IPG PHOTONICS CORP 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Under the supervision of our Chief Executive Officer and our Chief Financial Officer, our management has evaluated the effectiveness of the design and operation of our "disclosure controls and procedures" (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this Annual Report on Form 10-K (the "Evaluation Date") utilizing the Committee of Sponsoring Organizations of the Treadway Commission's Internal Control - Integrated Framework ("COSO") Updated Framework issued in 2013. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management's Annual Report on Internal Control Over Financial Reporting Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and its subsidiaries. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of the Evaluation Date based on criteria established in COSO utilizing the Updated Framework issued in 2013. Based on this assessment, our management concluded that, as of the Evaluation Date, our internal control over financial reporting was effective. 44 Table of Contents Our independent registered public accounting firm, Deloitte & Touche LLP, has audited our internal control over financial reporting, as stated in their report below. Changes in Internal Controls There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Limitations on Effectiveness of Controls Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that the disclosure controls and procedures or internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, errors and instances of fraud, if any, within the company have been or will be detected. 45 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of IPG Photonics Corporation Oxford, Massachusetts Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of IPG Photonics Corporation and subsidiaries (the "Company") as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 22, 2022, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying "Management's Annual Report on Internal Control Over Financial Reporting." Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Boston, Massachusetts February 22, 2022 46 Table of Contents ITEM 9B. CONTROLS AND PROCEDURES None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Certain of the information required hereunder is incorporated herein by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the SEC within 120 days after December 31, 2021. Pursuant to General Instruction G(3) of Form 10-K, additional information required hereunder relating to our executive officers is contained in Part I of this Annual Report on Form 10-K under the caption "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION The information required hereunder is incorporated herein by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the SEC within 120 days after December 31, 2021. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required hereunder is incorporated herein by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the SEC within 120 days after December 31, 2021, with the exception of the information regarding securities authorized for issuance under our equity compensation plans, which is set forth below. Information Regarding Equity Compensation Plans The following table sets forth information with respect to securities authorized for issuance under our equity compensation plans as of December 31, 2021: Plan Category Number of Securities to be Issued upon Exercise of Outstanding Options, RSUs and PSUs (a) Weighted-Average Exercise Price of Outstanding Options, RSUs and PSUs (b) Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) Equity Compensation Plans Approved by Security Holders (1) 1,480,643 $ 149.99 2,898,922 Equity Compensation Plans Not Approved by Security Holders — — Total 1,480,643 2,898,922 (1) As of December 31, 2021, there were 2,638,529 shares available for future issuance under the 2006 Incentive Compensation Plan and 260,393 shares available for future issuance under the employee stock purchase plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required hereunder is incorporated herein by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the SEC within 120 days after December 31, 2021. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required hereunder is incorporated herein by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the SEC within 120 days after December 31, 2021. PART IV 47 Table of Contents ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES a. The following documents are filed as part of this Annual Report on Form 10-K: 1. Financial Statements. See Index to Financial Statements on page F-1. 2. Financial Statement Schedules. All schedules are omitted because they are not applicable or the required information is shown on the financial statements or notes thereto. 3. Exhibits. 48 Table of Contents Exhibit Number Description 3.1 Form of Second Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement No. 333-136521 filed with the Securities and Exchange Commission (the "Commission") on August 11, 2006) 3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed with the Commission on November 2, 2021 ) 4.1 Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement No. 333-136521 filed with the Commission on November 14, 2006) 4.2 Description of the Registrant's Securities Registered under Section 12 of the Exchange Act (incorporated by reference to Exhibit 4.2 to the Registrant's Annual Report on Form 10-K filed with the Commission on February 24, 2020) 10.1 † 2006 Incentive Compensation Plan, as amended (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K/A filed with the Commission on February 22, 2017) 10.2 † IPG Photonics Corporation Non-Employee Director Compensation Plan, as amended (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on February 2 2 , 202 1 ) 10.3 † Senior Executive Annual Incentive Plan, as amended (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K/A filed with the Commission on February 22, 2017) 10.4 † IPG Photonics Corporation 2008 Employee Stock Purchase Plan, as amended and restated effective December 1, 2018 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on June 3, 2019) 10.5 † Secondment Agreement dated May 4, 2021 among the Registrant , IPG Laser GmbH and Dr. Eugene Scherbakov (incorporated by reference to Exhibit 10. 2 to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on August 4, 2021) 10.6 † Service Agreement dated May 4, 2021 between IPG Laser GmbH and Dr. Eugene Scherbakov (incorporated by reference to Exhibit 10. 3 to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on August 4, 2021) 10.7 † Confidentiality, Non-Competition and Confirmatory Assignment Agreement dated May 4, 2021 between the Registrant and Dr. Eugene Scherbakov (incorporated by reference to Exhibit 10. 4 to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on August 4, 2021) 10.8 † Form of Employment Agreement dated May 30, 2019 between the Registrant and each of Timothy P.V. Mammen, Angelo P. Lopresti and Alexander Ovtchinnikov (incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report Form 10-K filed with the Commission on February 24, 2020) 10.9 † Form of Confidentiality, Non-Competition and Confirmatory Assignment Agreement between the Registrant and each of the named executive officers and certain other executive officers, (incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed with the Commission on October 15, 2013) 10.10 † Form of Letter amending Confidentiality, Non-Competition and Confirmatory Assignment Agreements between the Registrant and each of the named executive officers and certain other executive officers (incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K/A filed with the Commission on February 22, 2017) 10.11 † Form of Indemnification Agreement between the Registrant and each of its Directors and Executive Officers (incorporated by reference to Exhibit 10.3 to Registrant's Current Report on Form 8-K/A filed with the Commission on February 22, 2017) 10.12 Second Amended and Restated Loan Agreement, between the Registrant and Bank of America, N.A. dated as of March 25, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on March 26, 2020) 10.13 Revolving Credit Note, between the Registrant and Bank of America, N.A., dated March 25, 2020 (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the Commission on March 26, 2020) 49 Table of Contents Exhibit Number Description 10.14 Credit Facility Agreement between IPG Laser GmbH and Deutsche Bank AG, dated July 27, 2017 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on August 1, 2017) 10.15 Annex I to Credit Facility Agreement between IPG Laser GmbH and Deutsche Bank AG, dated July 27, 2017 (incorporated by reference to Exhibit 10.2 on Current Report on Form 8-K filed with the Commission on August 1, 2017) 10.16 Guarantee of the Registrant to Deutsche Bank dated July 27, 2017 (incorporated by reference to Exhibit 10.3 on Current Report on Form 8-K filed with the Commission on August 1, 2017) 10.17 First Amendment to Credit Facility Agreement between IPG Laser GmbH and Deutsche Bank AG, dated April 20, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on April 23, 2020) 10.18 Loan and Aircraft Security Agreement between TVPX Aircraft Solutions, as Trustee under the Trust Pledge Agreement between Registrant and Trustee dated July 27, 2017, and Banc of America Leasing & Capital, LLC dated July 27, 2017 (incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K filed with the Commission on February 28, 2018) 10.19 Promissory Note between TVPX Aircraft Solutions dated July 27, 2017, as Trustee under the Trust Pledge Agreement between Registrant and Trustee dated July 27, 2017, and Banc of America Leasing & Capital, LLC dated July 27, 2017 (incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K filed with the Commission on February 28, 2018) 10.2 Guaranty of the Registrant to Banc of America Lease & Capital, LLC, dated July 27, 2017 (incorporated by reference to Exhibit 10.24 to the Registrant's Annual Report on Form 10-K filed with the Commission on February 28, 2018) 21.1 List of Subsidiaries 23.1 Consent of Deloitte & Touche LLP 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.DEF XBRL Taxonomy Definition Linkbase 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) † Identifies management contract or compensatory plans or arrangements required to be filed as an exhibit. b. Exhibits. See (a)(3) above. c. Additional Financial Statement Schedules. All schedules are omitted because they are not applicable or the required information is shown on the financial statements or notes thereto. 50 Table of Contents ITEM 16. FORM 10-K SUMMARY None. 51 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 22, 2022. IPG P HOTONICS C ORPORATION By: /s/ Eugene A. Scherbakov Eugene A. Scherbakov Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title /s/ Eugene A. Scherbakov Eugene A. Scherbakov Chief Executive Officer and Director (Principal Executive Officer) February 22, 2022 /s/ Timothy P.V. Mammen Timothy P.V. Mammen Senior Vice President, Chief Financial Officer (Principal Financial Officer) February 22, 2022 /s/ Thomas J. Burgomaster Thomas J. Burgomaster Vice President, Corporate Controller (Principal Accounting Officer) February 22, 2022 /s/ Michael C. Child Michael C. Child Director February 22, 2022 /s/ Jeanmarie F. Desmond Jeanmarie F. Desmond Director February 22, 2022 /s/ Gregory P. Dougherty Gregory P. Dougherty Director February 22, 2022 /s/ Eric Meurice Eric Meurice Director February 22, 2022 /s/ Natalia Pavlova Natalia Pavlova Director February 22, 2022 /s/ John R. Peeler John Peeler Non-Executive Chair of the Board and Director February 22, 2022 /s/ Thomas J. Seifert Thomas J. Seifert Director February 22, 2022 52 Table of Contents INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 34 ) F- 2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 4 Consolidated Statements of Income for the Years Ended December 31, 2021, 2020, and 2019 F- 5 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020, and 2019 F- 6 Consolidated Statements of Equity for the Years Ended December 31, 2021, 2020, and 2019 F- 7 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020, and 2019 F- 8 Notes to Consolidated Financial Statements F- 9 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of IPG Photonics Corporation Oxford, Massachusetts Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of IPG Photonics Corporation and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Excess or Obsolete Inventory Reserve: Refer to Notes 1 and 4 to the Financial Statements Critical Audit Matter Description The Company evaluates inventory each reporting period for excess quantities and obsolescence, establishing reserves when necessary based upon historic usage, estimated future usage and age. Once recorded, these reserves are considered permanent adjustments to the carrying value of inventory. As of December 31, 2021, the Company has inventories of $460.7 million, net of excess quantities and obsolescence reserves. We identified the reserve for excess quantities and obsolete inventory as a critical audit matter because of the significant estimates and assumptions management makes to quantify and to record the reserve, including the determination of expected demand, especially when considering the vertically integrated nature of the Company as well as parts subject to technological obsolescence. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the methodology and the reasonableness of assumptions including expected demand. F-2 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management’s judgments underlying the calculation of excess or obsolete inventory reserve, included the following, among others: • We tested the effectiveness of controls over inventory, including those over the estimation of reserves for excess quantities and obsolescence. • We evaluated the reasonableness of the Company's excess and obsolete reserve policy, considering historical experience and the underlying assumptions. • We tested the calculation of the excess and obsolete reserve pursuant to the Company's policy, including the completeness and accuracy of the data used in the calculation. • We evaluated management's ability to accurately estimate future demand by comparing actual inventory usage, on a sample basis, to estimates made in prior years. • We considered the existence of contradictory evidence based on consideration of internal communication to management and the board of directors, Company press releases, and analysts' reports, as well as any changes within the business. /s/ DELOITTE & TOUCHE LLP Boston, Massachusetts February 22, 2022 We have served as the Company's auditor since 1999. F-3 Table of Contents IPG PHOTONICS CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2021 2020 (In thousands, except share and per share data) ASSETS Current assets: Cash and cash equivalents $ 709,105 $ 876,231 Short-term investments 805,400 514,835 Accounts receivable, net 262,121 264,321 Inventories 460,747 364,993 Prepaid income taxes 36,990 69,893 Prepaid expenses and other current assets 73,320 57,804 Total current assets 2,347,683 2,148,077 Deferred income taxes, net 47,761 43,197 Goodwill 38,609 41,366 Intangible assets, net 52,678 62,114 Property, plant and equipment, net 635,302 597,527 Other assets 48,507 43,419 Total assets $ 3,170,540 $ 2,935,700 LIABILITIES AND EQUITY Current liabilities: Current portion of long-term debt $ 18,126 $ 3,810 Accounts payable 55,839 25,748 Accrued expenses and other liabilities 230,826 176,740 Income taxes payable 8,642 8,280 Total current liabilities 313,433 214,578 Deferred income taxes and other long-term liabilities 93,855 92,854 Long-term debt, net of current portion 16,031 34,157 Total liabilities 423,319 341,589 Commitments and contingencies (Note 14) IPG Photonics Corporation equity: Common stock, $ 0.0001 par value, 175,000,000 shares authorized; 55,788,246 and 53,010,265 shares issued and outstanding, respectively, at December 31, 2021; 55,461,246 and 53,427,234 shares issued and outstanding, respectively, at December 31, 2020. 6 6 Treasury stock, at cost, 2,777,981 and 2,034,012 shares held at December 31, 2021 and December 31, 2020, respectively. ( 438,503 ) ( 303,614 ) Additional paid-in capital 908,423 854,301 Retained earnings 2,466,607 2,188,191 Accumulated other comprehensive loss ( 189,951 ) ( 146,065 ) Total IPG Photonics Corporation stockholders' equity 2,746,582 2,592,819 Non-controlling interests 639 1,292 Total equity 2,747,221 2,594,111 Total liabilities and equity $ 3,170,540 $ 2,935,700 See notes to consolidated financial statements. F-4 Table of Contents IPG PHOTONICS CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2021 2020 2019 (In thousands, except per share data) Net sales $ 1,460,860 $ 1,200,724 $ 1,314,581 Cost of sales 764,462 661,728 708,372 Gross profit 696,398 538,996 606,209 Operating expenses: Sales and marketing 78,180 70,583 77,745 Research and development 139,573 126,898 129,997 General and administrative 125,882 110,005 107,597 Goodwill impairment — 44,589 37,120 Impairment of long-lived assets and other restructuring charges — 1,177 7,130 (Gain) loss on foreign exchange ( 15,120 ) ( 12,915 ) 12,827 Total operating expenses 328,515 340,337 372,416 Operating income 367,883 198,659 233,793 Other (expense) income, net: Interest (expense) income, net ( 1,839 ) 6,270 14,238 Other income, net 437 763 345 Total other (expense) income ( 1,402 ) 7,033 14,583 Income before provision for income taxes 366,481 205,692 248,376 Provision for income taxes 88,615 45,354 68,115 Net income 277,866 160,338 180,261 Less: net (loss) income attributable to non-controlling interests ( 550 ) 766 27 Net income attributable to IPG Photonics Corporation common stockholders $ 278,416 $ 159,572 $ 180,234 Net income attributable to IPG Photonics Corporation per common share: Basic $ 5.21 $ 3.00 $ 3.40 Diluted $ 5.16 $ 2.97 $ 3.35 Weighted average shares outstanding: Basic 53,410 53,186 53,061 Diluted 53,930 53,785 53,839 See notes to consolidated financial statements. F-5 Table of Contents IPG PHOTONICS CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2021 2020 2019 (In thousands) Net income $ 277,866 $ 160,338 $ 180,261 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments and other ( 44,267 ) 1,367 15,997 Adjustment for net gain realized and included in net income — ( 232 ) — Unrealized gain (loss) on derivatives 278 ( 472 ) ( 17 ) Total other comprehensive (loss) income ( 43,989 ) 663 15,980 Comprehensive income 233,877 161,001 196,241 Less: comprehensive (loss) income attributable to non-controlling interest ( 653 ) 575 30 Comprehensive income attributable to IPG Photonics Corporation $ 234,530 $ 160,426 $ 196,211 See notes to consolidated financial statements. F-6 Table of Contents IPG PHOTONICS CORPORATION CONSOLIDATED STATEMENTS OF EQUITY Year Ended December 31, Common Stock Treasury Stock Additional Paid In Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Non- controlling Interest Total Stockholders' Equity (In thousands, except share data) Shares Amount Shares Amount Balance, January 1, 2019 52,941,607 $ 5 ( 1,430,094 ) $ ( 224,998 ) $ 744,937 $ 1,848,500 $ ( 162,896 ) $ 687 $ 2,206,235 Exercise of stock options and vesting of RSU's and PSU's, net of shares withheld for taxes 319,211 — — — 805 — — — 805 Common stock issued under employee stock purchase plan 52,315 — — — 6,531 — — — 6,531 Purchased common stock ( 302,258 ) — ( 302,258 ) ( 40,732 ) — — — — ( 40,732 ) Stock-based compensation — — — — 33,363 — — — 33,363 Net income — — — — — 180,234 — 27 180,261 Foreign currency translation adjustments and other — — — — — — 15,994 3 15,997 Unrealized (loss) on derivatives, net of tax — — — — — — ( 17 ) — ( 17 ) Balance, December 31, 2019 53,010,875 5 ( 1,732,352 ) ( 265,730 ) 785,636 2,028,734 ( 146,919 ) 717 2,402,443 Exercise of stock options and vesting of RSU's and PSU's, net of shares withheld for taxes 677,076 1 — — 27,934 — — — 27,935 Common stock issued under employee stock purchase plan 40,943 — — — 5,259 — — — 5,259 Purchased common stock ( 301,660 ) — ( 301,660 ) ( 37,884 ) — — — — ( 37,884 ) Stock-based compensation — — — — 35,472 — — — 35,472 Recently adopted accounting standards — — — — — ( 115 ) — — ( 115 ) Net income — — — — — 159,572 — 766 160,338 Foreign currency translation adjustments and other — — — — — — 1,558 ( 191 ) 1,367 Unrealized (loss) on derivatives, net of tax — — — — — — ( 472 ) — ( 472 ) Adjustment for net gain realized and included in net income — — — — — — ( 232 ) — ( 232 ) Balance, December 31, 2020 53,427,234 6 ( 2,034,012 ) ( 303,614 ) 854,301 2,188,191 ( 146,065 ) 1,292 2,594,111 Exercise of stock options and vesting of RSU's and PSU's, net of shares withheld for taxes 292,849 — — — 10,766 — — — 10,766 Common stock issued under employee stock purchase plan 34,151 — — — 5,492 — — — 5,492 Purchased common stock ( 743,969 ) — ( 743,969 ) ( 134,889 ) — — — — ( 134,889 ) Stock-based compensation — — — — 37,864 — — — 37,864 Net income — — — — — 278,416 — ( 550 ) 277,866 Foreign currency translation adjustments and other, net of tax — — — — — — ( 44,164 ) ( 103 ) ( 44,267 ) Unrealized gain on derivatives, net of tax — — — — — — 278 — 278 Balance, December 31, 2021 53,010,265 $ 6 ( 2,777,981 ) $ ( 438,503 ) $ 908,423 $ 2,466,607 $ ( 189,951 ) $ 639 $ 2,747,221 See notes to consolidated financial statements. F-7 Table of Contents IPG PHOTONICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2021 2020 2019 (In thousands) Cash flows from operating activities: Net income $ 277,866 $ 160,338 $ 180,261 Adjustments to reconcile net income to net cash (used) provided by operating activities: Depreciation and amortization 96,330 94,554 96,268 Deferred income taxes ( 6,885 ) ( 12,813 ) ( 15,489 ) Stock-based compensation 37,864 35,472 33,363 Goodwill impairment — 44,589 37,120 Impairment of long-lived assets — 671 5,350 Unrealized (gain) loss on foreign currency transactions ( 8,560 ) ( 19,935 ) 11,004 Other 8,618 8,642 3,320 Provisions for inventory, warranty and bad debt 68,441 70,572 63,752 Changes in assets and liabilities that (used) provided cash, net of acquisitions: Accounts receivable ( 2,091 ) ( 13,022 ) 9,776 Inventories ( 149,754 ) ( 39,900 ) ( 28,105 ) Prepaid expenses and other current assets ( 23,697 ) ( 3,802 ) 18,405 Accounts payable 30,997 ( 1,942 ) ( 10,257 ) Accrued expenses and other liabilities 24,715 ( 14,752 ) ( 37,310 ) Income and other taxes payable 35,856 ( 23,337 ) ( 43,937 ) Net cash provided by operating activities 389,700 285,335 323,521 Cash flows from investing activities: Purchases of property, plant and equipment ( 123,108 ) ( 87,696 ) ( 133,536 ) Proceeds from sales of property, plant and equipment 1,409 889 661 Proceeds from short-term investments 1,647,537 1,099,224 768,078 Purchases of short-term investments ( 1,940,605 ) ( 1,111,555 ) ( 760,300 ) Acquisitions of businesses, net of cash acquired — ( 429 ) ( 15,115 ) Other ( 1,515 ) ( 7 ) 237 Net cash used in investing activities ( 416,282 ) ( 99,574 ) ( 139,975 ) Cash flows from financing activities: Proceeds from line-of-credit facilities — — 15 Payments on line-of-credit facilities — — ( 15 ) Principal payments on long-term borrowings ( 3,810 ) ( 3,740 ) ( 3,671 ) Proceeds from issuance of common stock under employee stock option and purchase plans less payments for taxes related to net share settlement of equity awards 16,258 33,194 7,336 Purchase of treasury stock, at cost ( 134,889 ) ( 37,884 ) ( 40,732 ) Payment of purchase price holdback from business combination ( 2,625 ) ( 1,650 ) — Net cash used in financing activities ( 125,066 ) ( 10,080 ) ( 37,067 ) Effect of changes in exchange rates on cash, cash equivalents and restricted cash ( 17,800 ) 19,888 ( 7,853 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 169,448 ) 195,569 138,626 Cash, cash equivalents and restricted cash — Beginning of year 878,553 682,984 544,358 Cash, cash equivalents and restricted cash — End of year (Note 1) $ 709,105 $ 878,553 $ 682,984 Supplemental disclosure of cash flow information: Cash paid for interest $ 2,714 $ 2,234 $ 2,683 Cash paid for income taxes $ 62,998 $ 85,861 $ 116,951 Non-cash transactions: Demonstration units transferred from inventory to other assets $ 5,729 $ 8,117 $ 10,367 Property, plant and equipment transferred from inventory $ 3,701 $ 4,243 $ 7,659 Changes in accounts payable related to property, plant and equipment $ 816 $ ( 75 ) $ 1,304 Leased assets obtained in exchange for new operating lease liabilities $ 7,489 $ 4,035 $ 14,670 See notes to consolidated financial statements. F-8 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business — IPG Photonics Corporation (the "Company" or "IPG") develops, manufactures and sells high-performance fiber lasers, fiber amplifiers, diode lasers, laser systems, communications systems and optical accessories that are used for diverse applications, primarily in materials processing. The Company was incorporated as a Delaware corporation in December 1998. Its world headquarters are located in Oxford, Massachusetts. It also has facilities and sales offices elsewhere in North and South America, Europe and Asia. Principles of Consolidation — The accompanying financial statements include the accounts of the Company and its majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. Foreign Currency — The financial information for entities outside the United States is measured using local currencies as the functional currency. Assets and liabilities are translated into U.S. dollars at the exchange rate in effect on the respective balance sheet dates. Income and expenses are translated into U.S. dollars based on the average rate of exchange for the corresponding period. Exchange rate differences resulting from translation adjustments are accounted for directly as a component of accumulated other comprehensive loss. Cash and Cash Equivalents and Short-Term Investments — Cash and cash equivalents consist primarily of highly liquid investments, such as bank deposits, mutual funds and marketable securities with maturities of three months or less at the date of purchase with insignificant interest rate risk. Short-term investments consist of liquid investments including marketable securities, U.S. government and government agency notes, certificates of deposit, and foreign government bonds with original maturities of greater than three months but less than one year with insignificant interest rate risks. Short-term investments are held-to-maturity and accounted for at amortized cost. The reconciliation of the Company's cash and cash equivalents in the consolidated balance sheets to cash, cash equivalents and restricted cash in the consolidated statement of cash flows is as follows: Balance at Balance at December 31, 2021 December 31, 2020 Cash and cash equivalents $ 709,105 $ 876,231 Restricted cash included in prepaid expenses and other current assets — 2,322 Cash, cash equivalents and restricted cash $ 709,105 $ 878,553 During the first quarter of 2021, the Company released the restricted cash held back for indemnities provided by the seller related to the Company's acquisition of the submarine networks division (SND) of Padtec SA, Accounts Receivable and Allowance for Doubtful Accounts — Accounts receivable include $ 39,720 and $ 58,566 of bank acceptance drafts at December 31, 2021 and 2020, respectively. Bank acceptance drafts are bank guarantees of payment on specified dates. The weighted average maturity of these bank acceptance drafts is approximately 141 days. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of accounts receivable that will not be collected. The allowance is based upon an estimate of expected credit losses over the life of outstanding receivables. The estimate involves an assessment of customer creditworthiness, historical payment experience, an assumption of future expected credit losses, and the age of outstanding receivables. F-9 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Activity related to the allowance for doubtful accounts was as follows: 2021 2020 2019 Balance at January 1 $ 2,156 $ 2,547 $ 1,731 Provision for bad debts, net of (recoveries) 434 ( 156 ) 677 Uncollectable accounts written off ( 437 ) ( 114 ) ( 111 ) Foreign currency translation ( 45 ) ( 121 ) 102 Balance at December 31 $ 2,108 $ 2,156 $ 2,399 Inventories — Inventories are stated at the lower of cost and net realizable value on a first-in, first-out basis. Inventories include parts and components that may be specialized in nature and subject to rapid obsolescence. The Company periodically reviews the quantities and carrying values of inventories to assess whether the inventories are recoverable. The costs associated with provisions for excess quantities, technological obsolescence, or component rejections are charged to cost of sales as incurred. Goodwill — Goodwill is the amount by which the cost of the acquired net assets in a business acquisition exceeded the fair values of the net identifiable assets on the date of purchase. Goodwill is assessed for impairment at least annually, on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis. If the book value of a reporting unit exceeds its fair value, the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess. The results of the goodwill assessments for the years ended December 31, 2021 and 2020 are discussed in Note 7. Intangible Assets — Intangible assets result from the Company's various business acquisitions. Intangible assets are reported at cost, net of accumulated amortization, and are amortized on a straight-line basis either over their estimated useful lives of one year to thirteen years or over the period the economic benefits of the intangible asset are consumed. Property, Plant and Equipment — Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is determined using the straight-line method based on the estimated useful lives of the related assets. In the case of leasehold improvements, the estimated useful lives of the related assets do not exceed the remaining terms of the corresponding leases. The following table presents the assigned economic useful lives of property, plant and equipment: Category Economic Useful Life Buildings 20 - 30 years Machinery and equipment 5 - 7 years Office furniture and fixtures 5 - 7 years Expenditures for maintenance and repairs are charged to operating expense. Long-Lived Assets — Long-lived assets, which consist primarily of property, plant and equipment and identifiable intangible assets, are reviewed by management for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When undiscounted expected future cash flows are less than the carrying value, an impairment loss is recorded equal to the amount by which the carrying value exceeds the fair value of assets. There were no impairment charges recognized during the year ended December 31, 2021 . The Company incurred $ 671 and $ 2,498 of non-cash impairment charges related to long-lived assets during the years ended December 31, 2020 and 2019, respectively. Included in other long-term assets is certain demonstration equipment. The demonstration equipment is amortized over the respective estimated economic lives, generally 3 years. The carrying value of the demonstration equipment totaled $ 4,624 and $ 6,506 at December 31, 2021 and 2020, respectively. Amortization expense of demonstration equipment for the years ended December 31, 2021, 2020 and 2019, was $ 3,596 , $ 4,166 and $ 4,364 , respectively. Authorized Capital — The Company has authorized capital stock consisting of 175,000,000 shares of common stock, par value $ 0.0001 per share, and 5,000,000 shares of preferred stock, par value $ 0.0001 per share. There are no shares of preferred stock outstanding as of December 31, 2021. F-10 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Revenue Recognition — Revenue is recognized when transfer of control to the customer occurs in an amount reflecting the consideration that the Company expects to be entitled. In order to achieve this core principle, the Company applies the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be contracts with a customer. As part of its consideration of the contract, the Company evaluates certain factors including the customer's ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is identified as a distinct performance obligation. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. As the Company's standard payment terms are less than one year, the Company has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company's performance obligation is satisfied), which typically occurs at shipment but which can occur over time for certain of the Company's systems contracts. The Company often receives orders with multiple delivery dates that may extend across several reporting periods. The Company allocates the transaction price of the contract to each delivery based on the product standalone selling price. The Company invoices for each scheduled delivery upon shipment and recognizes revenues for such delivery at that point, when transfer of control has occurred. As scheduled delivery dates are generally within one year , under the optional exemption provided by ASC 606-10-50-14 revenues allocated to future shipments of partially completed contracts are not disclosed. Rights of return are not generally included in customer contracts. Accordingly, upon application of steps one through five above, product revenue is recognized upon shipment and transfer of control. Returns are infrequent and are recorded as a reduction of revenue. In certain subsidiaries the Company provides sales commissions to sales representatives based on sales volume. The Company has determined that the incentive portion of its sales commissions qualify as contract costs. The Company has elected the practical expedient in ASC 340-40-25-4 to expense sales commissions when incurred as the amortization period of the asset that would otherwise have been recognized is one year or less. Revenue Recognition at a Point in Time — Revenues recognized at a point in time consist primarily of product, installation and service sales. The Company sells products to original equipment manufacturers ("OEMs") that supply materials processing laser systems, communications systems, medical laser systems and other laser systems for advanced applications to end users. The Company also sells products to end users that use IPG products directly to build their own systems, which incorporate or use IPG products as an energy or light source. The Company recognizes revenue for laser and spare part sales following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. Installation revenue is recognized upon completion of the installation service, which typically occurs within 90 days of delivery. For laser systems that carry customer specific processing requirements, revenue is recognized at the latter of customer acceptance date or shipment date if the customer acceptance is made prior to shipment. When sales contracts contain multiple performance obligations, such as the shipment or delivery of products and installation, the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices and recognizes the related revenue as control of each individual product or service is transferred to the customer, in satisfaction of the corresponding performance obligations. Revenue Recognition over Time — Warranties are limited and provide that the product meets specifications and is free from defects in materials and workmanship. The Company also offers extended warranty agreements, which extend the standard warranty periods. Extended warranties are sold separately from products and represent a distinct performance obligation. Revenue related to the performance obligation for extended warranties is recognized over time as the customer simultaneously receives and consumes the benefits provided by the Company. The customer receives the assurance that the product will operate in accordance with agreed-upon specifications evenly during the extended warranty period regardless of whether they make a claim during that period, and therefore, revenue at time of sale is deferred and recognized over the time period of the extended warranty period. With the acquisition of Genesis Systems Group, LLC in December 2018, the Company enters into contracts to sell customized robotic systems, for which revenue is generally recognized over time, depending on the terms of the contract. F-11 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Recognizing revenue over time for these contracts is based on the Company’s judgment that the customized robotic system does not have an alternative use and the Company has an enforceable right to payment for performance completed to date. The determination of the revenue to be recognized in a given period for performance obligations over time is based on the input method. The Company generally uses the total cost-to-cost input method of progress because it best depicts the transfer of control to the customer that occurs as costs are incurred. Under the cost-to-cost method, the extent of progress towards completion is measured based on the proportion of costs incurred to date to the total estimated costs at completion of the performance obligation. Customer Deposits and Deferred Revenue — When the Company receives consideration from a customer or such consideration is unconditionally due prior to transferring goods or services under the terms of a sales contract, the Company records customer deposits or deferred revenue, which represent contract liabilities. The Company recognizes deferred revenue as net sales after control of the goods or services has been transferred to the customer and all revenue recognition criteria are met. Warranties — The Company typically provides one to five-year warranties on lasers and amplifiers. Most of the Company's sales offices provide support to customers in their respective geographic areas. The Company estimates the warranty accrual considering past claims experience, the number of units still covered by warranty and the average life of the remaining warranty period. The warranty accrual has generally been sufficient to cover product warranty repair and replacement costs. Stock-Based Compensation — The Company accounts for stock-based compensation expense using the fair value of the awards granted. The Company estimates the fair value of stock options granted using the Black-Scholes model, it values restricted stock units ("RSUs") and certain performance stock units with operating cash flow targets ("OCF PSUs") using the grant date market price of the stock, and it uses a Monte Carlo simulation model to estimate the fair value of certain performance stock units with total stockholder return targets ("TSR PSUs"). The Company accounts for forfeitures as they occur. The Company amortizes the fair value of stock options and other equity awards on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods. Stock options and RSUs generally vest annually on the anniversary of the grant date over a four-year period. TSR PSUs and OCF PSUs cliff-vest on March 1 st following the third anniversary of the grant date based upon achievement of performance targets established at grant. The description of the Company's stock-based compensation plans and the assumptions it uses to calculate the fair value of stock-based compensation is more fully described in Note 15, "Stock-based Compensation." Advertising Expense — The cost of advertising is expensed as incurred. The Company conducts substantially all of its sales and marketing efforts through trade shows, professional and technical conferences, direct sales and the Company's website. The Company's advertising costs were not material for the periods presented. Research and Development — Research and development costs are expensed as incurred. Restructuring — The Company records charges associated with approved restructuring plans to reorganize operations, to remove redundant headcount and infrastructure associated with business acquisitions or to improve the efficiency of business processes. Restructuring charges can include severance costs to eliminate a specific number of positions, infrastructure charges to vacate facilities and consolidate operations and contract cancellation costs. The Company records restructuring charges when they are probable and estimable. The Company accrues for severance and other employee separation costs under these plans when the employees accept the offer and the amount can be reasonably estimated. Income Taxes — Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities and net operating loss and credit carryforwards using enacted rates in effect when those differences are expected to reverse. Valuation allowances are provided against deferred tax assets that are not deemed to be recoverable. The Company recognizes tax positions that are more likely than not to be sustained upon examination by relevant tax authorities. The tax positions are measured at the greatest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement. The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. The reserves are based on a determination of whether and how much of a tax benefit taken in its tax filings or positions is more likely than not to be realized following resolution of uncertainties related to the tax benefit, assuming that the matter in question will be raised by the tax authorities. F-12 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Concentration of Credit Risk — Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. The Company maintains substantially all of its cash and cash equivalents, short-term investments and marketable securities in various financial institutions, which it believes to be high-credit quality financial institutions. The Company grants credit to customers in the ordinary course of business and provides a reserve for potential credit losses. Such losses historically have been within management's expectations. Our largest customer accounted for 22 % and 21 % of our net accounts receivable as of December 31, 2021 and 2020, respectively. The Company has historically depended on a few customers for a significant percentage of its annual net sales. The composition of this group can change from year to year. Net sales derived from the Company's five largest customers as a percentage of its annual net sales were 19 %, 24 % and 21 % in 2021, 2020 and 2019, respectively. Comprehensive Income — Comprehensive income includes charges and credits to equity that are not the result of transactions with stockholders. Included within comprehensive income is the cumulative foreign currency translation adjustment, unrealized gains or losses on derivatives and unrealized gains or losses on available-for-sale securities. These adjustments are accumulated within the consolidated statements of comprehensive income. Total components of accumulated other comprehensive loss were as follows: Foreign currency translation adjustments Unrealized (loss) gain on derivatives, net of tax Unrealized gain (loss) on available-for-sale securities Total Balance, January 1, 2019 $ ( 163,155 ) $ 27 $ 232 $ ( 162,896 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments and other 15,994 15,994 Unrealized (loss) on derivatives, net of tax benefit of $ 1 ( 17 ) ( 17 ) Total other comprehensive (loss) income 15,994 ( 17 ) — 15,977 Balance, December 31, 2019 ( 147,161 ) 10 232 ( 146,919 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments and other 1,558 1,558 Unrealized (loss) on derivatives, net of tax benefit of $ 144 ( 472 ) ( 472 ) Adjustment for net gain realized and included in net income ( 232 ) ( 232 ) Total other comprehensive (loss) income 1,558 ( 472 ) ( 232 ) 854 Balance, December 31, 2020 ( 145,603 ) ( 462 ) — ( 146,065 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments and other, net of tax benefit of $ 246 ( 44,164 ) ( 44,164 ) Unrealized gain on derivatives, net of tax of $ 83 278 278 Total other comprehensive (loss) income ( 44,164 ) 278 — ( 43,886 ) Balance, December 31, 2021 $ ( 189,767 ) $ ( 184 ) $ — $ ( 189,951 ) Derivative Instruments — The Company's primary market exposures are to interest rates and foreign exchange rates. The Company from time to time may use certain derivative financial instruments to help manage these exposures. The Company executes these instruments with financial institutions it judges to be credit-worthy. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The Company recognizes all derivative financial instruments as either assets or liabilities at fair value in the consolidated balance sheets. Business Segment Information — The Company operates in one segment which involves the design, development, production and distribution of fiber lasers, laser and non-laser systems, fiber amplifiers, and related optical components. The Company has a single, company-wide management team that administers all properties as a whole rather than as discrete operating segments. The chief operating decision maker, who is the Company's chief executive officer, measures financial performance as a single enterprise, and not on geography, legal entity, or end market basis. Throughout the year, the chief F-13 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) operating decision maker allocates capital resources on a project-by-project basis across the Company's entire asset base to maximize profitability without regard to geography, legal entity, or end market basis. The Company operates in a number of countries throughout the world in a variety of product lines. Information regarding product lines and geographic financial information is provided in Note 2, "Revenue from Contracts with Customers" and Note 8, "Property, Plant and Equipment." Earnings Per Share — Basic net income per common share is computed by dividing net income attributable to common shareholders of the Company by the weighted-average number of common shares outstanding during the reporting period. Diluted net income per common share is computed similarly to basic net income per common share, except that it includes the potential dilution that could occur if dilutive securities were exercised. Information about potentially dilutive and antidilutive shares for the reporting period is provided in Note 18, "Net Income Attributable to IPG Photonics Corporation Per Share." Leases — The Company determines if an arrangement is a lease at inception. Operating leases are included in other assets, other current liabilities, and other long-term liabilities on the Company's consolidated balance sheets. Right of use ("ROU") assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company's leases do not provide an implicit rate, IPG uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The ROU assets also include any lease payments made and initial direct costs incurred and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. Recent Accounting Pronouncements Adopted Pronouncements — In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-12, "Simplifying the Accounting for Income Taxes" ("ASU 2019-12"), which modifies ASC 740 to simplify the accounting for income taxes. The Company adopted ASU 2019-12 as of January 1, 2021. The impact from adopting this standard was immaterial. 2. REVENUE FROM CONTRACTS WITH CUSTOMERS Sales are derived from products for different applications: fiber lasers, diode lasers, systems and accessories for materials processing, fiber lasers, amplifiers and diodes for advanced applications, fiber amplifiers and transceivers for communications applications, and fiber lasers, systems and fibers for medical applications. The following tables represent a disaggregation of revenue from contracts with customers for the years ended December 31, 2021, 2020 and 2019: Year Ended December 31, 2021 2020 2019 Sales by Application Materials processing $ 1,325,404 $ 1,082,478 $ 1,229,211 Other applications 135,456 118,246 85,370 Total $ 1,460,860 $ 1,200,724 $ 1,314,581 Sales by Product High Power Continuous Wave ("CW") Lasers $ 687,406 $ 646,062 $ 734,745 Medium Power CW Lasers 80,501 50,796 56,625 Pulsed Lasers 240,978 158,448 137,675 Quasi-Continuous Wave ("QCW") Lasers 60,668 50,333 56,440 Laser and Non-Laser Systems 126,642 93,727 141,647 Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue 264,665 201,358 187,449 Total $ 1,460,860 $ 1,200,724 $ 1,314,581 F-14 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Sales by Geography North America $ 314,984 $ 246,189 $ 280,886 Europe: Germany 101,738 65,646 81,365 Other including Eastern Europe/CIS 289,136 219,540 249,871 Asia and Australia: China 548,348 502,278 491,890 Japan 54,077 53,180 71,757 Other 139,148 103,785 121,586 Rest of World 13,429 10,106 17,226 Total $ 1,460,860 $ 1,200,724 $ 1,314,581 Timing of Revenue Recognition Goods and services transferred at a point in time $ 1,402,498 $ 1,144,237 $ 1,233,065 Goods and services transferred over time 58,362 56,487 81,516 Total $ 1,460,860 $ 1,200,724 $ 1,314,581 The Company enters into contracts to sell lasers and spare parts, for which revenue is generally recognized upon shipment or delivery, depending on the terms of the contract. The Company also provides installation services and extended warranties. The Company frequently receives consideration from a customer prior to transferring goods to the customer under the terms of a sales contract. The Company records customer deposits related to these prepayments, which represent a contract liability. The Company also records deferred revenue related to installation services when consideration is received before the services have been performed. The standalone selling price for installation services is determined based on the estimated number of days of service technician time required for installation at standard service rates. The Company recognizes customer deposits and deferred revenue as net sales after control of the goods or services has been transferred to the customer and all revenue recognition criteria is met. The Company bills customers for extended warranties upon entering into the agreement with the customer, resulting in deferred revenue. The timing of customer payments on contracts for the sale of customized robotic systems generally differs from the timing of revenue recognized, resulting in contract assets and liabilities. Contract assets are included within prepaid expense and other current assets on the consolidated balance sheets. Contract liabilities are included within accrued expenses and other current liabilities on the consolidated balance sheets. The following table reflects the changes in the Company's contract assets and liabilities for the years ended December 31, 2021 and 2020: December 31, January 1, December 31, January 1, 2021 2021 Change 2020 2020 Change Contract assets Contract assets $ 9,345 $ 8,999 $ 346 $ 8,999 $ 9,645 $ ( 646 ) Contract liabilities Contract liabilities - current 89,659 71,246 18,413 71,246 59,531 11,715 Contract liabilities - long-term 2,691 2,189 502 2,189 1,820 369 During the year ended December 31, 2021 and 2020, the Company recognized revenue of $ 64,364 and $ 48,738 , respectively, that was included in the contract liabilities at the beginning of the period. F-15 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) The Company has elected the practical expedient in ASC 606-10-50-14, whereby the performance obligations for contracts with an original expected duration of one year or less are not disclosed. The following table represents the Company's remaining performance obligations from contracts that are recognized over time as of December 31, 2021: Remaining Performance Obligations 2022 2023 2024 2025 2026 Thereafter Total Revenue expected to be recognized for extended warranty agreements $ 3,671 $ 1,189 $ 899 $ 461 $ 116 $ 19 $ 6,355 Revenue to be earned over time from contracts to sell robotic systems 29,116 10,720 — — — — 39,836 Total $ 32,787 $ 11,909 $ 899 $ 461 $ 116 $ 19 $ 46,191 3. FAIR VALUE MEASUREMENTS The Company's financial instruments consist of cash equivalents, short-term investments, accounts receivable, accounts payable, drawings on revolving lines of credit, long-term debt, interest rate swaps and contingent purchase consideration. The valuation techniques used to measure fair value are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company classifies its financial instruments according to the prescribed criteria. The carrying amounts of money market fund deposits, term deposits, accounts receivable, accounts payable and drawings on revolving lines of credit are considered reasonable estimates of their fair market value due to the short maturity of most of these instruments or as a result of the competitive market interest rates, which have been negotiated. The fair value of the bond securities is based upon quoted prices for instruments with identical terms in active markets. The commercial paper securities reported at fair value are based upon model-driven valuations in which all significant inputs are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset or liability, and are therefore classified as Level 2. F-16 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) The following table presents fair value information related to the Company's assets and liabilities measured at amortized cost on the consolidated balance sheets with the exception of the interest rate swap and contingent purchase consideration, which is measured at fair value: Fair Value Measurements at December 31, 2021 Total Level 1 Level 2 Level 3 Assets Cash equivalents: Money market fund deposits and term deposits $ 279,066 $ 279,066 $ — $ — Municipal bonds 3,220 — 3,220 — Commercial paper 117,663 — 117,663 — Corporate bonds 11,459 — 11,459 — Short-term investments: U.S. Treasury and agency obligations 21,980 — 21,980 — Municipal bonds 4,546 — 4,546 — Corporate bonds 215,754 — 215,754 — Commercial paper 557,955 — 557,955 — Certificate of deposit 3,000 — 3,000 — Foreign government bonds 2,015 — 2,015 — Total assets $ 1,216,658 $ 279,066 $ 937,592 $ — Liabilities Term notes $ 34,226 $ — $ 34,226 $ — Contingent purchase consideration 1,371 — — 1,371 Interest rate swap 242 — 242 — Total liabilities $ 35,839 $ — $ 34,468 $ 1,371 Fair Value Measurements at December 31, 2020 Total Level 1 Level 2 Level 3 Assets Cash equivalents: Money market fund deposits and term deposits $ 218,984 $ 218,984 $ — $ — U.S. Treasury and agency obligations 6,999 — 6,999 — Commercial paper 162,749 — 162,749 — Corporate bonds 29,010 — 29,010 — Short-term investments: U.S. Treasury and agency obligations 49,996 — 49,996 — Corporate bonds 7,997 — 7,997 — Commercial paper 88,171 — 88,171 — Certificate of deposit 368,665 — 368,665 — Total assets $ 932,571 $ 218,984 $ 713,587 $ — Liabilities Term notes $ 38,402 $ — $ 38,402 $ — Contingent purchase consideration 1,963 — — 1,963 Interest rate swaps 603 — 603 — Total liabilities $ 40,968 $ — $ 39,005 $ 1,963 There were no impairments for the investments considered held-to-maturity at December 31, 2021 and December 31, 2020. F-17 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) The following table presents the effective maturity dates of debt investments, which are held-to-maturity: December 31, 2021 December 31, 2020 Book Value Fair Value Book Value Fair Value Investment maturity Less than 1 year $ 805,400 $ 805,250 $ 514,835 $ 514,829 The Company entered into an interest rate swap that is designated as a cash flow hedge associated with a long-term note issued during the second quarter of 2016 that will terminate with the long-term note in May 2023. The fair value at December 31, 2021 for the interest rate swap considered pricing models whose inputs are observable for the securities held by the Company. At December 31, 2021 and December 31, 2020, the Company's long-term notes consisted of a variable rate note and a fixed rate note, and are reported at amortized cost on the consolidated balance sheets. For disclosure purposes, the fair value of the long-term notes was estimated using a discounted cash flow model using observable market interest rates and are classified as a Level 2. Based on the discounted cash flow model, the fair values of the long-term notes at December 31, 2021 and 2020 were $ 34,226 and $ 38,402 , respectively, as compared to the book value of $ 34,157 and $ 37,967 , respectively. The fair value of contingent consideration was determined using an income approach at the respective business combination date and at the reporting date. That approach is based on significant inputs that are not observable in the market and include key assumptions such as assessing the probability of meeting certain milestones required to earn the contingent consideration. The following table presents information about the Company's movement in Level 3 assets and liabilities measured at fair value: 2021 2020 2019 Auction rate securities Balance at January 1 $ — $ 592 $ 847 Redemptions — ( 596 ) ( 264 ) Change in fair value — 4 9 Balance at December 31 $ — $ — $ 592 Contingent purchase consideration Balance at January 1 $ 1,963 $ 273 $ 898 Period transactions — 1,963 — Cash payments ( 466 ) ( 272 ) ( 632 ) Change in fair value — — ( 29 ) Foreign exchange adjustment ( 126 ) ( 1 ) 36 Balance at December 31 $ 1,371 $ 1,963 $ 273 The auction rate securities were called during the year ended December 31, 2020. The net gain previously included in accumulated other comprehensive income was released and included in net income, in the amount of $ 232 for the year ended December 31, 2020. F-18 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 4. INVENTORIES Inventories consist of the following: December 31, 2021 2020 Components and raw materials $ 270,146 $ 190,775 Work-in-process 32,506 47,251 Finished goods 158,095 126,967 Total $ 460,747 $ 364,993 The Company recorded inventory provisions totaling $ 34,285 , $ 45,375 and $ 38,902 for the years ended December 31, 2021, 2020 and 2019, respectively. These provisions relate to the recoverability of the value of inventories due to technological changes and excess quantities. These provisions are reported as a reduction to components and raw materials and finished goods. 5. BUSINESS COMBINATIONS During the fourth quarter of 2020, the Company acquired Pi-Tecnologia S.A. ("PiTec"), which is located in Brazil, to support development in advanced photonics. The acquisition price was $ 2,717 , of which $ 906 was paid at closing and the remainder of which may be earned over three years based on reaching certain financial targets. The goodwill arising from this acquisition is not deductible for tax purposes. 6. RESTRUCTURING In the second half of 2019, the Company implemented restructuring programs globally, which were primarily focused on workforce reduction, facility consolidation and ceasing investment in the submarine telecommunications industry. There was no restructuring related activity in 2021. Activity related to the restructuring accrual was as follows: Severance and Employee Benefit Costs Contract Cancellations Total Balance at January 1, 2019 $ — $ — $ — Charges 1,466 314 1,780 Cash payments ( 1,317 ) ( 275 ) ( 1,592 ) Balance at December 31, 2019 149 39 188 Charges 417 89 506 Cash payments ( 560 ) ( 128 ) ( 688 ) Foreign exchange adjustment ( 6 ) — ( 6 ) Balance at December 31, 2020 $ — $ — $ — F-19 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 7. GOODWILL AND INTANGIBLE ASSETS The following table sets forth the changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2020: 2021 2020 Balance at January 1 $ 41,366 $ 82,092 Adjustments to goodwill during the measurement period ( 2,205 ) — Goodwill arising from business combinations — 3,211 Impairment losses — ( 44,589 ) Foreign exchange adjustment ( 552 ) 652 Balance at December 31 $ 38,609 $ 41,366 During the first quarter of 2021, the Company finalized the purchase price allocations related to the PiTec acquisition, which resulted in adjustments to goodwill of $ 2,205 . The Company tests its reporting units for goodwill impairment annually as of the first day of the 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. For certain reporting units, the Company performed a quantitative assessment using the discounted cash flow method under the income approach to estimate the fair value. The Company performed the 2021 annual impairment test as of October 1, 2021, and no impairments were recorded as a result of this test. The carrying balance of goodwill at December 31, 2021 was net of accumulated impairments of $ 81,709 . During the third quarter of 2020, the Company 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. The Company 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, the Company recognized a non-cash impairment loss of $ 44,589 , 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. The Company performed the 2020 annual impairment test as of October 1, 2020, and no additional impairments were recorded as a result of this test. The carrying balance of goodwill at December 31, 2020 was net of accumulated impairments of $ 81,709 . As a result of the 2019 annual impairment test for the transceivers reporting unit, the Company recognized a non-cash impairment loss of $ 19,325 , which was equal to the goodwill carrying amount prior to its impairment. The analysis considered lower than forecasted sales and profitability, as well as the impact of delays in new product launches. Additionally, in 2019 the Company decided that it would not make further investments required to obtain the necessary market share in the submarine telecommunications industry and commenced efforts to sell the submarine networks reporting unit ("SND"). As a result that decision, the Company recognized a non-cash impairment loss of $ 17,795 , which decreased the net assets to the estimated net F-20 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) realizable value as of December 31, 2019. The Company sold SND in the third quarter of 2020. The carrying balance of goodwill at December 31, 2019 was net of accumulated impairments of $ 37,120 . Intangible assets, subject to amortization, consisted of the following: December 31, 2021 December 31, 2020 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted- Average Lives Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted- Average Lives Customer relationships $ 59,729 $ ( 23,556 ) $ 36,173 10 years $ 58,041 $ ( 17,674 ) $ 40,367 11 years Technology, trademark and trade name 40,536 ( 26,269 ) 14,267 7 years 40,518 ( 20,949 ) 19,569 7 years Production know-how 10,384 ( 8,723 ) 1,661 7 years 9,325 ( 8,167 ) 1,158 7 years Patents 8,036 ( 7,459 ) 577 8 years 8,036 ( 7,016 ) 1,020 8 years Total $ 118,685 $ ( 66,007 ) $ 52,678 $ 115,920 $ ( 53,806 ) $ 62,114 Amortization expense for the years ended December 31, 2021, 2020 and 2019 was $ 12,427 , $ 11,974 and $ 12,945 , respectively. The estimated future amortization expense for intangibles as of December 31, 2021 is as follows: 2022 2023 2024 2025 2026 Thereafter Total $ 11,408 $ 10,503 $ 8,047 $ 6,502 $ 4,733 $ 11,485 $ 52,678 8. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: December 31, 2021 2020 Land $ 51,249 $ 51,454 Buildings 433,960 412,725 Machinery and equipment 513,054 473,420 Office furniture and fixtures 77,675 77,196 Construction-in-progress 106,682 70,341 Total property, plant and equipment 1,182,620 1,085,136 Accumulated depreciation ( 547,318 ) ( 487,609 ) Total property, plant and equipment — net $ 635,302 $ 597,527 The Company recorded depreciation expense of $ 78,563 , $ 78,414 and $ 78,959 for the years ended December 31, 2021, 2020 and 2019, respectively. F-21 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Long-lived assets include property, plant and equipment, related deposits on such assets and demonstration equipment. The geographic locations of the Company's long-lived assets, net, based on physical location of the assets, as of December 31, 2021 and 2020 are as follows: December 31, 2021 2020 United States $ 390,255 $ 362,395 Germany 89,017 86,980 Russia 70,088 66,924 Belarus 46,104 38,304 China 6,997 8,175 Other 47,004 49,170 Total $ 649,465 $ 611,948 9. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities consist of the following: December 31, 2021 2020 Contract liabilities $ 89,659 $ 71,246 Accrued compensation 94,857 62,785 Current portion of accrued warranty 26,204 24,345 Short-term lease liabilities 5,454 5,778 Other 14,652 12,586 Total $ 230,826 $ 176,740 10. PRODUCT WARRANTIES Activity related to the warranty accrual was as follows: 2021 2020 2019 Balance at January 1 $ 45,669 $ 48,866 $ 51,422 Provision for warranty accrual 33,289 24,555 22,613 Warranty claims ( 26,568 ) ( 30,002 ) ( 24,826 ) Foreign currency translation ( 2,526 ) 2,250 ( 343 ) Balance at December 31 $ 49,864 $ 45,669 $ 48,866 Accrued warranty reported in the accompanying consolidated financial statements as of December 31, 2021 and December 31, 2020 consists of $ 26,204 and $ 24,345 in accrued expenses and other liabilities and $ 23,660 and $ 21,324 in other long-term liabilities, respectively. F-22 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 11. FINANCING ARRANGEMENTS The Company's borrowings under existing financing arrangements consist of the following: December 31, 2021 2020 Total debt $ 34,157 $ 37,967 Less: current portion ( 18,126 ) ( 3,810 ) Long-term debt, net of current portion $ 16,031 $ 34,157 Term Debt: Long-Term Notes — At December 31, 2021, the outstanding principal balance on the long-term notes was $ 34,157 of which $ 18,126 is the current portion. The Company has an unsecured long-term note of $ 17,219 of which $ 1,188 is the current portion. The interest on this unsecured long-term note is variable at 1.20 % above LIBOR and is fixed using an interest rate swap at 2.85 % per annum. The unsecured long-term note matures in May 2023, at which time the outstanding principal balance will be $ 15,438 . The Company has another note that is secured by the corporate aircraft with an outstanding principal balance of $ 16,938 , all of which is current. The interest on this collateralized note is fixed at 2.74 % per annum. The collateralized note matures in July 2022, at which time the outstanding principal balance will be $ 15,375 . The future principal payments for the Company’s notes as of December 31, 2021 are as follows: 2022 $ 18,126 2023 16,031 Total $ 34,157 Revolving Line of Credit Facilities: U.S. Line of Credit — The Company maintains an unsecured revolving line of credit with a principal amount of $ 75,000 , expiring in April 2025. The line of credit bears interest at a variable rate of LIBOR plus 0.80 % to 1.20 % depending on the Company's financial performance. Part of this credit facility is available to the Company's foreign subsidiaries including those in India, China, Japan and Brazil based on management discretion. At December 31, 2021, there were no outstanding drawings, however, there were $ 2,478 of guarantees issued against the line which reduced the total availability. At December 31, 2021, the remaining availability under this line was $ 72,522 . The Company is required to meet certain financial covenants associated with its U.S. 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 the Company maintains 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 its trailing twelve months EBITDA. Funded debt is decreased by its cash and available marketable securities not classified as long-term investments in the U.S. in excess of $ 50,000 up to a maximum of $ 500,000 . Euro Line of Credit — The Company maintains an unsecured revolving line of credit with a principal amount of € 50,000 ($ 56,710 at December 31, 2021), expiring in July 2023. The line of credit bears interest at various rates based upon the type of loan. This credit facility is available to the Company's foreign subsidiaries including those in Germany, Russia, China and Italy based on management discretion. At December 31, 2021, there were no drawings, however, there were $ 2,161 of guarantees issued against the line which reduced the total availability. At December 31, 2021, the remaining availability under this line was $ 54,549 . Other European Facilities — The Company maintains one Euro credit line in Italy with an available principal of € 1,500 ($ 1,701 as of December 31, 2021), with no expiration date, which bear interest at market rates that reset at the beginning of each quarter. At December 31, 2021, there were no outstanding drawings and the aggregate remaining availability under this line was $ 1,701 . This facility is collateralized by a common pool of the assets of the Company's Italian subsidiary. F-23 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 12. DERIVATIVE INSTRUMENTS The Company's only outstanding derivative financial instrument is an interest rate swap that is classified as a cash flow hedge of its variable rate debt. The fair value amounts in the consolidated balance sheets were: December 31, 2021 2020 Notional amounts (1) $ 17,219 $ 18,406 Fair values: Deferred income taxes and other long-term liabilities 242 603 (1) Notional amounts represent the gross contract/notional amount of the derivative outstanding. The derivative gains and losses in the consolidated financial statements for the years ended December 31, 2021, 2020 and 2019, related to the Company's current and previous interest rate swap contracts were as follows: Year Ended December 31, 2021 2020 2019 Effective portion recognized in other comprehensive income (loss), pretax: Interest rate swap $ 361 $ ( 616 ) $ ( 18 ) 13. LEASES The Company leases certain warehouses, office spaces, land, vehicles and equipment under operating lease agreements. The remaining terms of these leases range from less than 1 year to 43 years. The operating lease expense for the years ended December 31, 2021, 2020 and 2019, totaled $ 7,975 , $ 7,797 and $ 8,800 , respectively. The cash paid for amounts included in the measurement of lease liabilities included in the operating cash flows from operating leases was $ 6,854 , $ 6,634 and $ 6,802 for the years ended December 31, 2021, 2020 and 2019, respectively. The Company does not have any finance lease arrangements. The Company's operating lease assets and lease liabilities consist of the following as of December 31, 2021 and 2020: Year Ended December 31, Account Classification 2021 2020 Right-of-use assets Other assets $ 21,688 $ 21,720 Short-term lease liabilities Accrued expenses and other liabilities 5,454 5,778 Long-term lease liabilities Deferred income taxes and other long-term liabilities 18,521 18,448 Total lease liabilities $ 23,975 $ 24,226 The table below presents the maturities of operating lease liabilities as of December 31, 2021: 2022 $ 6,307 2023 5,366 2024 3,785 2025 3,475 2026 2,082 Thereafter 6,384 Total future minimum lease payments 27,399 Less: imputed interest ( 3,424 ) Present value of lease liabilities $ 23,975 F-24 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Other information relevant to the Company's operating leases consist of the following as of December 31, 2021 and 2020: Year Ended December 31, 2021 2020 Weighted-average remaining lease term 8 years 9 years Weighted-average discount rate 4.39 % 3.46 % 14. COMMITMENTS AND CONTINGENCIES Employment Agreements — The Company has entered into employment agreements with certain members of senior management. The terms of these agreements are up to three years and include non-competition, non-solicitation and nondisclosure provisions, as well as provisions for defined severance for terminations of employment under certain conditions and a change of control of the Company. The Company also maintains a severance plan for certain of its senior management providing for defined severance for terminations of employment under certain conditions and a change of control of the Company. Contractual Obligations — The Company has entered into various purchase obligations that include agreements for construction of buildings, raw materials and equipment. Obligations under these agreements were $ 19,880 and $ 51,730 as of December 31, 2021 and 2020, respectively. Legal proceedings — From time to time, the Company may be involved in legal disputes and other proceedings in the ordinary course of its business. These matters may include allegations of infringement of intellectual property, commercial disputes and employment matters. As of December 31, 2021 and through the date of the Company's subsequent review period of February 22, 2022, the Company is aware of no ongoing legal proceedings that management estimates could have a material effect on the Company's Consolidated Financial Statements. We have submitted a number of voluntary self-disclosures regarding compliance with export control laws and regulations and the U.S. Department of Justice is conducting an investigation into certain shipments of equipment. At this time, we are not able to estimate the amount or probability of any monetary penalties or other expenses that we may incur as a result of this investigation. 15. STOCK-BASED COMPENSATION Stock-based compensation is included in the following financial statement captions: Year Ended December 31, 2021 2020 2019 Cost of sales $ 11,245 $ 10,392 $ 9,249 Sales and marketing 4,320 4,395 3,815 Research and development 9,533 9,122 7,690 General and administrative 12,883 11,749 12,824 Total stock-based compensation 37,981 35,658 33,578 Tax benefit recognized ( 8,071 ) ( 7,498 ) ( 5,114 ) Net stock-based compensation $ 29,910 $ 28,160 $ 28,464 Incentive Plans — In February 2006, the Company's board of directors adopted the 2006 Incentive Compensation Plan (the "2006 Plan"), which provides for the issuance of stock options, performance stock units ("PSUs"), restricted stock units ("RSUs"), other equity-based awards and cash awards to the Company's directors, employees, consultants and advisors. In June 2006, the Company's board of directors adopted the Non-Employee Directors Stock Plan (the "Directors Plan") for non-employee directors, which was subsequently merged into the 2006 Plan. A total of 10,363,465 shares are reserved under the 2006 Plan. At December 31, 2021, 2,638,529 shares of the Company's stock were available for future grant under the 2006 Plan. The Company may grant stock options only at an exercise price equal to or greater than the fair market value of its common stock on the date of grant. Equity awards generally vest over periods of one to four years and generally expire ten years after the date of the grant. The vesting of awards under the 2006 Plan accelerate following the occurrence of certain F-25 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except share and per share data) change of control events, if the participant's employment is terminated within two years without cause or if the successor entity does not agree to assume existing awards or replace with equivalent value awards. Awards granted to non-employee directors automatically become exercisable upon a change of control. All shares issued under the 2006 Plan and Directors Plan are registered shares, newly issued by the Company. The Company granted certain PSUs to executive officers and other senior managers. PSUs are based on relative total stockholder return ("TSR") and, starting in 2020, operating cash flow metrics ("OCF"). PSU agreements provide for the award of PSUs with each unit representing the right to receive one share of the Company's common stock to be issued after the applicable award vesting period. The final number of units awarded, if any, for these performance grants will be determined as of the vesting dates, based upon (i) in the case of TSR PSUs granted in 2021, the Company's total shareholder return over the performance period compared to the S&P 1500 Composite / Electronic Equipment Instruments & Components Index, and (ii) in the case of OCF PSUs, the ratio of the Company's operating cash flow to adjusted net income compared to target ratios of operating cash flow to adjusted net income average over the three-year performance period. The final number of units awarded under each of the TSR PSUs and OCF PSUs could range from between 0 % and 200 % of the amount of the target award. Subsequent to the year ended December 31, 2019, the Company replaced stock option grants with RSU grants. The assumptions used in the Black-Scholes model for the calculation of the options were as follows for the year ended December 31: 2019 Expected term 4.3 - 5.1 years Volatility 37 % - 38 % Risk-free rate of return 1.66 % - 2.55 % Dividend yield 0.25 % Forfeiture rate — % The following table summarizes the option activity for the year ended December 31, 2021: Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life Aggregate Intrinsic Value Outstanding — January 1, 2021 1,272,623 $ 127.74 Granted — — Exercised ( 214,465 ) 89.50 Forfeited ( 18,786 ) 187.49 Outstanding — December 31, 2021 1,039,372 $ 134.56 4.78 $ 52,354 Unvested — December 31, 2021 188,447 $ 176.30 6.88 $ 2,434 Exercisable — December 31, 2021 850,831 $ 125.31 4.32 $ 49,918 There were no options granted for the years ended December 31, 2021 and 2020. The weighted average grant-date fair value of options granted during the year ended December 31, 2019 was $ 153.78 . The intrinsic value of the options exercised during the years ended December 31, 2021, 2020 and 2019, was $ 28,353 , $ 52,868 and $ 17,891 , respectively. The total compensation cost related to non-vested option awards not yet recorded at December 31, 2021 was $ 5,055 which is expected to be recognized over a weighted-average of 1.1 years. Cash received from option exercises during the year ended December 31, 2021 was $ 19,195 . Tax benefit received from option exercises during the year ended December 31, 2021 was $ 6,385 . F-26 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except share and per share data) The following table summarizes the RSUs activity for the year ended December 31, 2021: Number of Shares Weighted-Average Grant-Date Fair Value Outstanding — January 1, 2021 320,686 $ 154.29 Granted 146,047 229.13 Vested ( 116,144 ) 155.34 Canceled ( 16,482 ) 178.14 Outstanding — December 31, 2021 334,107 $ 185.37 The fair value of each restricted stock unit is the market price of Company stock on the date of grant. The weighted average grant date fair value of restricted stock units granted during the years ended December 31, 2021, 2020 and 2019 was $ 229.13 , $ 145.10 and $ 151.94 , respectively. The intrinsic value of the RSUs that vested during the years ended December 31, 2021, 2020 and 2019, was $ 26,036 , $ 22,252 and $ 22,638 , respectively. The total compensation cost related to non-vested RSU awards not yet recorded at December 31, 2021 was $ 43,414 which is expected to be recognized over a weighted-average of 2.7 years. The aggregate fair value of awards vested during the years ended December 31, 2021, 2020 and 2019 was $ 18,042 , $ 19,535 , $ 17,799 , respectively. The fair value of TSR PSUs was determined using the Monte Carlo simulation model incorporating the following assumptions: 2021 2020 2019 Performance term 3.0 years 3.0 years 3.0 years Volatility 29 % - 51 % 19 % - 44 % 18 % - 40 % Risk-free rate of return 0.23 % - 0.26 % 1.39 % 2.48 % Dividend yield — % — % — % Fair value per share $ 248.49 - $ 165.15 $ 169.28 $ 192.46 The following table summarizes TSR PSUs activity for the year ended December 31, 2021: Number of Shares Weighted-Average Grant-Date Fair Value Outstanding — January 1, 2021 67,825 $ 206.21 Granted 17,809 236.11 Vested — — Canceled ( 19,050 ) 186.22 Outstanding — December 31, 2021 66,584 $ 195.15 For the years ended December 31, 2021, 2020 and 2019, the weighted average grant date fair value for new grants was $ 236.11 , $ 170.42 and $ 190.83 , respectively. TSR PSUs are included at 100 % of target goal. The TSR PSUs granted in 2018 did not achieve the performance target, thus no shares became eligible to vest. The intrinsic value of the TSR PSUs vested during the years ended December 31, 2021, 2020 and 2019 was nil , $ 6,211 , $ 6,830 . The aggregate fair value of awards vested during the years ended December 31, 2021, 2020 and 2019 was nil , $ 5,159 , and $ 5,604 , respectively. The total compensation cost related to nonvested awards not yet recorded at December 31, 2021 was $ 4,784 which is expected to be recognized over a weighted average of 1.8 years. F-27 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except share and per share data) The following table summarizes OCF PSUs activity for the year ended December 31, 2021: Number of Shares Weighted-Average Grant-Date Fair Value Outstanding — January 1, 2021 24,101 $ 143.51 Granted 17,687 228.62 Vested — — Canceled ( 1,208 ) 178.87 Outstanding — December 31, 2021 40,580 $ 179.60 The fair value of each OCF PSU is the market price of Company stock on the date of grant. For the years ended December 31, 2021 and 2020, the weighted average grant date fair value for new grants was $ 228.62 and $ 143.51 . OCF PSUs are included at 100 % of target goal. The total compensation cost related to nonvested awards not yet recorded at December 31, 2021 was $ 4,198 , which is expected to be recognized over a weighted average of 2.0 years. 16. EMPLOYEE BENEFIT PLANS The Company maintains a defined contribution retirement plan offered to all of its U.S. employees, as well as plans at certain foreign and domestic subsidiaries. The Company makes matching contributions to each plan, which amounted to approximately $ 6,081 , $ 6,253 and $ 6,005 , respectively, for the years ended December 31, 2021, 2020 and 2019. The Company has an employee stock purchase plan offered to its U.S. and German employees. The plan allows employees who participate to purchase shares of common stock through payroll deductions at a 15 % discount to the lower of the stock price on the first day or the last day of the six-month purchase period. Payroll deductions may not exceed 10 % of the employee's compensation and are subject to other limitations. The Company uses the Black-Scholes model to calculate the purchase date fair value of the shares issued under the employee stock purchase plan and recognize expense related to shares purchased ratably over the offering period. Compensation expense related to the employee stock purchase plan was $ 1,861 , $ 2,033 and $ 2,254 for the years ended December 31, 2021, 2020 and 2019, respectively. During the years ended December 31, 2021, 2020 and 2019, 34,151 , 40,943 and 52,315 shares, respectively, were issued at an average price of $ 160.81 , $ 128.46 and $ 124.84 , respectively, under the employee stock purchase plan. As of December 31, 2021, there were 260,393 shares available for issuance under the employee stock purchase plan. 17. INCOME TAXES Income before the impact of income taxes for the years ended December 31 consisted of the following: 2021 2020 2019 U.S. $ 103,980 $ 5,490 $ 59,790 Foreign 262,501 200,202 188,586 Total $ 366,481 $ 205,692 $ 248,376 F-28 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except share and per share data) The Company's provision for income taxes for the years ended December 31 consisted of the following: 2021 2020 2019 Current: Federal $ 13,842 $ 3,871 $ 7,127 State 273 688 2,405 Foreign 81,385 53,608 74,072 Total current 95,500 58,167 83,604 Deferred: Federal ( 179 ) ( 10,300 ) ( 4,896 ) State 844 ( 1,594 ) ( 1,658 ) Foreign ( 7,550 ) ( 919 ) ( 8,935 ) Total deferred ( 6,885 ) ( 12,813 ) ( 15,489 ) Provision for income taxes $ 88,615 $ 45,354 $ 68,115 A reconciliation of income tax expense at the U.S. federal statutory income tax rate to the recorded tax provision for the years ended December 31, were as follows: 2021 2020 2019 Tax at statutory rate $ 76,955 $ 43,201 $ 52,159 Non-U.S. rate differential — net 18,710 10,968 14,958 State income taxes — net 2,050 697 2,362 Stock-based compensation - tax benefit ( 5,440 ) ( 9,664 ) ( 5,114 ) Foreign derived intangible income benefit ("FDII") ( 4,704 ) — ( 4,763 ) Global intangible low-taxed income taxed in the U.S. ("GILTI") — — 4,648 Goodwill impairment — — 10,009 Withholding tax on intercompany dividend 2,883 2,193 3,122 Federal and state tax credits ( 7,482 ) ( 6,762 ) ( 12,173 ) Russia investment tax credit ( 324 ) ( 3,228 ) — Change in reserves, including interest and penalties 6,041 3,878 779 Change in valuation allowance 1,681 2,019 4,515 Other — net ( 1,755 ) 2,052 ( 2,387 ) Provision for income taxes $ 88,615 $ 45,354 $ 68,115 F-29 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except share and per share data) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, were as follows: 2021 2020 Inventory provisions $ 25,368 $ 29,657 Allowances and accrued liabilities 5,101 12,719 Deferred compensation 17,365 3,256 Other tax credits 17,013 15,571 Net operating loss carryforwards 11,544 11,594 Property, plant, equipment and intangible assets ( 5,187 ) ( 7,401 ) Withholding tax on intercompany dividend ( 1,098 ) ( 2,774 ) Valuation allowance ( 23,977 ) ( 22,617 ) Net deferred tax assets $ 46,129 $ 40,005 The Company has recorded $ 1,098 and $ 2,774 as a deferred tax liability on December 31, 2021 and 2020, respectively, for certain withholding and dividend taxes related to possible future distributions from subsidiaries to their respective parent companies. The Company paid dividends from its German subsidiary in 2021 of $ 288,666 and continues to plan for future dividends to the extent the entity’s cash exceeds its operational and investment needs. Since there is no federal or withholding tax on such distributions from Germany to the U.S., the Company has accrued only a state tax on future dividends from Germany. Also, t he Company’s subsidiary in Russia paid a dividend of $ 50,000 to its parent companies in Germany and the U.S. in 2021 and paid a 5 % withholding tax on that dividend. In addition, the Company accrues taxes to the extent that foreign subsidiaries have cash in excess of their operational needs. The withholding tax liabilities at both December 31, 2021 and 2020 are primarily related to dividends out of the Company’s Russian subsidiary. With regard to future repatriation of undistributed earnings of other non-U.S. subsidiaries, the Company continues to consider these earnings to be indefinitely reinvested to the extent the cash balance in each subsidiary is less than current needs for operations and expansion. At December 31, 2021 and 2020 , the cumulative undistributed earnings in non-U.S. subsidiaries were approximately $ 949,142 and $ 1,051,893 , respectively. In determining the Company’s 2021 and 2020 tax provisions, the Company calculated the deferred tax assets and liabilities for each separate tax entity. The Company then considered a number of factors including the positive and negative evidence regarding the realization of deferred tax assets to determine whether a valuation allowance should be recognized with respect to the deferred tax assets. As of December 31, 2021 and 2020, the Company had state tax credit carryforwards (net of federal tax benefit) of $ 16,836 and $ 15,571 , respectively. The state tax credit carryforwards begin expiring in 2022. The Company has determined that it is not more likely than not that some of the state credits will be used before the expiration date and recorded a valuation allowance of $ 13,884 and $ 12,414 as of December 31, 2021 and 2020, respectively. The Company has tax loss carryforwards in foreign jurisdictions totaling $ 38,070 and $ 36,318 as of December 31, 2021 and 2020, respectively. The Company does not believe it is more likely than not that any of the loss carryforwards can be used and has provided a valuation allowance against the tax benefit of the losses in foreign jurisdictions of $ 10,093 and $ 10,210 at December 31, 2021 and 2020, respectively. The Company's acquisition of Menara Networks, Inc. ("Menara") in 2016 included net operating loss carryforwards of $ 22,242 . As of December 31, 2021 and 2020, the Company had $ 3,106 and $ 5,121 of these net operating loss carryforwards remaining, respectively. No valuation allowance has been provided for these carryforwards as the Company expects to be able to fully utilize them to offset future income. The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. Reserves recorded are based on a determination of whether and how much of a tax benefit taken by the Company in the Company's tax filings or positions is "more likely than not" to be realized following resolution of any potential F-30 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except share and per share data) contingencies present related to the tax benefit, assuming that the matter in question will be raised by the tax authorities. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits: 2021 2020 2019 Balance at January 1 $ 14,706 $ 11,416 $ 11,206 Change in prior period positions ( 1,969 ) ( 427 ) ( 1,776 ) Settlement of prior period position — — ( 230 ) Additions for tax positions in current period 6,400 4,000 2,000 Foreign exchange adjustments 72 ( 283 ) 216 Balance at December 31 $ 19,209 $ 14,706 $ 11,416 The liability for uncertain tax benefits is included in deferred income taxes and other long-term liabilities at December 31, 2021 and 2020. Substantially all of the liability for uncertain tax benefits related to various federal, state and foreign income tax matters, would benefit the Company's effective tax rate, if recognized. Estimated penalties and interest related to the underpayment of income taxes were a net benefit of $ 359 for the year ended December 31, 2021, and expense of $ 305 and $ 543 for the years ended December 31, 2020 and 2019, respectively, and are included within the provision for income taxes. Total accrued penalties and interest related to the underpayment of income taxes were $ 1,641 and $ 1,977 at December 31, 2021 and 2020, respectively. The Company's uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities. The Company is currently under a tax audit in both the U.S. and Germany for the years 2017 to 2020. Open tax years by major jurisdictions are: United States 2017 - 2021 Germany 2017 - 2021 Russia 2017 - 2021 18. NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER SHARE The following table sets forth the computation of diluted net income attributable to IPG Photonics Corporation per share: Year Ended December 31, 2021 2020 2019 Net income attributable to IPG Photonics Corporation common stockholders $ 278,416 $ 159,572 $ 180,234 Basic weighted average common shares 53,409,673 53,185,733 53,060,931 Dilutive effect of common stock equivalents 520,554 599,145 778,492 Diluted weighted average common shares 53,930,227 53,784,878 53,839,423 Basic net income attributable to IPG Photonics Corporation per common share $ 5.21 $ 3.00 $ 3.40 Diluted net income attributable to IPG Photonics Corporation per common share $ 5.16 $ 2.97 $ 3.35 The computation of diluted weighted average common shares excludes certain common stock equivalents, including non-qualified stock options, PSUs, RSUs and the employee stock purchase plan because the effect of including them would be anti- F-31 Table of Contents IPG PHOTONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except share and per share data) dilutive. The weighted average anti-dilutive shares outstanding for the years ended December 31, 2021, 2020 and 2019, respectively, were as follows: Year Ended December 31, 2021 2020 2019 Non-qualified stock options 216,190 536,481 571,041 Restricted stock units 103,998 29,078 58,674 Performance stock units 25,451 — 40,874 Total weighed average anti-dilutive shares outstanding 345,639 565,559 670,589 On May 5, 2020, the Company announced that its Board of Directors authorized the purchase of up to $ 200,000 of IPG common stock. This authorization is separate from, and in addition to, the Company's $ 125,000 stock repurchase program authorized in February 2019. Under the February 2019 authorization, IPG may repurchase shares of common stock in an amount not to exceed the lesser of the number of shares issued to employees and directors under the Company's various employee and director equity compensation and employee stock purchase plans from January 1, 2019 through December 31, 2020 or $ 125,000 . Under the 2020 authorization, the Company may purchase shares up to $ 200,000 . In both purchase authorizations, share limits are exclusive of fees, commissions or other expenses. Share repurchases may be made periodically in open-market transactions using the Company's working capital and are subject to market conditions, legal requirements and other factors. The share purchase program authorization does not obligate the Company to repurchase any dollar amount or number of its shares, and repurchases may be commenced or suspended from time to time without prior notice. For the years ended December 31, 2021, 2020 and 2019, respectively, the Company repurchased 743,969 shares, 301,660 shares, and 301,262 shares of its common stock with an average price of $ 181.28 , $ 125.58 and $ 135.21 per share in the open market, respectively. The February 2019 authorization to repurchase common stock was completed in 2021. As of December 31, 2021 the remaining amount authorized under the May 2020 was up to $ 111,495 , but may be less depending upon the equity compensation and employee stock purchase plan dilution during the programs. The impact on the reduction of weighted average shares for years ended December 31, 2021, 2020 and 2019 was 244,451 shares, 201,953 shares and 97,054 shares, respectively. 19. RELATED-PARTY TRANSACTIONS The late founder of the Company, Dr. Valentin P. Gapontsev, leased the annual right to use 25 % of the Company's corporate aircraft under a lease signed in July 2017. The lease expires July 2022. The annual lease rate is $ 925 and future rent payments are adjusted annually. The Company invoiced Dr. Gapontsev $ 924 , $ 937 and $ 924 in 2021, 2020, and 2019, respectively, under the aircraft leases. There was $ 77 due to the Company at December 31, 2021, and there were $ 154 due at December 31, 2020. Dr. Gapontsev directly paid an unrelated flight management firm for the operating costs of his private use including pilot fees, fuel and other costs. The Company sold various equipment and parts to a company for which one of the Company's former independent directors is also an independent director. The sales totaled $ 348 and $ 675 for 2021 and 2020, respectively, and there were no sales for 2019. There was $ 3 due to the Company at December 31, 2021, and there were $ 334 due at December 31, 2020. 20. SUBSEQUENT EVENTS On February 15, 2022, the Company announced that its Board of Directors has authorized the purchase of up to $ 200 million of IPG common stock. This new authorization is in addition to the Company's existing stock repurchase program authorized in May 2020. Share repurchases may be made periodically in open-market transactions, and are subject to market conditions, legal requirements and other factors. The share repurchase program authorization does not obligate the Company to repurchase any dollar amount or number of its shares, and repurchases may be commenced or suspended from time to time without prior notice. F-32