AMETEK, INC. 
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
•Net income for 2022 was a record
•Diluted earnings per share for 2022 were a record
•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 atDecember 31, 2022 was a record$3,218.6 million .
•During 2022, the Company spent
•In
•InOctober 2022 , AMETEK acquiredRTDS 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. 23
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•EBITDA (earnings before interest, income taxes, depreciation, and amortization)
was a record
•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 inUkraine . 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 inChina 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 inChina or elsewhere could impact our operations and results of operations. The invasion ofUkraine byRussia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty. While we do not have operations inRussia orUkraine 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. 24
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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,
2022 2021 2020
(In thousands)
Net sales:
Electronic Instruments $ 4,229,353 $ 3,763,758 $ 2,989,928
Electromechanical 1,921,177 1,782,756 1,550,101
Consolidated net sales $ 6,150,530 $ 5,546,514 $ 4,540,029
Operating income and income before income taxes:
Segment operating income:
Electronic Instruments $ 1,089,729 $ 958,183 $ 770,620
Electromechanical 503,593 437,378 324,962
Total segment operating income 1,593,322 1,395,561 1,095,582
Corporate administrative expenses (92,630) (86,891) (67,698)
Consolidated operating income 1,500,692 1,308,670 1,027,884
Interest expense (83,186) (80,381) (86,062)
Other (expense) income, net 11,186 (5,119) 140,487
Consolidated income before income taxes $ 1,428,692 ______________________
The following "Results of Operations of the year endedDecember 31, 2022 compared with the year endedDecember 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 endedDecember 31, 2021 compared to the year endedDecember 31, 2020 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed with theSecurities and Exchange Commission onFebruary 22, 2022 .
Results of Operations for the year ended
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 fromthe 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 atDecember 31, 2022 was a record$3,218.6 million , an increase of$488.5 million or 17.9%, compared with$2,730.1 million atDecember 31, 2021 . 25
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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
Other income, net was
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
Diluted earnings per share for 2022 were a record
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
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 26
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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 ofU.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 purchaseNavitar, Inc. andRTDS 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. AtDecember 31, 2022 , total debt, net was$2,385.0 million , compared with$2,544.2 million atDecember 31, 2021 . In 2022, total borrowings decreased by$73.7 million , compared with an increase of$183.9 million in 2021. AtDecember 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. OnMay 12, 2022 , the Company along with certain of its foreign subsidiaries amended and restated its Credit Agreement dated as ofSeptember 22, 2011 , as amended and restated as ofMarch 10, 2016 and as further amended and restated as ofOctober 30, 2018 , with the lenders,JPMorgan Chase Bank, N.A ., asAdministrative Agent andBank of America, N.A .,PNC Bank, National Association ,Trust Bank andWells 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. InNovember 2021 , the Company further amended the Credit Agreement to address the cessation of LIBOR on certain currencies. AtDecember 31, 2022 , the Company had$219.0 million outstanding on the revolver with a maturity date ofMay 2027 . In the fourth quarter of 2021, a55 million Swiss franc ($59.7 million ) 2.44% senior note matured and was paid. The debt-to-capital ratio was 24.2% atDecember 31, 2022 , compared with 27.0% atDecember 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% atDecember 31, 2022 , compared with 24.2% atDecember 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 ofU.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. EffectiveMay 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 inFebruary 2019 . AtDecember 31, 2022 ,$823.9 million was available under the Company's Board of Directors authorization for future share repurchases. 27
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Additional financing activities for 2022 included cash dividends paid of$202.2 million , compared with$184.6 million in 2021. OnFebruary 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 atDecember 31, 2022 totaled$345.4 million , compared with$346.8 million atDecember 31, 2021 . AtDecember 31, 2022 , the Company had$334.1 million in cash outsidethe United States , compared with$344.0 million atDecember 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
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. AtDecember 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$64.9 million related to performance and payment guarantees atDecember 31, 2022 . Based on experience with these arrangements, the Company believes that any obligations that may arise will not be material to its financial position. 28
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Non-GAAP Financial Measures
EBITDA represents earnings before interest, income taxes, depreciation and amortization. EBITDA is presented because the Company is aware that it is used by rating agencies, securities analysts, investors and other parties in evaluating the Company. It should not be considered, however, as an alternative to operating income as an indicator of the Company's operating performance or as an alternative to cash flows as a measure of the Company's overall liquidity as presented in the Company's consolidated financial statements. Furthermore, EBITDA measures shown for the Company may not be comparable to similarly titled measures used by other companies. The following table presents the reconciliation of net income reported in accordance withU.S. generally accepted accounting principles ("GAAP") to EBITDA: Year Ended December 31, 2022 2021 2020 (In millions) Net income$ 1,159.5 $ 990.1 $ 872.4 Add (deduct): Interest expense 83.2 80.4 86.1 Interest income (1.7) (1.4) (2.1) Income taxes 269.2 233.1 209.9 Depreciation 113.7 108.5 101.3 Amortization 205.8 183.6 154.0 Total adjustments 670.2 604.2 549.2 EBITDA$ 1,829.7 $ 1,594.3 $ 1,421.6 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 withU.S. GAAP to free cash flow: Year Ended December 31, 2022 2021 2020 (In millions) Cash provided by operating activities$ 1,149.4 $ 1,160.5 $ 1,281.0 Deduct: Capital expenditures (139.0) (110.7) (74.2) Free cash flow$ 1,010.4 $ 1,049.8 $ 1,206.8 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 withU.S. GAAP to net debt: December 31, 2022 2021 (In millions) Total debt, net$ 2,385.0 $ 2,544.2 Less: Cash and cash equivalents (345.4) (346.8) Net debt 2,039.6 2,197.4 Stockholders' equity 7,476.5 6,871.9
Capitalization (net debt plus stockholders' equity)
21.4 % 24.2 %
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Table of Contents 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. 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 30
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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. AtDecember 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 hasU.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 theU.S. and foreign discount rates, the Company's actuaries developed a customized discount 31
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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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