What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-02-22 compared with 2020-02-24 · 137 added, 228 removed, 319 unchanged (53% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 6, "Selected Financial Data" and our consolidated financial statements and related notes included in this Annual Report on Form 10-K.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in this Annual Report on Form 10-K.

This discussion contains forward-looking statements that involve risks and uncertainties.

6 unchanged sentences

We market our products internationally, primarily through our direct sales force.

Our major manufacturing facilities are located in the United States, Germany and Russia.

Our major manufacturing facilities are located in the United States, Germany, Russia and Belarus.

We have sales service offices and applications laboratories worldwide.

31 unchanged sentences

In reading our financial statements, you should be aware of the following factors and trends that our management believes are important in understanding our financial performance.

Our net sales grew from $1,006.2 million in 2016 to $1,314.6 million in 2019, representing a three year compound annual growth rate of approximately 9%.

Net sales growth was driven by increasing demand for our products, partially offset by declines in average sales prices, the introduction of new products, including laser and non-laser systems, high power and ultra-fast pulsed lasers, optical heads and other accessories and the development of new applications for our products some of which displace non-laser technologies.

Our annual revenue growth rates have varied.

Net sales decreased by 10% in 2019 and increased by 4% and 40%, 2018 and 2017, respectively.

COVID-19 Update.

Global demand trends have been impacted adversely by the ongoing COVID-19 pandemic and therefore remain uncertain at this time .

Economic indicators show some improvement from the severe contraction experienced earlier in 2020, which has led to an improvement in the recent demand environment in certain regions.

It is difficult to predict whether the improvement in some macro-economic indicators will be sustained if there are additional restrictions imposed as a result of a resurgence in COVID-19 infections.

This uncertainty continues to make forecasting our business challenging in the near to medium-term.

Currently, our four major production facilities in United States, Germany, Russia and Belarus remain open and are operating normally.

We have implemented employee safety and sanitization protocols that have impacted productivity and efficiency.

We have vertically integrated manufacturing, and many of the components one facility supplies to another facility are single sourced internally and not available from third party suppliers, for example our semiconductor diodes manufactured in Oxford, Massachusetts.

While we have attempted to build safety stock of critical components at our various locations, if government restrictions to address COVID-19 become more severe than we have experienced to date or if there was significant absenteeism as a result of COVID-19 or resurgence in the places where we operate, it could impact our internal supply chain.

If our revenues are reduced for an extended period or if our production output falls because of government restrictions or absenteeism, we may be required to reduce payroll-related costs and other expenses in the future through layoffs, furloughs or reduced hours, even though we have not done so to date .

We have not experienced significant supply disruption from third party component suppliers;

however, we may face some supply chain restraints related to logistics, including available air cargo space and higher freight rates if there is a COVID-19 resurgence.

We may experience delays in the future if resurgences are experienced and governments implement new restrictions.

We believe we have the ability to meet the near-term demand for our products, but the situation is fluid and subject to change.

We continue to monitor the rapidly evolving conditions and circumstances as well as guidance from international and domestic authorities, including public health authorities, and we may need to take additional actions based on their recommendations.

The measures implemented by various authorities related to the COVID-19 outbreak have caused us to change our business practices including those related to where employees work, the distance between employees in our facilities, limitations on in-person meetings between employees and with customers, suppliers, service providers, and stakeholders as well as restrictions on business travel to domestic and international locations or to attend trade shows, investor conferences and other events.

To date, we have been able to accommodate these changes to our business operations and continue to meet customer demand.

If guidelines from relevant authorities becomes more restrictive due to a resurgence of COVID-19 in a particular region, the effect on our operations could be more significant.

The COVID-19 pandemic has increased economic uncertainty and decreased demand for our products in many markets we serve and could continue for an unknown period of time.

In these circumstances, there may be developments outside of our control, including the length and extent of the COVID-19 outbreak and government-imposed measures that may require us to adjust our operating plans.

As such, given the dynamic nature of this situation, we cannot reasonably estimate the future impacts of COVID-19 on our financial condition, results of operations or cash flows.

Our annual revenue growth rates have varied from year to year.

Net sales decreased by 9% and 10% in 2020 and 2019, respectively, and increased by 4% in 2018.

In 2020, the decline in net sales was driven by decreased demand for our products related to the COVID-19 pandemic that extended and deepened the weak macroeconomic environment prevailing at the end of 2019.

In 2019, the decline in net sales was driven by decreased demand for our products related to the trade war between the U.S.

and China that weakened macroeconomic conditions in the second half of 2019.

In addition to these factors, sales were affected by declines in average sales prices related to competition.

These reductions in sales were partially offset by the introduction of new products, including high power and ultra-fast pulsed lasers, optical heads and other accessories and the development of new applications for our products some of which displace non-laser technologies.

Our business depends substantially upon capital expenditures by end users, particularly by manufacturers using our products for materials processing, which includes general manufacturing, automotive, other transportation, aerospace, heavy industry, consumer, semiconductor and electronics.

5 unchanged sentences

Net sales can be affected by the time taken to qualify our products for use in new applications in the end markets that we serve.

Our sales cycle varies substantially, ranging from a period of a few weeks to as long as one year or more, but is typically several months.

The adoption of our products by a new customer or qualification in a new application can lead to an increase in net sales for a period, which may then slow until we penetrate new markets or obtain new customers.

In the recent years, our net sales have been susceptible to negative impacts of tariffs.

In the recent years, our net sales have been negatively impacted by tariffs and trade policies.

New tariffs and other changes in U.S.

trade policy could trigger retaliatory actions by affected countries, and certain foreign governments, including the Chinese government (which has imposed retaliatory tariffs on a range of U.S.

goods including certain optical and electronic products and components).

We have seen a drop in demand for our products, particularly in the materials processing market as result.

We are also susceptible to global or regional disruptions such as political instability, geopolitical conflicts, acts of terrorism, significant fluctuations in currency values, natural disasters, macroeconomic concerns and particularly the impact of the 2019 novel coronavirus outbreak that affect the level of capital expenditures or global commerce.

The novel coronavirus outbreak is understood to have started in China, which is a large and important market for IPG, with repercussions for other markets.

With respect to the 2019 novel coronavirus outbreak specifically, we currently expect that our first quarter 2020 financial results will be negatively impacted, potentially to a material degree.

In addition, as of the time of this Annual Report on Form 10-K, we expect that the 2019 novel coronavirus could continue to negatively impact our businesses beyond the first quarter of 2020, but the extent and duration of such impacts over the longer term remain uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the coronavirus, the extent and effectiveness of containment actions taken, including mobility restrictions and work restrictions, and the impact of these and other factors on our customer base and general commercial activity.

trade policy could trigger retaliatory actions by affected countries, and certain foreign governments.

We are also susceptible to global or regional disruptions such as political instability, geopolitical conflicts, acts of terrorism, significant fluctuations in currency values, natural disasters, macroeconomic concerns and particularly the impact of the COVID-19 outbreak that affect the level of capital expenditures or global commerce.

With respect to the COVID-19 outbreak specifically, our 2020 financial results were negatively impacted.

In addition, as of the time of this Annual Report on Form 10-K, we expect that COVID-19 could continue to negatively impact our businesses beyond 2020, but the extent and duration of such impacts over the longer term remain uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the coronavirus, the extent and effectiveness of containment actions taken, the approval, effectiveness, timing and widespread inoculation of the global population with new vaccines, and the impact of these and other factors on our customer base and general commercial activity.

The average selling prices of our products generally decrease as the products mature.

14 unchanged sentences

• The gross margin for certain specialty products may be higher because there are fewer or sometimes no equivalent competing products;

• Customers that purchase devices in greater unit volumes generally receive lower prices per device than customers that purchase fewer units.

These lower selling prices to high unit volume customers may be partially offset by the improved absorption of fixed overhead costs associated with larger product volumes, which drive economies of scale in manufacturing;

• Customers that purchase devices in greater unit volumes generally are provided lower prices per device than customers that purchase fewer units.

In general, lower selling prices to high unit volume customers reduce gross margin although this may be partially offset by improved absorption of fixed overhead costs associated with larger product volumes, which drive economies of scale in manufacturing;

• Gross margin on systems and communication components can be lower than margins for our laser and amplifier sources, depending on the configuration, volume and competitive forces, among other factors.

1 unchanged sentence

If we are able to develop opportunities that are significant in size, competitively advantageous or leverage our existing technology base and leadership, our current gross margin levels may not be maintained.

Instead, we aim to deliver industry-leading levels of gross and operating margins by growing our market position across the broader markets we serve.

Instead, we aim to deliver industry-leading levels of gross margins by growing sales, by taking market share in existing

markets, or by developing new applications and markets we address, by reducing the cost of our products and by optimizing the efficiency of our manufacturing operations.

For instance, despite the decreases in sales in 2020 and 2019, manufacturing levels remained high and our facilities increased production as we manufactured more optical power products at lower average selling prices.

We invested $87.7 million, $133.5 million and $160.3 million in capital expenditures in 2020, 2019 and 2018, respectively.

19 unchanged sentences

The amount of research and development expense we incur may vary from period to period.

Cost reduction program.

During the fourth quarter of 2019, IPG implemented a cost reduction program in response to continued global macroeconomic, competitive and geopolitical headwinds.

The Company expects to reduce annualized manufacturing and operating expenses by approximately $30 million.

As part of this program the Company will reduce global headcount by more than 300 positions and decrease other direct labor costs and expenses.

IPG has implemented a hiring freeze and expects limited replacement of workforce attrition to result in further headcount reductions.

Refer to Note 6, "Restructuring," for discussion of the 2019 charges associated with this program.

Long-lived assets impairments .

Goodwill and long-lived assets impairments .

We review our intangible assets and property, plant and equipment for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

1 unchanged sentence

Negative industry or economic trends, including reduced estimates of future cash flows, disruptions to our business, slower growth rates, lack of growth in our relevant business units or differences in the estimated product acceptance rates could lead to impairment charges against our long-lived assets, including goodwill and other intangible assets.

We incurred $0.7 million and $2.5 million of non-cash impairment charges related to long-lived assets during the years ended December 31, 2020 and 2019, respectively.

There were no impairment charges recognized during the year ended December 31, 2018.

Our valuation methodology for assessing impairment requires management to make significant judgments and assumptions based on historical experience and to rely heavily on projections of future operating performance at many points during the analysis.

2 unchanged sentences

If our analysis indicates potential impairment to goodwill in one or more of our reporting units, we may be required to record charges to earnings in our financial statements, which could negatively affect our results of operations.

Further discussion of impairment charges recorded during 2019 can be found in Note 6, "Restructuring," and Note 7, "Goodwill and Intangible Assets."

As a result of the continued negative impact of COVID-19 on order flow for our Genesis custom system business, we performed an impairment analysis of the goodwill during the third quarter of 2020.

We performed a quantitative assessment using the discounted cash flow method under the income approach as well as the guideline public company analysis and guideline transaction analysis under the market approach to estimate the fair value of the custom systems business.

As a result of this and to a lesser extent the overall performance of the business since its acquisition in 2018, we recognized a non-cash impairment loss of $44.6 million, which was equal to the carrying amount of goodwill prior to its impairment.

The analysis considered internal forecasts of sales, profitability and capital expenditures, as well as valuation multiples of comparable public companies and valuation multiples of transactions of comparable companies.

If the business impacts of COVID-19 carry on for

an extended period, it could cause us to recognize additional impairments for goodwill and certain long-lived assets, including amortizable intangible assets or right-of-use assets in one or more of our reporting units, which would negatively affect our results of operations.

Foreign exchange.

11 unchanged sentences

Our largest customer accounted for 8%, 9% and 12% of our net sales in 2020, 2019 and 2018, respectively.

The same customer accounted for 21% and 24% of our net accounts receivable as of December 31, 2020 and 2019, respectively.

We seek to add new customers and to expand our relationships with existing customers.

8 unchanged sentences

We have identified the following items that require the most significant judgment and often involve complex estimation:

revenue recognition, inventory valuation, warranty, and accounting for income taxes.

Revenue Recognition — Revenue is recognized when transfer of control to the customer occurs in an amount reflecting the consideration that we expect to be entitled.

revenue recognition, inventory valuation, warranty, accounting for income taxes and goodwill and long-lived asset impairment.

Revenue Recognition.

Revenue is recognized when transfer of control to the customer occurs in an amount reflecting the consideration that we expect to be entitled.

In order to achieve this core principle, we apply the following five step approach:

2 unchanged sentences

Revenue is generally recognized when control of the product is transferred to the customer (i.e., when our performance obligation is satisfied), which typically occurs at shipment, but which can occur over time for certain of our systems contracts.

We also recognize revenue over time for sales of extended warranties.

When goods or services have been delivered to the customer, but all conditions for revenue recognition have not been met, deferred revenue and deferred costs are recorded on our consolidated balance sheet.

With the acquisition of Genesis Systems in December 2018, we enter into contracts to sell customized robotic systems, for which revenue is generally recognized over time, depending on the terms of the contract.

We enter into contracts to sell customized robotic systems, for which revenue is generally recognized over time, depending on the terms of the contract.

Recognizing revenue over time for these contracts is based on our judgment that the customized robotic system does not have an alternative use and we have an enforceable right to payment for performance completed to date.

Recognizing revenue over time also requires estimation of the progress towards completion based on the projected costs for the contract.

Inventory — Inventory is stated at the lower of cost (first-in, first-out method) or market value.

Inventory is stated at the lower of cost (first-in, first-out method) or market value.

Inventory includes parts and components that may be specialized in nature and subject to rapid obsolescence.

1 unchanged sentence

The reserve is based upon a review of inventory materials on hand, which we compare with historic usage, estimated future usage and age.

In addition, we review the inventory and compare recorded costs with estimates of current market value.

In addition, we review the inventory and compare recorded costs with estimates of current

market value.

Write-downs are recorded to reduce the carrying value to the net realizable value with respect to any part with costs in excess of current market value.

4 unchanged sentences

Because of our vertical integration, a significant or sudden decrease in sales could result in a significant change in the estimates of excess or obsolete inventory valuation.

Warranty — We maintain an accrual for warranty claims for units sold that are subject to warranty.

We maintain an accrual for warranty claims for units sold that are subject to warranty.

We estimate this accrual considering past claims experience, the number of units still carrying warranty coverage and the average life of the remaining warranty period.

A change in the rate of warranty repairs or when warranty is generally incurred during the warranty period could change our estimated warranty accrual and associated warranty expense.

Income Taxes and Deferred Taxes — Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate.

Income Taxes and Deferred Taxes .

Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate.

We file federal and state income tax returns in the United States and tax returns in numerous international jurisdictions.

6 unchanged sentences

Potential interest and penalties associated with such uncertain tax positions is recorded as a component of income tax expense.

At December 31, 2019, we had unrecognized tax benefits of approximately $11.4 million that, if recognized, would be recorded as a reduction in income tax expense.

Goodwill and Long-lived Asset Impairment — We perform our annual goodwill impairment review as of the first day of our fourth quarter, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

Goodwill and Long-lived Asset Impairment.

We perform our annual goodwill impairment review as of the first day of our fourth quarter, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

Such events and circumstances could include significant and sustained reductions in sales volume, margin, profitability or cash flows of the reporting unit or changes in market dynamics, including technology or product changes.

3 unchanged sentences

Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions.

These assumptions and estimates

include estimated future annual net cash flows, income tax considerations, discount rates, growth rates, royalty rates, contributory asset charges, and other market factors.

These assumptions and estimates include estimated future annual net cash flows, income tax considerations, discount rates, growth rates, royalty rates, contributory asset charges, and other market factors.

Assumptions used in impairment testing are made at a point in time and require significant judgment;

2 unchanged sentences

If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, change, or if management’s expectations or plans otherwise change, then one or more of our reporting units might become impaired in the future.

As detailed in Note 7, "Goodwill and Intangible Assets," we recorded goodwill impairment losses totaling $37.1 million for the year ended December 31, 2019, which related to our SND and telecommunications reporting units.

Further, the estimated fair value of our Genesis reporting unit, which was acquired in December 2018, approximates the carrying value, which is expected for a recent acquisition.

We will continue to monitor this reporting unit during 2020.

If our estimates of future performance are reduced or if other market assumptions change such that the fair value of the reporting unit is reduced, impairment charges may be incurred.

The value of goodwill associated with the Genesis reporting unit is $44.4 million at December 31, 2019.

Definite-lived intangible assets are amortized on a straight-line basis over the estimated useful life.

21 unchanged sentences

Operating income 198,659 16.5 233,793 17.8 523,405 35.9

Interest income (expense), net 14,238 1.1 9,057 0.6 737 0.1

Other income (expense), net 345 — 1,933 0.1 22 —

Interest income, net 6,270 0.5 14,238 1.1 9,057 0.6

Other income, net 763 0.1 345 — 1,933 0.1

Income before provision for income taxes 205,692 17.1 248,376 18.9 534,395 36.6

1 unchanged sentence

Net income 160,338 13.3 180,261 13.7 404,169 27.7

Net income (loss) attributable to non-controlling interest 27 — 142 — (26) —

net income attributable to non-controlling interest 766 0.1 27 — 142 —

Net income attributable to IPG Photonics Corporation $ 159,572 13.2 % $ 180,234 13.7 % $ 404,027 27.7 %

27 unchanged sentences

$ 1,200,724 100.0 % $ 1,314,581 100.0 % $ (113,857) (8.7) %

Sales for materials processing applications decreased due to lower sales of high power, medium power, pulsed, and QCW lasers, partially offset by an increase in sales of laser and non-laser systems and other revenue.

• High power laser sales decreased primarily due to lower sales of lasers used for cutting, welding, and laser sintering applications.

Within cutting applications, decreased sales were driven by lower average selling prices and weaker demand in China and Europe.

The decrease in sales of high power lasers used in welding applications was driven by lower sales into automotive and EV battery applications.

Within the laser sintering business, decreased sales were driven by weaker sales in Europe for metal based additive manufacturing.

• The decrease in medium power sales related to weakness in fine cutting applications and laser sintering for metal-based additive manufacturing.

The reduced revenue in fine cutting applications was due in part to the ongoing transition to kilowatt scale high power lasers for these applications.

• The decrease in pulsed laser sales was due to lower sales of lasers used for marking and battery processing applications, partially offset by growth in green and ultrafast pulsed lasers.

• QCW laser sales decreased due to lower demand for consumer electronics and drilling applications.

• The increase in laser and non-laser systems sales was largely due to the acquisition of Genesis and partially driven by growth in macro-systems for welding applications.

• Other Revenue sales increased compared to last year due to the increased sales of parts, service, and accessories.

Sales for other applications remained consistent in 2019 as compared to 2018.

Sales to telecom applications decreased, but was offset by increased sales in government and medical applications.

Materials processing

Sales for materials processing applications decreased due to lower sales of high power lasers, laser and non-laser systems, QCW lasers and medium power lasers, partially offset by increased sales in pulsed lasers.

• High power laser sales for metal cutting and welding applications declined due to the impact of COVID-19 on end market demand, continued reductions of average selling prices and increased competition.

Part of the decline in average selling prices for high power lasers is due to the adoption of more compact or rack mounted "YLR" series lasers which are displacing 1 to 3 kilowatt "YLS" series lasers, which are larger, more complex and more expensive.

These more compact YLR lasers are less expensive to manufacture and are sold at prices lower than the YLS series lasers they are displacing.

• Medium power laser sales decreased due to decreased demand in laser sintering for metal-based additive manufacturing and ongoing transition to kilowatt scale cutting lasers.

• Pulsed laser sales increased due to growth in sales of high power pulsed lasers used for battery processing, ablative processing and solar cell manufacturing applications, partially offset by decreased demand of pulsed lasers used for marking and engraving applications.

• QCW laser sales decreased due to lower demand for fine processing and consumer electronics applications.

• Laser and non-laser systems sales decreased due to lower demand primarily as a result of COVID-19.

The reduction of revenue in laser systems was attributable to lower demand for cutting and welding applications.

The reduction of revenue in non-laser systems was attributable to lower demand in the transportation and aerospace sectors.

• Other Revenue for materials processing decreased due to lower parts and service revenue.

Other Applications

Sales from other applications increased due to increased demand for lasers used for directed energy, semiconductor, scientific and instrument applications, as well as lasers used in medical procedures, partially offset by lower sales of telecom products.

Our net sales were derived from customers in the following geographic regions:

15 unchanged sentences

Cost of sales and gross margin.

Cost of sales increased by $48.8 million, or 7.4%, to $708.4 million in 2019 from $659.6 million in 2018.

Cost of sales decreased by $46.7 million, or 6.6%, to $661.7 million in 2020 from $708.4 million in 2019.

Our gross margin decreased to 44.9% in 2020 from 46.1% in 2019.

Gross margin decreased mainly due to a decrease in average selling prices and higher inventory provisions.

Gross margin decreased mainly due to increased manufacturing costs as a percentage of sales due to lower sales, particularly in the first half of the year resulting from the impact of the COVID-19 pandemic.

In addition, provisions for inventory reserves and freight costs were higher.

The increase in freight costs is also primarily attributable to COVID-19.

Expenses related to provisions for excess or obsolete inventory and other valuation adjustments increased by $6.5 million to $45.4 million, or 3.8% of sales, for the year ended December 31, 2020, as compared to $38.9 million, or 3.0% of sales, for the year ended December 31, 2019.

Inventory provisions increased in 2019 due to review for slowing moving and excess inventory in light of lower sales during the year and the more volatile macroeconomic, geopolitical, and competitive environment in which we have recently been operating.

In addition, gross margin was impacted by lower absorption of manufacturing expenses.

Product mix also reduced gross margin because the systems sold by Genesis, a business that we acquired in December 2018, have a lower gross margin than the core laser business.

The acquisition of Genesis reduced gross margin by 1.9% for the year ended December 31, 2019.

Sales and marketing expense.

Sales and marketing expense increased by $19.9 million, or 34.4%, to $77.7 million in 2019 from $57.8 million in 2018, primarily as a result of sales and marketing expense for new acquisitions, including Genesis, as well as increases in salaries and benefits, depreciation and other selling expenses.

As a percentage of sales, sales and marketing expense increased to 5.9% in 2019 from 4.0% in 2018.

Sales and marketing expense decreased by $7.1 million, or 9.1%, to $70.6 million in 2020 from $77.7 million in 2019.

This change was primarily a result of decreased spending on trade fairs and exhibits, travel and personnel costs partially offset by an increase in depreciation.

As a percentage of sales, sales and marketing expense was 5.9% in 2020, unchanged from 2019.

Research and development expense.

Research and development expense increased by $7.2 million, or 5.9%, to $130.0 million in 2019 from $122.8 million in 2018, primarily as a result of an increase in materials used for research and development, consultants, information technology, outside processing, leasing and depreciation, partially offset by reductions in personnel and contractors.

Research and development continues to focus on developing new products, enhancing performance of existing components, improving production processes and developing manufacturing of new components such as crystals and refining production processes to improve manufacturing yields and productivity.

New products include lasers that operate at different wavelengths such as UV, visible and mid-IR, lasers with ultrafast pulses, laser based systems for material processing, projection, display and medical as well as accessories such as welding and cutting heads.

In addition to new products, research and development is focused on enhancing the performance of our existing products by improving their electrical efficiency and increasing their average power.

Research and development expense decreased by $3.1 million, or 2.4%, to $126.9 million in 2020 from $130.0 million in 2019.

This change was primarily a result of decreases in R&D materials, consultants and travel partially offset by increases in personnel costs.

As a percentage of sales, research and development expense increased to 10.6% in 2020 from 9.9% in 2019.

1 unchanged sentence

General and administrative expense.

General and administrative expense increased by $5.2 million, or 5.1%, to $107.6 million in 2019 from $102.4 million in 2018, primarily as a result of the acquisition of Genesis and increased expenses for information technology, depreciation and insurance, partially offset by lower banking fees, personnel and legal expenses.

General and administrative expense increased by $2.4 million, or 2.2%, to $110.0 million in 2020 from $107.6 million in 2019.

This change was primarily a result of increases in personnel costs, loss on disposal of fixed assets, insurance, information systems, and premises partially offset by decreases in expense for travel, bad debt provision, legal, and consultants.

As a percentage of sales, general and administrative expense increased to 9.2% in 2020 from 8.2% in 2019.

Goodwill impairment, impairment of long-lived assets and other restructuring charges .

During the third quarter of 2020, we concluded that declines in revenue and order flow for the Genesis custom systems business caused by pandemic-related decreases in capital spending in the aerospace and transportation industries were a triggering event requiring a goodwill impairment evaluation.

As a result of the analysis, we incurred a non-cash goodwill impairment loss of $44.6 million in 2020.

In 2019, we incurred non-cash goodwill impairment losses of $37.1 million related to impairments of our transceivers reporting unit and our submarine network division.

We incurred impairment of long-lived assets and other restructuring charges of $1.2 million in 2020, of which $0.4 million related to severance and $0.1 million related to lease termination costs that resulted from the restructuring of our submarine network division.

We also incurred $0.7 million of non-cash long-lived impairments related to machinery and equipment.

In 2019, we incurred impairment of long-lived assets and other restructuring charges of $7.1 million, of which $5.3 million related to non-cash impairment losses of long-lived assets and $1.8 million were charges related to global restructuring programs.

Effect of exchange rates on sales, gross margin and operating expenses.

We estimate that if exchange rates had been the same as one year ago, sales in 2019 would have been $44.5 million higher, gross margin would have been $23.9 million higher and operating expenses in total would have been $5.8 million higher.

We estimate that if exchange rates had been the same as one year ago, sales in 2020 would have been $2.5 million lower, gross margin would have been $3.7 million lower and

operating expenses in total would have been $6.2 million higher.

These estimates assume constant exchange rates between fiscal year 2020 and fiscal year 2019 and are calculated using the average exchange rates for the twelve-month period ended December 31, 2019 for the respective currencies, which were US$1=Euro 0.89, US$1=Japanese Yen 109, US$1=Chinese Yuan 6.91 and US$1=Russian Ruble 65.

Goodwill impairment, impairment of long-lived assets and other restructuring charges.

During 2019, we incurred non-cash goodwill impairment losses of $37.1 million, non-cash impairment losses of long-lived assets of $5.3 million and other restructuring charges of $1.8 million in total.

As a result of our 2019 annual impairment test for our transceivers reporting unit, we recognized a non-cash impairment loss of $19.3 million, which was equal to the carrying value of goodwill prior to its impairment.

The analysis considered lower than forecasted sales and profitability, as well as the impact of delays in new product launches.

In addition, during the fourth quarter of 2019, we decided to cease further development in our submarine network division ("SND") after assessing the additional investment required to enter and obtain significant market share in this industry.

As of December 31, 2019, we incurred cumulative pre-tax costs of $21.2 million, which includes a non-cash goodwill impairment loss of $17.8 million and non-cash impairment loss for other assets of $2.9 million.

In addition, $0.2 million of severance and employee benefit costs were incurred and $0.3 million related to contract cancellations.

We also implemented other restructuring programs globally, which were primarily focused on workforce reduction and facility consolidation.

These programs resulted in expenses of $3.8 million, including $1.3 million of severance and employee benefit costs and $2.5 million of non-cash impairment loss for long lived assets.

Loss (gain) on foreign exchange.

We incurred a foreign exchange loss of $12.8 million in 2019 as compared to a gain of $6.2 million in 2018.

The change was primarily attributable to the appreciation of the Russian Ruble, the depreciation of the Chinese Yuan, and depreciation of the Brazilian Real as compared to the U.S.

Dollar, which was partially offset by a gain attributed to the depreciation of the Euro as compared to the U.S.

Interest income (expense), net.

Interest income (expense), net increased to $14.2 million of income in 2019 compared to $9.1 million of income in 2018.

In 2018, we repatriated $522.0 million of cash from Germany to the United States, which has been invested for the entirety of 2019, resulting in higher earnings.

We incurred a foreign exchange gain of $12.9 million in 2020 as compared to a loss of $12.8 million in 2019.

The gain was primarily attributable to the depreciation of the Russian Ruble and the appreciation of the Chinese Yuan as compared to the U.S.

Dollar, which was partially offset by a loss attributed to the appreciation of the Euro and depreciation of the Brazilian Real as compared to the U.S.

Interest income, net.

Interest income, net decreased to $6.3 million of income in 2020 compared to $14.2 million of income in 2019.

The reduction in interest income, net, is primarily due to a decrease in yields on shorter duration investments that resulted in lower market interest rates as compared to rates last year.

In addition, our initial response to the COVID-19 pandemic included holding shorter duration investments to increase liquidity, which also reduced yields.

Provision for income taxes .

Provision for income taxes was $45.4 million in 2020 compared to $68.1 million in 2019, representing an effective tax rate of 22.0% in 2020 and 27.4% in 2019.

The increased effective tax rate was primarily due to higher percent of earnings outside the U.S.

taxed at higher rates and changes in discrete adjustments.

Discrete adjustments in 2019 include (i) a decrease to tax expense of $5.1 million related to equity based compensation deductions for tax in excess of the deductions reflected in book income and (ii) an increase to tax expense of $10.0 million for goodwill impairments losses which were not deductible for tax.

Discrete adjustments in 2018 include (i) a decrease to tax expense of $13.3 million related to equity based compensation deductions for tax in excess of the deductions reflected in book income;

(ii) an increase to tax expense of $6.6 million related to U.S.

tax on profits earned in 2017 calculated at the prior year federal rate of 35% flowing through consolidated income in 2018;

and (iii) an increase in the valuation allowance of $7.4 million primarily for state credits.

The lower effective tax rate was primarily due to increased benefit from discrete adjustments.

Discrete adjustments in 2020 resulted in a $10.6 million reduction in tax expense, which includes (i) $9.7 million for equity-based compensation deductions for tax in excess of the deductions reflected in book income, (ii) $3.2 million for an investment credit in Russia requested in amended returns filed for prior years and (iii) $1.2 million for prior year provision to return adjustments, offset by an increase to tax expense for a $3.6 million impact of losses in subsidiaries for which no tax benefit was taken.

Discrete adjustments in 2019 were $1.3 million and include a decrease to tax expense for (i) $5.1 million related to equity-based compensation deductions for tax in excess of the deductions reflected in book income and (ii) $4.8 million for prior year provision to return adjustments, offset by an increase to tax expense of $10.0 million for goodwill impairments losses which were not deductible for tax.

Net income attributed to IPG Photonics Corporation.

1 unchanged sentence

Net income attributable to IPG Photonics Corporation as a percentage of our net sales decreased by 0.4% to 13.3% in 2020 from 13.7% in 2019 due to the factors described above.

Comparison of Year Ended December 31, 2018 to Year Ended December 31, 2017

Net sales increased by $51.0 million, or 3.6%, to $1,459.9 million in 2018 from $1,408.9 million in 2017.

The table below sets forth sales by application:

Year Ended December 31,

2018 2017 Change

(In thousands, except for percentages)

Sales by Application % of Total % of Total

Materials Processing $ 1,374,448 94.1 % $ 1,332,607 94.6 % $ 41,841 3.1 %

Other Applications 85,426 5.9 % 76,282 5.4 % 9,144 12.0 %

Total $ 1,459,874 100.0 % $ 1,408,889 100.0 % $ 50,985 3.6 %

The table below sets forth sales by type of product and other revenue:

Year Ended December 31,

2018 2017 Change

(In thousands, except for percentages)

Sales by Product % of Total % of Total

High Power Continuous Wave ("CW") Lasers $ 909,726 62.3 % $ 867,464 61.6 % $ 42,262 4.9 %

Medium and Low Power CW Lasers 95,764 6.6 % 118,705 8.4 % (22,941) (19.3) %

Pulsed Lasers 162,048 11.1 % 148,701 10.6 % 13,347 9.0 %

Quasi-Continuous Wave ("QCW") Lasers 66,700 4.6 % 88,329 6.3 % (21,629) (24.5) %

Laser and Non-Laser Systems 59,330 4.1 % 40,410 2.9 % 18,920 46.8 %

Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue 166,306 11.3 % 145,280 10.2 % 21,026 14.5 %

$ 1,459,874 100.0 % $ 1,408,889 100.0 % $ 50,985 3.6 %

Sales for materials processing applications increased due to higher sales of high power and pulsed lasers and laser systems, partially offset by a decrease in sales of medium and low power lasers and QCW lasers.

• High power laser sales increased primarily due to growth in sales for cutting applications offset by declines in sales in welding applications.

Within cutting applications, we continue to see a migration to lasers with higher output powers which improve processing speeds and enable processing of thicker materials.

The shift towards lasers with higher output powers has also benefited sales due to their higher average selling prices.

• Medium and low power sales decreased due to lower sales for cutting and laser sintering applications partially offset by higher sales for welding applications.

The decline in sales for cutting applications is largely due to the use of high power lasers instead of medium power lasers for these applications as the low cost cutting systems market has gravitated to higher power lasers as their selling price per watt has decreased.

• Pulsed laser sales increased due to growth in sales of high power pulsed lasers used for cutting, marking and engraving and cleaning applications partially offset by decreases in pulsed lasers used for ablation.

• QCW laser sales decreased due to lower sales for welding applications.

Welding applications for QCW lasers are largely related to consumer electronics manufacturing and the investment cycle for this application was weaker in 2018 and 2017.

• Laser systems sales increased due to increases in sales for cutting systems, as well as incremental sales from the acquisition of ILT in July 2017 and the acquisition of Genesis in December 2018.

Sales for other applications increased due to higher sales of high power lasers and high power amplifiers used for advanced applications as well as increased sales of telecommunication components, including pluggable transceivers used in data transmission.

Our net sales were derived from customers in the following geographic regions:

Year Ended December 31,

2018 2017 Change

(In thousands, except for percentages)

Sales by Geography % of Total % of Total

North America (1)

$ 202,743 13.9 % $ 165,363 11.8 % $ 37,380 22.6 %

Germany 111,259 7.6 % 114,608 8.1 % (3,349) (2.9) %

Other including Eastern Europe/CIS 296,917 20.3 % 290,067 20.6 % 6,850 2.4 %

Asia and Australia:

China 629,079 43.1 % 621,283 44.1 % 7,796 1.3 %

Japan 87,619 6.0 % 80,612 5.7 % 7,007 8.7 %

Other 127,251 8.7 % 131,511 9.3 % (4,260) (3.2) %

Rest of World 5,006 0.4 % 5,445 0.4 % (439) (8.1) %

Total $ 1,459,874 100.0 % $ 1,408,889 100.0 % $ 50,985 3.6 %

(1) The substantial majority of sales in North America are to customers in the United States.

Cost of sales and gross margin.

Cost of sales increased by $47.6 million, or 7.8%, to $659.6 million in 2018 from $612.0 million in 2017.

Our gross margin decreased to 54.8% in 2018 from 56.6% in 2017.

Gross margin decreased due to lower absorption of manufacturing costs, decreases in average selling prices and changes in product sales mix.

The impact to gross margin primarily occurred in the second half of the year in conjunction with the slowdown in sales and increased competition for certain products in China.

Expenses related to provisions for excess or obsolete inventory and other valuation adjustments decreased by $3.9 million to $13.0 million, or 0.9% of sales, for the year ended December 31, 2018, as compared to $16.9 million, or 1.2% of sales, for the year ended December 31, 2017.

Sales and marketing expense.

Sales and marketing expense increased by $8.0 million, or 16.1%, to $57.8 million in 2018 from $49.8 million in 2017, primarily as a result of an increase in personnel, depreciation, trade show and exhibitions, and travel expense.

As a percentage of sales, sales and marketing expense increased to 4.0% in 2018 from 3.5% in 2017.

Research and development expense.

Research and development expense increased by $21.9 million, or 21.7%, to $122.8 million in 2018 from $100.9 million in 2017, primarily as a result of an increase in personnel, materials, contractors, consultants, depreciation and other research and development expense.

In addition to new products research and development is focused on enhancing the performance of our existing products by improving their electrical efficiency and increasing their average power.

As a percentage of sales, research and development expense increased to 8.4% in 2018 from 7.2% in 2017.

General and administrative expense.

General and administrative expense increased by $21.7 million, or 26.9%, to $102.4 million in 2018 from $80.7 million in 2017, primarily as a result of increased expenses for personnel, stock-based compensation, professional services expenses related to acquisitions, accounting legal and information technology expenses, and depreciation expense.

As a percentage of sales, general and administrative expense increased to 7.0% in 2018 from 5.7% in 2017.

Effect of exchange rates on sales, gross margin and operating expenses.

We estimate that if exchange rates had been the same as one year ago, sales in 2018 would have been $35.8 million lower, gross margin would have been $23.3 million lower and operating expenses in total would have been $1.3 million higher.

These estimates assume constant exchange rates between fiscal year 2018 and fiscal year 2017 and are calculated using the average exchange rates for the twelve-month period ended December 31, 2017 for the respective currencies, which were US$1=Euro 0.89, US$1=Japanese Yen 112, US$1=Chinese Yuan 6.76 and US$1=Russian Ruble 58.

Loss (gain) on foreign exchange.

We incurred a foreign exchange gain of $6.2 million in 2018 as compared to a loss of $14.5 million in 2017.

The change was primarily attributable to the depreciation of the Euro as compared to the U.S.

Dollar, which was partially offset by depreciation of the Chinese Yuan as compared to the U.S.

Interest income (expense), net.

Interest income (expense), net increased to $9.1 million of income in 2018 compared to $0.7 million of income in 2017.

The increase of interest income was the result of the repatriation of $522 million of cash during the year from Germany to the United States and improved rate of return on U.S.

Dollar denominated investments as compared to Euro denominated investments.

Provision for income taxes .

Provision for income taxes was $130.2 million in 2018 compared to $204.3 million in 2017, representing an effective tax rate of 24.4% in 2018 and 37.0% in 2017.

The decreased effective tax rate was primarily due to changes in the statutory tax rate in the United States from 35% to 21% resulting from the Tax Cuts and Jobs Act (the "Tax Act").

Discrete adjustments in 2018 include (i) a decrease to tax expense of $13.3 million related to equity based compensation deductions for tax in excess of the deductions reflected in book income;

(ii) an increase to tax expense of $6.6 million related to U.S.

tax on profits earned in 2017 calculated at the prior year federal rate of 35% flowing through consolidated income in 2018;

and, (iii) an increase in the valuation allowance of $7.4 million primarily for state credits.

Discrete adjustments in 2017 include (i) a decrease to tax expense of $14.0 million related to equity based compensation deductions for tax in excess of the deductions reflected in book income and (ii) an increase to tax expense of $48.1 million for a U.S.

tax on cumulative foreign earnings as a result of the Tax Act.

On December 22, 2017, the U.S.

government enacted the Tax Act.

The Tax Act makes broad and complex changes to the U.S.

tax code including, but not limited to:

(i) reducing the U.S.

federal corporate tax rate from 35% to 21%;

(ii) requiring companies to pay a one-time transition tax on certain un-repatriated earnings of foreign subsidiaries;

(iii) generally eliminating U.S.

federal income taxes on dividends from foreign subsidiaries;

(iv) providing an incentive benefit for U.S.

income from intangibles (Foreign Derived Intangible Income);

(v) increasing U.S.

taxable income to include all income earned by foreign subsidiaries in excess of ten percent of the fixed assets in those entities (Global Intangible Low-taxed Income) and (vi) providing for bonus depreciation that will allow for full expensing of qualified property.

Our final calculation of the Deemed Repatriation Transition Tax ("Transition Tax") element of the Tax Act is a $43.4 million increase to the tax expense.

At December 31, 2017, we calculated a provisional amount of tax for this at $48.1 million and have included a benefit of $4.7 million in 2018 income tax expense to reflect the impact of the decrease in liability.

The federal Transition Tax is payable over eight years and $30.3 million of the liability is included in other long-term liabilities at December 31, 2018.

Net income attributable to IPG Photonics Corporation increased by $56.4 million to $404.0 million in 2018 from $347.6 million in 2017.

Net income attributable to IPG Photonics Corporation as a percentage of our net sales increased by 3.0% to 27.7% in 2018 from 24.7% in 2017 due to the factors described above.

Liquidity and Capital Resources

6 unchanged sentences

Working capital (excluding cash and cash equivalents and short-term investments) 542,433 522,114

Short-term investments at December 31, 2019 consist of liquid investments including corporate notes, commercial paper and certificates of deposit with original maturities of greater than three months but less than one year.

We also hold long-term investments, included in other assets on the consolidated balance sheets, which consist of auction rate securities totaling $0.6 million.

See Note 3, "Fair Value Measurements" in the notes to the consolidated financial statements for further information about our short and long-term investments.

Short-term investments at December 31, 2020 consist of liquid investments including corporate bonds, commercial paper, U.S.

Treasury and agency obligations and municipal bonds with original maturities of greater than three months but less than one year.

See Note 3, "Fair Value Measurements" in the notes to the consolidated financial statements for further information about our short-term investments.

We expect to continue investments in capital expenditures, to assess acquisition opportunities and to repurchase shares of our stock in accordance with our repurchase program.

The extent and timing of such expenditures may vary from period to period.

Our future long-term capital requirements will depend on many factors including our level of sales, the impact of the economic environment on our growth including any ongoing impact of the COVID-19 pandemic on certain global or regional economies, global or regional recessions, the timing and extent of spending to support development efforts, expansion of global sales and marketing activities, government regulation including trade sanctions, the timing and introductions of new products, the need to ensure access to adequate manufacturing capacity and the continuing market acceptance of our products.

The following table details our line-of-credit facilities and long-term notes as of December 31, 2020:

3 unchanged sentences

Euro Credit Facility (Germany) (2)

Euro 50.0 million ($56.1 million) Euribor plus 0.75% or EONIA plus 1.00% July 2020 Unsecured, guaranteed by parent company and German subsidiary

Euro 50.0 million

($61.3 million) Euribor plus 0.75% or EONIA plus 1.00% July 2023 Unsecured, guaranteed by parent company and German subsidiary

Other Euro Facilities (3)

Euro 2.0 million ($2.2 million) Euribor plus 0.89% to 1.78% May 2020 Common pool of assets of Italian subsidiary

Euro 2.0 million

($2.5 million) Euribor plus 0.94% to 2.02% March 2021 Common pool of assets of Italian subsidiary

Long-term Secured Note (4)

11 unchanged sentences

Our largest committed credit lines are with Bank of America N.A.

and Deutsche Bank AG in the amounts of $50.0 million and $56.1 million (or 50 million Euro as described above), respectively, and neither of them is syndicated.

We have initiated negotiations to renew the U.S.

revolving line of credit and Euro credit facility, which both mature in 2020.

and Deutsche Bank AG in the amounts of $75.0 million and $61.3 million (or €50,000 as described above), respectively, and neither of them is syndicated.

We plan to seek amendments of our credit agreements and notes to modify LIBOR and Euribor reference rates as these rates are phased out as borrowing rates.

We are required to meet certain financial covenants associated with our U.S.

revolving line of credit and long-term debt facilities.

These covenants, tested quarterly, include a debt service coverage ratio and a funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio.

The debt service coverage covenant requires that we maintain a trailing twelve month ratio of cash flow to debt service that is greater than 1.5:1.

Debt service is defined as required principal and interest payments during the period.

Debt service in the calculation is decreased by our cash held in the U.S.A.

in excess of $50 million up to a maximum of $250 million.

Cash flow is defined as EBITDA less unfunded capital expenditures.

revolving line of credit and long-term debt facility.

These covenants, tested quarterly, include an interest coverage ratio and a funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio.

The interest coverage covenant requires that we maintain a trailing twelve-month ratio of EBITDA to interest on all obligations that is at least 3.0:1.0.

The funded debt to EBITDA covenant requires that the sum of all indebtedness for borrowed money on a consolidated basis be less than three times our trailing twelve months EBITDA.

Funded debt is decreased by our cash and available marketable securities not classified as long-term investments in the U.S.

in excess of $50 million up to a maximum of $500 million.

We were in compliance with all such financial covenants as of and for the three months ended December 31, 2020.

11 unchanged sentences

In 2020, net sales and net income decreased by 9% and 11%, respectively.

As there were

decreases in net sales and net income, cash provided by net income after adding back non-cash charges decreased.

This decrease has been partially offset by a decrease in the amount invested in working capital.

Our largest working capital items typically are inventory and accounts receivable.

Items such as accounts payable to third parties, prepaid expenses and other current assets and accrued expenses and other liabilities are not as significant as our working capital investment in accounts receivable and inventory because of the amount of value added within IPG due to our vertically integrated structure.

Items such as accounts payable to third parties, prepaid expenses and other current assets and accrued expenses and other liabilities are not as significant as our working capital investment in

accounts receivable and inventory because of the amount of value added within IPG due to our vertically integrated structure.

Accruals and payables for personnel costs including bonuses and income and other taxes payable are largely dependent on the timing of payments for those items.

The decrease in cash flow from operating activities in 2019 primarily resulted from a decrease in cash provided by net income after adding back non-cash charges, an increase in cash used by income and taxes payable;

partially offset by, a decrease in cash used for inventory, and an increase in cash provided by accounts receivable.

The decrease in cash flow from operating activities in 2020 primarily resulted from a decrease in cash provided by net income after adding back non-cash charges, an increase in cash used by accounts receivable, an increase in cash used by prepaid expenses and an increase in cash used by inventory;

partially offset by a decrease in cash used for accrued expenses, a decrease in cash used by income and other taxes payable and a decrease in cash used by accounts payable.

Investing activities.

Net cash used in investing activities was $99.6 million and $140.0 million in 2020 and 2019, respectively.

The cash used in investing activities in 2020 related to $87.7 million for property, plant and equipment, $12.3 million of net purchases of investments and $0.4 million for the acquisition of a business during 2020, net of cash acquired.

The cash used in investing activities in 2019 related to $133.5 million for property, plant and equipment, and $15.1 million for the acquisition of a business during 2019, net of cash acquired;

partially offset by $7.8 million of net proceeds of investments.

The cash used in investing activities in 2018 related to $295.0 million of net purchases of investments after the repatriation of cash from our German subsidiary, $160.3 million for property, plant and equipment, and $109.1 million for the acquisition of two businesses during 2018, net of cash acquired.

In 2021, we expect to incur approximately $150 million to $160 million in capital expenditures, excluding acquisitions.

Capital expenditures include investments in property, facilities and equipment to add capacity worldwide to support anticipated revenue growth.

Capital expenditures include investments in property, facilities and equipment to add capacity worldwide to support anticipated revenue growth, increase vertical integration, increase redundant manufacturing capacity for critical components and enhance research and development capabilities.

The timing and extent of any capital expenditures in and between periods can have a significant effect on our cash flow.

3 unchanged sentences

Net cash used in financing activities was $10.1 million and $37.1 million in 2020 and 2019, respectively.

The cash used in financing activities in 2019 was primarily related to the purchase of treasury stock of $40.7 million and payments on our long-term borrowings of $3.7 million.

The cash used in financing activities in 2020 was primarily related to the purchase of treasury stock of $37.9 million, payments on our long-term borrowings of $3.7 million, and $1.7 million of payment of a purchase price holdback from a business combination.

These uses of cash were partially offset by net proceeds from the exercise of stock options net of amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units and shares issued under our employee stock purchase plan of $33.2 million.

1 unchanged sentence

These cash uses were partially offset by net proceeds of $7.3 million from the exercise of stock options net of amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units and shares issued under our employee stock purchase plan.

We believe that our existing cash and cash equivalents, short-term investments, our cash flows from operations and our existing lines of credit provide us with the financial flexibility to meet our liquidity and capital needs, as well as to complete certain acquisitions of businesses and technologies.

We intend to continue to pursue acquisition opportunities based upon market conditions and the strategic importance and valuation of the target company.

We may consider issuing debt to finance acquisitions depending on the timing and size of the acquisition among other reasons.

Our future long-term capital requirements will depend on many factors including our level of sales, the impact of economic environment on our sales levels, the timing and extent of spending to support development efforts, the expansion of the global sales and marketing activities, government regulation including trade sanctions, the timing and introduction of new products, the need to ensure access to adequate manufacturing capacity and the continuing market acceptance of our products.

Contractual Obligations and Off-Balance Sheet Arrangements

2 unchanged sentences

Payments Due in

Total Less Than

1-3 Years 3-5 Years More Than

Total Less Than 1 Year

1-3 Years 3-5 Years More Than 5 Years

(In thousands)

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis