What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2023-02-27 compared with 2022-02-22 · 99 added, 101 removed, 363 unchanged (36% of the section changed)

2 unchanged sentences

In addition, new risks may emerge at any time and we cannot predict those risks or estimate the extent to which they may affect us.

Risks Relating to the COVID-19 Pandemic

Risks Relating to Economic Conditions and Other External Factors

The COVID-19 pandemic, including private and public sector responses, could materially adversely affect our business, financial condition, results of operations and/or cash flows.

As a result of the ongoing COVID-19 pandemic, governmental authorities where we produce and sell our products have implemented numerous and evolving measures to contain the virus, which have been complicated by viral variants and uneven access to, and acceptance and effectiveness of, vaccines globally.

Such measures include travel bans and restrictions, quarantines, shelter-in-place orders and guidance, and business shutdowns.

Although certain restrictions related to the COVID-19 pandemic have eased, uncertainty continues to exist regarding such measures and potential future measures, particularly in response to increases in infection rates.

We have significant manufacturing operations in the U.S., Europe and Russia, and a material portion of our sales are in China, the U.S.

Each of these countries and regions has been affected by the pandemic and has taken measures to try to contain it.

While our main production facilities currently remain operational, these measures have impacted and may further impact our workforce and operations, as well as those of our customers, vendors and suppliers.

In addition to reduced productivity, the constraints and limits implemented in our operations in response to COVID-19 may slow or diminish our research and development activities and qualification activities with our customers.

Restrictions on our manufacturing, support operations or workforce, or similar limitations for our vendors and suppliers could limit our ability to meet customer demand, testing, installation and acceptance of our equipment or delays for orders, deliveries and payments, and could have a material adverse effect on our financial condition, cash flows and results of operations.

In addition, restrictions or disruptions of transportation, such as reduced availability of air transport, port closures and increased border controls or closures, could limit our ability to manufacture, deliver or install products and generate sales,

or could result in higher costs and could have a material adverse effect on our financial condition, cash flows and results of operations.

In response to these developments, we and our suppliers and customers modified business practices, including restricting employee travel, modifying employee work locations, implementing social distancing and enhanced sanitary measures, and cancelling attendance at events and conferences.

We experienced and may experience increased absenteeism and reduced levels of productivity and efficiency and we face an increasingly competitive labor market due to sustained labor shortage and increased turnover related to the COVID-19 pandemic .

The COVID-19 pandemic has also disrupted our internal operations, including by exposing us to cyber and other data security risks associated with the increased number of our employees working remotely, as well as increased dependence on internet and telecommunications access and capabilities.

There is no certainty that measures implemented by governmental authorities or by us in our operations will be sufficient to mitigate the risks posed by the COVID-19 virus, including risk of infection of our senior management, scientific staff or a significant number of employees or the ability of the healthcare system to treat them, and our ability to perform critical functions or respond to the needs of our customers could be impeded.

The resumption of normal business operations after such interruptions may be delayed or constrained by lingering effects of COVID-19 on our suppliers, third-party service providers, and/or customers.

The continued impact of COVID-19, including changes in customer demand, supply chain constraints experienced by us, our suppliers and our customers, pandemic fears and market downturns, and restrictions on business and individual activities has created significant economic and demand uncertainty.

The ongoing COVID-19 pandemic and related countermeasures have caused economic and financial disruptions in most of the regions in which we sell our products and services and conduct our business operations.

Governmental authorities have implemented numerous and evolving measures to address the virus as it continues to mutate.

There is no certainty that measures implemented by governmental authorities or by us in our operations will be sufficient to mitigate the risks posed by the COVID-19 virus.

Changes in customer demand, supply chain constraints experienced by us, our suppliers and our customers, pandemic fears and market downturns, and restrictions on business and individual activities has created significant economic and demand uncertainty.

COVID-19 may impact different markets at different times with disparate severity.

We have experienced and expect to continue to experience unpredictable volatility in demand in several of our end-markets.

Economic indicators continue to show improvement from the severe contraction experienced following the outset of the COVID-19 pandemic, which has led to an improvement in the recent demand environment in certain regions.

The sustainability of the economic recovery observed in 2021 remains unclear.

The COVID-19 pandemic also may exacerbate other risks disclosed herein, including but not limited to downturns in our markets, uncertainty and adverse changes in general economic conditions, highly competitive markets and declining average selling prices, price decreases, and international operations and customers.

The degree to which the COVID-19 pandemic impacts our financial condition, cash flows and results of operations depends upon future developments, which are highly uncertain and cannot be predicted, including but not limited to the duration, location and spread of the outbreak, the emergence, contagiousness, and threat of new and different strains of virus, the availability, acceptance, and effectiveness of vaccines, governmental and business measures to contain the virus and address its impact, and how quickly and to what extent normal economic and operating conditions can resume.

The degree to which the COVID-19 pandemic impacts our financial condition, cash flows and results of operations depends upon future developments, which are highly uncertain and cannot be predicted, including but not limited to the duration, location and spread of outbreak, the emergence, contagiousness, and threat of new and different strains of virus, the availability, acceptance, and effectiveness of vaccines, governmental and business measures to contain the virus and address its

impact, and how quickly and to what extent normal economic and operating conditions can resume.

These factors, and others that are currently unknown or considered immaterial, could have a material adverse effect on our business, prospects, financial condition, cash flows and results of operations.

Furthermore, the COVID-19 pandemic makes it more difficult for us to forecast demand and provide guidance for 2022.

Accordingly, while IPG provided and may provide quarterly guidance during the COVID-19 pandemic, any such guidance we provide is subject to greater risks and uncertainty than in the past and actual results may be more likely to ultimately vary a greater degree from actual results than guidance we provided in the past.

In light of the foregoing, investors are urged to put the guidance we provide and may provide in context and not to place undue reliance on it.

Risks Relating to the Macroeconomic Environment

The ongoing conflict between Russia and Ukraine may adversely affect our business and results of operations.

In the first quarter of 2022, Russian military forces invaded Ukraine.

This military action had significant and immediate adverse economic impacts globally.

Given the nature of our business and our global operations, particularly those in Russia and Belarus, the current conflict between Russia and Ukraine has affected and may adversely affect our business and results of operations.

Historically we have manufactured a variety of components, including proprietary fiber-based components, and sub-assemblies at our facility in Russia and mechanical components at our facility in Belarus.

Our operations in Russia and Belarus are subject to additional regulatory and political constraints and additional compliance costs in connection with sanctions, other trade controls and higher tariffs imposed by the United States, the European Union and other governments in response to Russia’s military operations in Ukraine.

The European Union enacted additional sanctions effective in January 2023 that restrict our ability to import components in Europe from Russia.

While certain components can be exported from Russia to the United States, the United States imposed significant import tariffs that make it commercially undesirable.

We continue to implement steps to mitigate the impacts of the Russia-Ukraine conflict on our business and reduce reliance on our facilities in Russia and Belarus, such as migrating the production of a number of our components that had been manufactured in Russia and Belarus into other countries.

The current conflict between Russia and Ukraine and our continued operations in Russia and Belarus may also have the effect of heightening many other risks disclosed in our public filings, any of which could adversely affect our business and results of operations.

Such risks include, but are not limited to, increases in tariffs;

adverse effects on global macroeconomic conditions;

increased exposure to cyberattacks;

impact of export controls and economic sanctions;

limitations in our ability to implement and execute our business strategy;

risks to employees, assets and operations we have in Russia and Belarus;

disruptions in global supply chains;

asset write-downs;

exposure to foreign currency fluctuations and potential nationalizations and asset seizures in Russia;

constraints or disruption in the capital markets and our sources of liquidity;

and potential contractual breaches and litigation.

We must comply with and could be impacted by various export controls and trade and economic sanctions laws and regulations that could negatively affect our business and may change due to diplomatic and political considerations outside of our control.

A significant part of our business involves the export and import of components and products among many countries, including the U.S., Germany, Russia, Belarus and China.

government and governments of other countries in which we do business have Trade Controls that impact our ability to export, re-export or transfer products, software and technology originating in those countries.

Trade Controls may require that we obtain a license before we can export, re-export or transfer certain products, software or technology.

The requirement to obtain a license could put us at a competitive disadvantage by restricting our ability to sell products to customers in certain countries or by giving rise to delays or expenses related to obtaining a license.

We have experienced and, in the future, may experience delays in obtaining export licenses based on issues solely within the control of the applicable government agency.

Licenses may also include conditions that limit the use, resale, transfer, re-export, modification, disassembly, or transfer of a product, software or technology after it is exported without first obtaining permission from the relevant government agency.

Delays in obtaining or failure to obtain required export licenses may require us to defer shipments for substantial periods or cancel orders.

Any of these circumstances could adversely affect our operations and, as a result, our financial results could suffer.

Although we have implemented compliance measures designed to prevent transactions prohibited by current or future Trade Controls, we have previously identified, and may continue to identify, instances in which we exported products without obtaining the required export authorizations and/or submitting the required requests.

As a result, we have submitted a limited number of voluntary self-disclosures regarding compliance with export control laws and regulations with the U.S.

Department of Commerce’s Bureau of Industry and Security (“BIS”).

In October 2021, the U.S.

Department of Justice (“DOJ”) advised us it was conducting an investigation into certain shipments of equipment.

We believe the DOJ's investigation has concluded however BIS continues its investigation and we received an administrative subpoena from BIS regarding our export practices.

While we are cooperating fully with BIS’s review, we are unable to estimate its ultimate impact on the Company.

Our failure to comply with these laws and regulations could result in costly government investigations, government sanctions, including substantial monetary penalties, civil or criminal penalties, denial of export privileges, debarment from government contracts, and a loss of revenues and reputational harm.

Our manufacturing facilities in the U.S., Germany and Russia provide finished products to China, our largest market.

Should the United States, the European Union or Russia implement new or broad-based Trade Controls directed at each other or China, our production and/or deliveries as well as results of operations and/or financial condition could be affected.

In connection with the Russia-Ukraine conflict, broad-based sanctions (including asset-freeze/blocking sanctions) have been imposed by the U.S., UK, EU, and numerous other governments targeting Russia, including but not limited to major Russian banks.

In the U.S., these sanctions are administered by the Office of Foreign Assets Control (“OFAC”) and are typically known as the OFAC regulations.

These regulations are extensive and complex, and they differ from one sanctions regime to another.

Failure to comply with these regulations could subject us to legal and reputational consequences, including civil and criminal penalties.

In addition, Trade Controls and their implementation are fluid and may change due to diplomatic and political considerations outside of our control.

The United States, the European Union and Russia have imposed numerous additional trade restrictions and sanctions in response to the Russia-Ukraine conflict.

Such changes, including the potential expansion of sanctions and sanctions designations, as well as public statements by government officials, could be significant.

While the Company has a trade compliance program, there is a risk that IPG may not be able to comply due to the number, complexity and fast-changing nature of sanctions being added in response to the Russia-Ukraine conflict.

Trade Controls and governmental responses to the conflict may require us to take certain actions, including increasing costs and abandoning operations or writing-down asset values, or respond to nationalization or expropriation of assets abroad, adversely affect prevailing market prices of our common stock, have a reputational impact, or otherwise have a material adverse impact on us, our business and financial results.

Uncertainty and adverse changes in the general economic conditions of markets in which we participate negatively affect our business.

6 unchanged sentences

Adverse changes have occurred and may occur in the future as a result of declining or flat global or regional economic conditions, fluctuations in currency and commodity prices, wavering confidence, capital expenditure reductions, unemployment, declines in stock markets, contraction of credit availability, declines in real estate values, or other factors affecting economic conditions generally.

These changes may negatively affect the sales of our products, increase exposure to losses from bad debts, increase the cost and decrease the availability of financing, increase the risk of loss on investments, or increase costs associated with manufacturing and

distributing products.

An economic downturn could have a material adverse effect on our business, financial condition and results of operations.

7 unchanged sentences

or global economies or other factors, may result in decreased revenue or growth for our customers and may lead to decreased demand for our products, which would reduce our sales and margins.

We may not be able to respond by decreasing our expenses quickly enough or sufficiently, due in part, to our fixed overhead structure related to our vertically integrated operations and our commitments to continuing investment in research and development and infrastructure for long term growth.

We may not be able to respond by decreasing our expenses quickly enough or sufficiently, due in part, to our fixed overhead structure related to our

vertically integrated operations and our commitments to continuing investment in research and development and infrastructure for long term growth.

Risks Relating to Industry Dynamics and Competition

9 unchanged sentences

Such vertical integration could reduce the market opportunity for our products.

We also compete in the materials processing, advanced and medical applications markets with end users that produce their own solid-state and gas lasers as well as with manufacturers of non-laser methods and tools, such as traditional non-laser welding, cutting dies mechanical cutters and plasma cutters in the materials processing market and scalpels in the medical market.

We may not be able to successfully differentiate our current and proposed products from our competitors' products and current or prospective customers may not consider our products to be superior to competitors' products.

3 unchanged sentences

Our products are experiencing and may in the future continue to experience a significant decline in average selling prices ("ASPs") as a result of increased competition, pressure to reduce prices from significant customers and new product and technology introductions.

Newer market participants, particularly in China, have reduced and may continue to reduce, prices of competing products to gain market share.

If the ASPs of our products decline further and we are unable to increase our unit volumes, introduce new or enhanced products with higher margins or reduce manufacturing costs to offset anticipated decreases

in the prices of our existing products, our operating results may be adversely affected.

Market participants, particularly in China, have reduced and may continue to reduce, prices of competing products to gain market share.

In addition, because of our significant fixed costs, we are limited in our ability to reduce total costs quickly in response to any revenue shortfalls.

41 unchanged sentences

Our manufacturing capacity and operations may not be appropriate for future levels of demand and may adversely affect our gross margins.

We have added and are continuing to add substantial manufacturing capacity at our facilities in the United States, Germany, Russia and Belarus.

We have added and are continuing to add substantial manufacturing capacity at our facilities in the United States, Germany, Italy and Poland.

We are adding manufacturing capabilities and capacity outside of Russia in response to trade sanctions imposed on Russia, where we have large production facilities.

The trade restrictions impose limits our our ability to purchase components and other items from our subsidiary in Russia.

A significant portion of our manufacturing facilities and production equipment, such as our semiconductor production and processing equipment, diode packaging equipment and diode burn-in stations, are special-purpose in nature and cannot be adapted easily to make other products.

3 unchanged sentences

In connection with these projects, we may incur cost overruns, construction delays, project cancellations, labor difficulties or regulatory issues which could cause our capital expenditures to be higher than what we currently anticipate, possibly by a material amount, which would in turn adversely impact our operating results.

Moreover, we may experience higher costs due to yield loss, production inefficiencies and equipment problems until any operational issues associated with the opening of new manufacturing facilities are resolved.

Moreover, we may experience higher costs due to yield loss, production inefficiencies, equipment problems and lower margins until any operational issues associated with the opening of new manufacturing facilities are resolved.

A few customers account for a significant portion of our sales, and if we lose any of these customers or they significantly curtail their purchases of our products, our results of operations could be adversely affected.

10 unchanged sentences

In addition, due to the absence of long-term volume purchase agreements, we forecast our revenues and plan our production and inventory levels based upon the demand forecasts of our OEM customers, end users and distributors, which are highly unpredictable and can fluctuate substantially.

This could lead to increased inventory levels and increased carrying costs and risk of excess or obsolete inventory due to

unanticipated reductions in purchases by our customers.

This could lead to increased inventory levels and increased carrying costs and risk of excess or obsolete inventory due to unanticipated reductions in purchases by our customers.

In addition, provisions have been recorded as a result of changes in market prices of certain components, the value of those inventories that was realizable through finished product sales due to declines in certain end market demand and uncertainties related to the recoverability of the value of inventories due to technological and product changes, and excess quantities.

In this regard, we recorded provisions for slow-moving, obsolete or excess inventory totaling $34.3 million, $45.4 million and $38.9 million in 2021, 2020 and 2019, respectively.

In 2022, approximately $74.1 million was related to inventory provision and related charges at our Russian operations.

If our OEM customers, end users or distributors fail to accurately forecast the demand for our products, fail to accurately forecast the timing of such demand, or are unable to consistently negotiate acceptable purchase order terms with customers, our results of operations may be adversely affected.

4 unchanged sentences

These are not readily available from other sources at our current costs and may not be available at all.

If our manufacturing activities were obstructed or hampered significantly, it could take a considerable length of time, or it could increase our costs, to resume manufacturing or find alternative sources of supply.

If our manufacturing activities were obstructed or hampered significantly, it could take a considerable length of time, or it could increase our costs, to resume

manufacturing or find alternative sources of supply.

Many of the tools and equipment we use are custom-designed, and it could take a significant period of time to repair or replace them.

Our four major manufacturing facilities are located in Massachusetts, Germany, Russia and Belarus.

Despite our efforts to mitigate the impact of any flood, fire, natural disaster, political unrest, act of terrorism, war, outbreak of disease or other similar event, our business could be adversely affected to the extent that we do not have redundant production capabilities if any of our major manufacturing facilities or equipment should become inoperable, inaccessible, damaged or destroyed.

Our primary manufacturing facilities are located in Massachusetts, Germany, Russia and Belarus.

Despite our efforts to mitigate the impact of any flood, fire, natural disaster, political unrest, act of terrorism, war, trade sanctions, outbreak of disease or other similar event, our business could be adversely affected to the extent that we do not have redundant production capabilities if any of our major manufacturing facilities or equipment should become inoperable, inaccessible, damaged or destroyed.

Also, we purchase certain raw materials used to manufacture our products and other components, such as semiconductor wafer substrates, diode packages, modulators, micro-optics, bulk optics and high power beam delivery products, from single or limited-source suppliers.

16 unchanged sentences

The unavailability or loss of one or more of these key employees or our failure to attract other highly skilled personnel necessary to compete successfully could harm our business and results of operations.

Our future success is substantially dependent on the continued service and performance of our executive officers, particularly our chief executive officer, Dr.

Eugene Scherbakov, age 74.

He plays a key role setting our strategic direction, directing the development of new technologies and maintaining our culture.

The unavailability of Dr.

Scherbakov could have a material impact on our business.

Although the board engages in executive succession planning, our inability to effectively and immediately transition knowledge or responsibilities to his successor in the event of an unexpected absence or departure could

harm our business and disrupt our operations.

Our future success is substantially dependent on the continued service and performance of our executive officers.

Although the board engages in executive succession planning, our inability to effectively and immediately transition knowledge or responsibilities to successors in the event of an unexpected absence or departure could harm our business and disrupt our operations.

We also rely on our highly trained team of scientists, many of whom have numerous years of experience and specialized expertise in optical fibers, semiconductors and optical component technology, and other key engineering, sales, marketing, manufacturing and support personnel, any of whom may depart for a variety of reasons, which could harm our business.

Certain members of our scientific staff who are expected to make significant individual contributions to our business are also members of our executive management team.

We will need to continue to recruit and retain highly skilled scientists and engineers for certain functions.

Competition for qualified personnel in our industry is intense, particularly for physicists, software engineers and other technical staff.

29 unchanged sentences

Policing unauthorized use of our trade secret technologies throughout the world and proving misappropriation of our technologies are particularly difficult, especially due to the number of our employees and operations in numerous foreign countries.

The steps that we take to acquire ownership

of our employees' inventions and trade secrets in foreign countries may not have been effective under all such local laws, which could expose us to potential claims or the inability to protect intellectual property developed by our employees.

The steps that we take to acquire ownership of our employees' inventions and trade secrets in foreign countries may not have been effective under all such local laws, which could expose us to potential claims or the inability to protect intellectual property developed by our employees.

Furthermore, any changes in, or unexpected interpretations of, the trade secret and other intellectual property laws in any country in which we operate may adversely affect our ability to enforce our trade secret and intellectual property positions.

33 unchanged sentences

For instance, in 2020, California enacted the California Consumer Privacy Act (“CCPA”), giving consumers many of the same rights as those available under GDPR.

Several laws similar to the CCPA have been proposed in the United States at both the federal and state level.

Several laws similar to the CCPA have been approved in the United States at the state level and more are being proposed at the federal and state levels.

GDPR and other similar laws and regulations, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business.

40 unchanged sentences

In recent years, the U.S.

instituted and proposed changes in trade policies that included the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the United States, including, in particular, on Chinese goods, economic sanctions on individuals, corporations or countries and other government regulations affecting trade between the United States and other countries where we conduct our business.

instituted changes in trade policies that included the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the United States, including, in particular, on Russian and Chinese-made goods, economic sanctions on individuals, corporations or countries and other government regulations affecting trade between the United States and other countries where we conduct our business.

Policy changes and proposals could require time-consuming and expensive alterations to our business operations and may result in greater restrictions and economic uncertainty and disincentives on international trade, which could negatively impact our competitiveness in jurisdictions around the world as well as lead to an increase in costs in our supply chain.

5 unchanged sentences

manufactured goods.

Such changes by the United States

and other countries have the potential to adversely impact U.S.

Such changes by the United States and other countries have the potential to adversely impact U.S.

and worldwide economic conditions, our industry and the global demand for our products, and as a result, could negatively affect our business, financial condition and results of operations.

A significant part of our business involves the export and import of components and products among many countries, including the U.S., Germany, Russia and China.

Trade Controls may require that we obtain a license before we can export, re-export or transfer certain products, software or technology.

We have experienced and, in the future, may experience delays in obtaining export licenses based on issues solely within the control of the applicable government agency.

Delays in obtaining or failure to obtain required export licenses may require us to defer shipments for substantial periods or cancel orders.

Any of these circumstances could adversely affect our operations and, as a result, our financial results could suffer.

As a result, we have submitted a limited number of voluntary self-disclosures regarding compliance with export control laws and regulations with the U.S.

Department of Commerce’s Bureau of Industry and Security (“BIS”).

In October 2021, the U.S.

Department of Justice (“DOJ”) advised us it is conducting an investigation into certain shipments of equipment.

While we are cooperating fully with the DOJ’s review, we are unable to estimate its ultimate impact on the Company.

We have a large manufacturing facility and research and development operations in Russia which manufactures and supplies components to our U.S.

and German manufacturing facilities.

In addition, we supply components from our U.S.

and German manufacturing facilities to our Russian facility.

Also, all three such facilities provide finished products to China, our largest market.

Should there be any disruption of our supplies from or to our Russian operations, should the United States, the European Union or Russia implement new or broad-based Trade Controls directed at each other or China, our production and/or deliveries as well as results of operations and/or financial condition could be affected.

In addition, Trade Controls and their implementation are fluid and may change due to diplomatic and political considerations outside of our control.

Such changes, including the potential expansion of sanctions and sanctions designations, as well as public statements by government officials, could be significant, require us to take certain actions to be in compliance, adversely affect prevailing market prices of our common stock, have a reputational impact, or otherwise have a material adverse impact on us, our business, and our ability to raise capital.

We are subject to various environmental laws and regulations that could impose substantial costs upon us and may adversely affect our business, operating results and financial condition.

4 unchanged sentences

Risks Relating to Our Common Stock

Certain trusts and a company created by the late founder of the Company collectively control approximately 30% of our voting power and have a significant influence on the outcome of director elections and other matters requiring stockholder approval, including a change in corporate control.

Certain trusts and a company created by the late founder of the Company collectively control over 30% of our voting power and have a significant influence on the outcome of director elections and other matters requiring stockholder approval, including a change in corporate control.

IP Fibre Devices (UK) Ltd.

3 unchanged sentences

Trustees of the trusts are officers or employees of the Company.

Trustees of the trusts and Dr.

These trustees and Dr.

Scherbakov, as managing director of IPFD, have significant influence on the outcome of matters requiring stockholder approval, including election of our directors, stockholder proposals and approval of significant corporate transactions.

47 unchanged sentences

We have significant facilities in and our products are sold in numerous countries.

Our principal markets include China, the United States, Germany, Switzerland, Japan, Italy, Korea, Turkey and Russia.

Our principal markets include China, the United States, the European Union, Japan, Korea, Turkey and Russia.

A substantial majority of our revenues are derived from customers outside the United States.

21 unchanged sentences

Any interruption or delay in the supply of our required components, products, materials or services, or our inability to obtain these components, materials, products or services from alternate sources at acceptable prices and within a reasonable amount of time, could impair our ability to meet scheduled product deliveries to our customers and could cause customers to cancel orders.

We are subject to risks of doing business in Russia through our subsidiary, NTO IRE-Polus, which provides critical components and test equipment to our U.S.

and German operations, sells finished lasers to customers in Russia and supplies our Chinese subsidiary with a portion of the finished lasers they sell to customers in China.

Further, our Russian operations are dependent upon the supply of certain critical components from our U.S.

and German operations for the production of finished lasers.

We are subject to risks of doing business in Russia through our subsidiary, NTO-IRE Polus, which sells finished lasers to customers in Russia and supplies our Chinese subsidiary with a portion of the finished lasers they sell to customers in China.

We are also subject to risks of doing business in Belarus, which provides mechanical parts to our German and Russian operations.

We are also subject to risks of doing business in China, as approximately 34% of our sales in 2022 were to Chinese customers.

The results of our operations, business prospects and facilities in Russia, China and Belarus (where we manufacture certain mechanical components) are subject to the economic and political environment there and global geopolitical conditions.

In recent years, these countries have undergone substantial political, economic and social change.

As is typical of an emerging economy, none of these three countries possess a well-developed business, financial, legal and regulatory infrastructure that would generally exist in a more mature free market economy.

In addition, tax, currency and customs legislation is subject to varying interpretations and changes, which can occur frequently.

The results of our operations, business prospects and facilities in Russia, China and Belarus are subject to the economic and political environment there and global geopolitical conditions.

The future economic direction of these emerging market countries remains largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the government, together with tax, legal, regulatory and political developments.

As a result of escalating tensions along the Russia-Ukraine border, the U.S.

and certain allies in Europe imposed sanctions on Russia and could impose further sanctions against it.

Russia could respond in kind.

Sanctions imposed by any of these countries could disrupt our supply of critical components among our manufacturing facilities in the U.S., Germany, Russia or Belarus, and cause us to shift all or portions of work occurring in Russia or Belarus to other countries.

In addition, if sanctions or retaliatory sanctions targeting the banking sector are imposed, we may not be able to transfer cash to and from Russia to fund operations or repatriate surplus liquidity.

As a result of the conflict involving Russia and Ukraine, the U.S.

and certain allies in Europe imposed severe economic and trade sanctions on Russia and could impose further sanctions against it.

Russia has responded in kind.

Sanctions imposed by any of these countries has and could disrupt our supply of critical components among our manufacturing facilities in the U.S., Germany, Russia or Belarus, and cause us to shift all or portions of work occurring in Russia or Belarus to other countries.

In addition, sanctions targeting the banking sector have impacted the transfer of cash to and from Russia to fund operations or repatriate surplus liquidity.

Such disruptions could negatively affect our ability to provide critical components to affiliates or produce finished goods for customers, which could increase our costs, require capital expenditures and harm our results of operations and financial condition.

Further, Russia and Belarus adopted rules that impose conditions on sale of assets by U.S.

and western companies and decreasing the values of assets realized, as well as payments to owners of entities there.

Our failure to manage the risks associated with our operations in Russia, China and Belarus and our other existing and potential future international business operations could have a material adverse effect upon our results of operations.

10 unchanged sentences

Although we have pursued relatively small acquisitions in the past, we may pursue larger transactions in the future.

Acquisitions present a

number of potential risks and challenges that could, if not met, disrupt our business operations, increase our operating costs, reduce consolidated margins, cause us to incur impairment charges and reduce the value of the acquired company, asset or technology to us.

We may not be able to effectively integrate acquired businesses, business cultures, products, patents or technologies into our existing business and products, or retain key employees.

Acquisitions present a number of potential risks and challenges that could, if not met, disrupt our business operations, increase our operating costs, reduce consolidated margins, cause us to incur impairment charges and reduce the value of the acquired company, asset or technology to us.

We may not be able to effectively integrate acquired businesses, business cultures, products, patents or

technologies into our existing business and products, or retain key employees.

As a result of the rapid pace of technological change in our industry, we may misjudge the long-term potential of an acquired business, product, patent or technology, or the acquisition may not be complementary to our existing business.

3 unchanged sentences

We review our goodwill for impairment annually and other long-lived assets, including intangible assets identified in business combinations whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.

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

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

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

Also, the process of evaluating the potential impairment of goodwill is subjective.

Also, the process of evaluating the potential impairment of long-lived assets is subjective.

We operate in a highly competitive environment and projections of future operating results and cash flows may vary significantly from actual results.

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

Additionally, if our analysis indicates potential impairment to long-lived assets in one or more of our reporting units, we may be required to record additional charges to earnings in our financial statements, which could negatively affect our results of operations.

In 2022, long-lived asset impairments related to our Russian operations were $79.0 million.

We are exposed to credit risk and fluctuations in the market values of our cash, cash equivalents and marketable securities.

15 unchanged sentences

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

What changed 10-K

Item 1A. Risk Factors