company recorded an immaterial non-cash impairment charge related to certain of the Company's trade names. The Company completed its required annual impairment tests in the fourth quarter of 2021 and 2020 and determined that the carrying values of the Company's other intangible assets with indefinite lives were not impaired.

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 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 primarily entered into from time to time to hedge debt or foreign currency transactions, thereby minimizing the Company’s exposure to 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 at inception and on an ongoing basis and any changes in the hedge are made as appropriate.

Leases

The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components are recognized when the obligation is probable.

Operating leases are included in right-of-use ("ROU") assets, accrued liabilities and other, and other long-term liabilities on our consolidated balance sheets. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company has no finance leases. The Company primarily leases buildings (real estate) and automobiles which are classified as operating leases.

The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met.

Lease payments included in the measurement of the lease liability are comprised of fixed and variable payments that depend on an index or rate.

Variable lease payments not dependent on a rate or index associated with the Company’s leases are recognized when the events, activities, or circumstances in the lease agreement on which those payments are

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

assessed are probable. Variable lease payments are presented as operating expense in the Company’s income statement in the same line item as expense arising from fixed lease payments. Cash used in operations for operating leases is not materially different than total lease costs.

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.

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

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

Research and Development

Research and development costs are included in Cost of sales as incurred and were $198.8 million in 2022, $194.2 million in 2021 and $158.9 million in 2020.

Shipping and Handling Costs

Shipping and handling costs are included in Cost of sales and were $103.7 million in 2022, $86.1 million in 2021 and $56.8 million in 2020.

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 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 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.

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Pensions

The Company has U.S. and foreign defined benefit and defined contribution pension plans. The key 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:

The calculation of diluted earnings per share for 2022 excluded an immaterial number of stock options because the exercise prices of these stock options exceeded the average market price of the Company’s common shares, and the effect of their inclusion would have been antidilutive. There were no antidilutive shares in 2021 and 2020.

2. Recent Accounting Pronouncements

Recently Adopted 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 early adopted the ASU on January 1, 2022, and the amendments in this ASU were applied on a prospective basis to all periods presented. The adoption of ASU 2021-08 did not impact the Company’s consolidated results of operations, financial position, cash flows or financial statement disclosures.

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

3. Revenues

The outstanding contract asset and liability accounts were as follows:

(In thousands)

Change in contract liabilities – (increase) (69,876) (113,723)

The net change in 2022 and 2021 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, 2022 and 2021, the Company recognized revenue of $272 million and $184 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, 2022 and 2021, $41.0 million and $30.1 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, 2022 and 2021 were $526.0 million and $342.5 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.

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 $1,688.7 million.

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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)

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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)

EIG EMG Total

(In thousands)

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AMETEK, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 in an orderly transaction between market participants on the measurement date. The Company utilizes a hierarchy for disclosure of the inputs to the valuations used to measure fair value. The hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 - 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 - 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 tables provide the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31:

Total Level 1 Level 2 Level 3

(In thousands)

Mutual fund investments $ 9,856 $ 9,856 $ — $ —

Foreign currency forward contracts 3,032 — 3,032 —

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Total Level 1 Level 2 Level 3

(In thousands)

The fair value of mutual fund investments is based on quoted market prices. The mutual fund investments are shown as a component of long-term assets in the consolidated balance sheet. For the years ended December 31, 2022 and 2021, gains and losses on the investments were not significant.

Foreign Currency

At December 31, 2022 the Company had a Euro forward contract for a total notional value of 40.0 million Euros and a Canadian dollar forward contract for a notional value of 26.5 million dollars. At December 31, 2021 the Company had no foreign currency forward contracts outstanding. Foreign currency forward contracts are valued as level 2 assets as they are corroborated by foreign currency exchange rates and shown as a component of other current assets in the consolidated balance sheet. For the year ended December 31, 2022 and 2021, 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.

Financial Instruments

Cash, cash equivalents and mutual fund investments are recorded at fair value at December 31, 2022 and 2021 in the consolidated balance sheet.

The fair value of short-term borrowings, net approximates the carrying value. 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. At December 31, 2022 and 2021, the fair value of long-term debt (including current portion) was $2,010.9 million and $2,378.9 million and the recorded amount of long-term debt (including current portion) was $2,161.6 million and $2,233.7 million, respectively. See Note 10 for long-term debt principal amounts, interest rates and maturities.

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, 2022, and 2021, 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, 2022 and 2021, the Company had $271.7 million and $304.6 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, 2022 and 2021, the Company had $572.1 million and $654.1 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, $69.5 million of pre-tax currency remeasurement losses and $51.7 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, 2022 and 2021, respectively.

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6. Acquisitions and Divestiture

Acquisitions

The Company spent $429.7 million in cash, net of cash acquired, to acquire Navitar, Inc.("Navitar") in September 2022 and RTDS Technologies Inc. ("RTDS") in October 2022. Navitar is a market leader in the design, development and manufacturing of customized, fully integrated optical imaging systems, cameras, components and software. RTDS is a leading provider of real-time power simulation systems used by utilities, and research and education institutions in the development and testing of the electric power grid and renewable energy applications. Navitar and RTDS are part of EIG.

The following table represents the allocation of the purchase price for the net assets of the 2022 acquisitions based on the estimated fair values at acquisition (in millions):

Property, plant and equipment $ 11.8

Other intangible assets 213.3

Deferred income taxes (23.5)

Net working capital and other(1) 30.3

Total cash paid $ 429.7

______________________

(1)Includes $18.4 million in accounts receivable, whose fair value, contractual cash flows and expected cash flows are approximately equal.

The amount allocated to goodwill is reflective of the benefits the Company expects to realize from the Navitar and RTDS acquisitions. Navitar's market leading optical components and solutions complement the Company's existing optics portfolio. RTDS' products and solutions complement the Company's existing power instruments businesses. The Company expects approximately $71.4 million of the goodwill relating to the acquisitions will be tax deductible in future years.

At December 31, 2022, the purchase price allocated to other intangible assets of $213.3 million consists of $37.2 million of indefinite-lived intangible trade names, which are not subject to amortization. The remaining $176.1 million of other intangible assets consists of $120.1 million of customer relationships, which are being amortized over a period of 19 years and $56.0 million of purchased technology, which is being amortized over a period of 11 to 15 years. Amortization expense for each of the next five years for the acquisitions is expected to be $11.1 million per year.

The Company is in the process of finalizing the measurement of the intangible assets and tangible assets and liabilities, as well as accounting for income taxes, for Navitar and RTDS.

The acquisitions had an immaterial impact on reported net sales, net income, and diluted earnings per share for the year ended December 31, 2022. Had the acquisitions been made at the beginning of 2022 or 2021, pro forma net sales, net income, and diluted earnings per share for the year ended December 31, 2022 and 2021, would not have been materially different than the amounts reported.

In 2021, 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, NSI-MI Technologies ("NSI-MI") and 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

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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.

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.

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 1.9 — 1.9

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

Purchase price allocation adjustments and other 1.8 — 1.8

Foreign currency translation adjustments (37.3) (28.4) (65.7)

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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 $205.8 million, $183.6 million, and $154.0 for the years ended December 31, 2022, 2021 and 2020, respectively. Amortization expense for each of the next five years is expected to approximate $204 million per year, not considering the impact of potential future acquisitions.

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8. Other Consolidated Balance Sheet Information

December 31,

(In thousands)

INVENTORIES, NET

PROPERTY, PLANT AND EQUIPMENT, NET

ACCRUED LIABILITIES AND OTHER

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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:

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 (2,317) (2,291)

Portion included in non-current assets 50,868 26,999

______________________

(1)Presented net of deferred tax assets of approximately $34.1 million and $33.3 million at December 31, 2022 and 2021, respectively, resulting from lease obligations.

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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 1.6 1.5 2.3

Foreign operations, net (1.0) (0.4) (1.4)

U.S. Benefits for Manufacturing, Export and credits (2.9) (2.6) (1.9)

Uncertain Tax Items 1.0 (0.1) (1.3)

Stock compensation (0.9) (1.7) (1.0)

U.S. Tax on Foreign Earnings 0.5 3.9 2.2

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

Consolidated effective tax rate 18.8 % 19.1 % 19.4 %

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, 2022, 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.

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 $898.0 million in previously taxed income (“PTI”) as of December 31, 2022 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 $60.4 million and $186.4 million at December 31, 2022 and 2021 respectively because determination of the amount of the unrecognized deferred income tax liability on these undistributed earnings is not practicable.

As of December 31, 2022, and 2021, the Company recorded deferred income taxes totaling $12.4 million and $11.4 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, 2022, the Company had tax effected benefits, net of uncertain tax positions of $54.3 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 $2.2 million for federal income tax purposes with no valuation allowance for the U.S. consolidated group, $10.7 million for state income tax purposes with a valuation allowance of $2.7 million, and $41.4 million for foreign income tax purposes with a valuation allowance of $2.7 million. These net operating loss carryforwards, if not used, will expire between 2023 and 2042.

At December 31, 2022, the Company had tax effected benefits of $9.3 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 $2.9 million for federal income tax purposes with a valuation allowance of $0.6 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 2023 and 2042.

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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 federal and state credits and state net operating loss carryforwards. In 2022, the Company recorded a net decrease of $1.7 million in the valuation allowance. The reduction primarily relates to the reversal of a valuation allowance on federal tax credits in the amount of $2.3 million, which after considering significant positive evidence the company will be able to utilize in the future. Additionally, there was a reduction of $0.3 million to the valuation allowance due to changes in net operating losses in the normal course of business. Offsetting the reductions was an increase of $1.3 million relating to foreign net operating losses which are not expected to be utilized.

At December 31, 2022, the Company had gross unrecognized tax benefits of $174.7 million, of which $128.5 million, if recognized, would impact the effective tax rate. 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, 2022 and 2021, the Company reported $12.4 million and $9.1 million, respectively, related to interest and penalties as a component of other long term liabilities in the consolidated balance sheet. During 2022, the Company recognized a net expense of $3.2 million, and in 2021 a net benefit of $2.5 million, for interest and penalties related to uncertain tax positions in the consolidated statement of income as a component of income tax expense.

Approximately 64% 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, 2022, the Internal Revenue Service ("IRS") audit of the Company's consolidated U.S. income tax returns for the year 2018 and 2019 is ongoing. 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 2022, the Company added $43.4 million of tax, interest and penalties related to identified uncertain tax positions and reversed $4.4 million of tax and interest related to statute expirations and settlement of prior uncertain positions. 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.

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 29.3 41.4 15.6

Additions for tax positions of prior years 2.1 34.9 6.2

Reductions for tax positions of prior years (1.0) (1.5) (0.3)

Reductions related to settlements with taxing authorities (0.2) (0.1) (0.5)

Reductions due to statute expirations (2.5) (28.4) (29.4)

In 2022, the additions above primarily reflect the increase in tax liabilities for uncertain tax positions related to certain higher transfer pricing risks for intangible assets. The reductions above primarily relate to statute expirations. The net increase of $27.7 million in uncertain tax positions resulted in an increase of $23.1 million to income tax expense and the remainder primarily in long term receivable. At December 31, 2022, tax, interest and

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penalties of $173.2 million were classified as a non-current liability and $13.9 million was reflected as a reduction against deferred tax assets.

10. Debt

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

(In thousands)

Less: Debt issuance costs (7,395) (5,919)

Maturities of long-term debt borrowings outstanding at December 31, 2022 were as follows: $300.0 million in 2024; $425.0 million in 2025; $420.8 million in 2026; $330.2 million in 2027; $445.1 million in 2027; and $240.6 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 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 ($80.2 million at December 31, 2022). 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

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issued $50 million in aggregate principal amount of 3.91% senior notes due June 2025. In August 2015, the 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 October 2016, the Company issued 300 million Euros ($320.8 million at December 31, 2022) in aggregate principal amount of 1.34% senior notes due October 2026 and 200 million Euros ($213.9 million at December 31, 2022) in aggregate principal amount of 1.53% senior notes due October 2028. In November 2016, the Company issued 150 million British pounds ($181.2 million at December 31, 2022) in aggregate principal amount of 2.59% senior notes due November 2028 and 75 million British pounds ($90.6 million at December 31, 2022) in aggregate principal amount of 2.70% senior notes due November 2031.

On May 12, 2022, 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 and restates the Company’s existing revolving credit facility to increase the size from $1.5 billion to $2.3 billion and terminates the $800 million term loan. The Credit Agreement consists of a five-year revolving credit facility with a final maturity date in May 2027. The revolving credit facility total borrowing capacity excludes an accordion feature that permits the Company to request up to an additional $700 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, 2022, the Company had available borrowing capacity of $2,745.2 million under its revolving credit facility, including the $700 million accordion feature.

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, 2022 and 2021 the Company had $219.0 million and $314.5 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, 2022 and 2021 was 3.57% and 1.34%, respectively. The Company had outstanding letters of credit primarily under the revolving credit facility totaling $35.8 million and $38.0 million at December 31, 2022 and 2021, 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, 2022.

Foreign subsidiaries of the Company had available credit facilities with local foreign lenders of $64.1 million and $56.8 million at December 31, 2022 and 2021, respectively. At December 31, 2022, foreign subsidiaries had $11.8 million in debt borrowings outstanding, which was reported in short-term borrowings. At December 31, 2021, foreign subsidiaries had $2.0 million of debt borrowings outstanding.

The weighted average interest rate on total debt borrowings outstanding at December 31, 2022 and 2021 was 3.4% and 3.1%, 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 $ 32.54 $ 25.63 $ 11.01

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, 2022:

(In thousands) (Years) (In millions)

Outstanding at the beginning of the year 3,352 $ 76.08

The aggregate intrinsic value of stock options exercised during 2022, 2021 and 2020 was $50.3 million, $59.1 million and $63.7 million, respectively. The total fair value of stock options vested during 2022, 2021 and 2020 was $11.4 million, $13.7 million and $12.9 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, 2022:

Shares Weighted Average Grant Date Fair Value

(In thousands)

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

Non-vested stock options outstanding at the end of the year 1,116 $ 26.57

As of December 31, 2022, there was approximately $18 million of expected future pre-tax compensation expense related to the 1.1 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.

AME US Equity

AME · 10-K · period ended 2022-12-31

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 2022-12-31

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