What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-02-27 compared with 2022-02-22 · 326 added, 318 removed, 901 unchanged (42% of the section changed)

20 unchanged sentences

IPG Photonics Corporation

Oxford, Massachusetts

Marlborough, Massachusetts

Opinion on Internal Control over Financial Reporting

3 unchanged sentences

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.

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.

15 unchanged sentences

CONTROLS AND PROCEDURES

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

4 unchanged sentences

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

Weighted-Average Exercise Price of Outstanding Options, RSUs and PSUs

Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a))

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.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

17 unchanged sentences

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 22, 202 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)

Senior Executive Annual Incentive Plan, as amend ed and restated April 28, 2020

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)

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)

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)

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)

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)

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)

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)

Form of Employment Agreement dated May 30, 2019 between the Registrant and each of Timothy P.V.

12 unchanged sentences

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

20 unchanged sentences

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

Signature Title Date

/s/ Eugene A.

6 unchanged sentences

(Principal Accounting Officer) February 27, 2023

/s/ Michael C.

/s/ Gregory Beecher

Gregory Beecher

Director February 27, 2023

/s/ Jeanmarie F.

/s/ Michael Child

Michael Child

Director February 27, 2023

/s/ Gregory P.

/s/ Jeanmarie Desmond

Jeanmarie Desmond

Director February 27, 2023

/s/ Gregory Dougherty

Gregory Dougherty

Director February 27, 2023

/s/ Eric Meurice

3 unchanged sentences

Director February 27, 2023

/s/ John Peeler

Non-Executive Chair of the Board and Director February 27, 2023

/s/ Thomas J.

/s/ Thomas Seifert

Thomas Seifert

Director February 27, 2023

/s/ Felix Stukalin

Felix Stukalin

Director February 27, 2023

/s/ Agnes Tang

Director February 27, 2023

INDEX TO FINANCIAL STATEMENTS

9 unchanged sentences

IPG Photonics Corporation

Oxford, Massachusetts

Marlborough, Massachusetts

Opinion on the Financial Statements

13 unchanged sentences

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Long-lived Asset Impairment:

Refer to Notes 1 and 8 to the Financial Statements

Critical Audit Matter Description

As a result of changes in business conditions in Russia, the Company completed an impairment analysis of long-lived assets in Russia during the fourth quarter of 2022 and recorded a charge of $79.0 million in the accompanying Consolidated Statement of Income.

We identified this charge as a critical audit matter because of the significant judgments made by management to estimate the charge.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate to the reasonableness of management's estimates and assumptions related to future revenues and cash flows.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s judgments underlying the calculation of the charge, included the following, among others:

• We tested the effectiveness of controls over recording long-lived asset impairment charges, including those controls related to the forecasts of future revenues and cash flows.

• We evaluated management's ability to estimate future revenues and cash flows by comparing management’s projections to the Company’s historical results.

• We tested for the appropriate application of accounting guidance related to the impairment of long-lived assets, including judgments made by management related to the asset group subject to impairment and the timing of the related charge.

• 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.

Excess or Obsolete Inventory Reserve:

3 unchanged sentences

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.

As of December 31, 2022, the Company has inventories of $509.4 million.

This balance reflects inventory provisions and related charges totaling $128.0 million for the year ended December 31, 2022, and includes $74.1 million recorded in the fourth quarter of 2022 related to the restructuring of the Company’s Russian operations.

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 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 policy and the reasonableness of assumptions including expected demand.

How the Critical Audit Matter Was Addressed in the Audit

3 unchanged sentences

• 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.

• For a sample of inventory parts, we evaluated management's ability to estimate future demand by comparing actual inventory usage to estimates made in prior years.

28 unchanged sentences

Total current liabilities 274,646 313,433

Deferred income taxes and other long-term liabilities 93,855 92,854

Other long-term liabilities and deferred income taxes 83,274 93,855

Long-term debt, net of current portion — 16,031

28 unchanged sentences

Goodwill impairment — — 44,589

Impairment of long-lived assets and other restructuring charges — 1,177 7,130

(Gain) loss on foreign exchange ( 15,120 ) ( 12,915 ) 12,827

Gain on divestiture and sale of asset ( 31,846 ) — —

Impairment of long-lived assets 79,949 — 671

Other restructuring charges 9,697 — 506

Loss (gain) on foreign exchange 4,103 ( 15,120 ) ( 12,915 )

Total operating expenses 385,913 328,515 340,337

Operating income 169,500 367,883 198,659

Other (expense) income, net:

Interest (expense) income, net ( 1,839 ) 6,270 14,238

Other income (expense), net:

Interest income (expense), net 12,620 ( 1,839 ) 6,270

Other income, net 1,231 437 763

Total other (expense) income ( 1,402 ) 7,033 14,583

Total other income (expense) 13,851 ( 1,402 ) 7,033

Income before provision for income taxes 183,351 366,481 205,692

1 unchanged sentence

Net income 110,762 277,866 160,338

net (loss) income attributable to non-controlling interests ( 550 ) 766 27

net income (loss) attributable to non-controlling interests 853 ( 550 ) 766

Net income attributable to IPG Photonics Corporation common stockholders $ 109,909 $ 278,416 $ 159,572

18 unchanged sentences

Comprehensive income 96,260 233,877 161,001

comprehensive (loss) income attributable to non-controlling interest ( 653 ) 575 30

comprehensive income (loss) attributable to non-controlling interest 924 ( 653 ) 575

Comprehensive income attributable to IPG Photonics Corporation $ 95,336 $ 234,530 $ 160,426

7 unchanged sentences

Balance, January 1, 2020 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 319,211 — — — 805 — — — 805

Exercise of stock options and vesting of RSUs and PSUs, 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

1 unchanged sentence

Stock-based compensation — — — — 35,472 — — — 35,472

Recently adopted accounting standards — — — — — ( 115 ) — — ( 115 )

Net income — — — — — 159,572 — 766 160,338

1 unchanged sentence

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 677,076 1 — — 27,934 — — — 27,935

Exercise of stock options and vesting of RSUs and PSUs, 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

1 unchanged sentence

Stock-based compensation — — — — 37,864 — — — 37,864

Recently adopted accounting standards — — — — — ( 115 ) — — ( 115 )

Net income — — — — — 278,416 — ( 550 ) 277,866

Foreign currency translation adjustments and other — — — — — — ( 44,164 ) ( 103 ) ( 44,267 )

Unrealized (loss) on derivatives, net of tax — — — — — — ( 472 ) — ( 472 )

Adjustment for net gain realized and included in net income — — — — — — ( 232 ) — ( 232 )

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

Exercise of stock options and vesting of RSU's and PSU's, net of shares withheld for taxes 292,849 — — — 10,766 — — — 10,766

Exercise of stock options and vesting of RSUs and PSUs, net of shares withheld for taxes 167,193 — — — 693 — — — 693

Common stock issued under employee stock purchase plan 62,233 — — — 4,890 — — — 4,890

2 unchanged sentences

Net income — — — — — 109,909 — 853 110,762

Foreign currency translation adjustments and other, net of tax — — — — — — ( 44,164 ) ( 103 ) ( 44,267 )

Foreign currency translation adjustments and other — — — — — — ( 14,909 ) 71 ( 14,838 )

Purchase of non-controlling interests — — — — ( 937 ) — — ( 1,563 ) ( 2,500 )

Unrealized gain on derivatives, net of tax — — — — — — 336 — 336

8 unchanged sentences

Net income $ 110,762 $ 277,866 $ 160,338

Adjustments to reconcile net income to net cash (used) provided by operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 90,564 96,330 94,554

3 unchanged sentences

Impairment of long-lived assets 79,949 — 671

Unrealized (gain) loss on foreign currency transactions ( 8,560 ) ( 19,935 ) 11,004

Unrealized gain on foreign currency transactions ( 592 ) ( 8,560 ) ( 19,935 )

Gain on divestiture and sales of asset ( 31,846 ) — —

Other 1,654 8,618 8,642

Provisions for inventory, warranty and bad debt 153,652 68,441 70,572

Changes in assets and liabilities that (used) provided cash, net of acquisitions:

Changes in assets and liabilities that provided (used) cash, net of acquisitions:

Accounts receivable 34,100 ( 2,091 ) ( 13,022 )

6 unchanged sentences

Cash flows from investing activities:

Purchases of property, plant and equipment ( 123,108 ) ( 87,696 ) ( 133,536 )

Purchases of and deposits on property, plant and equipment ( 110,141 ) ( 123,108 ) ( 87,696 )

Proceeds from sales of property, plant and equipment 26,862 1,409 889

2 unchanged sentences

Acquisitions of businesses, net of cash acquired ( 2,000 ) — ( 429 )

Proceeds from divestiture, net of cash sold 52,941 — —

Other ( 43 ) ( 1,515 ) ( 7 )

Net cash used in investing activities ( 416,282 ) ( 99,574 ) ( 139,975 )

Net cash provided by (used in) investing activities 296,952 ( 416,282 ) ( 99,574 )

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 ( 18,126 ) ( 3,810 ) ( 3,740 )

2 unchanged sentences

Payment of purchase price holdback from business combination — ( 2,625 ) ( 1,650 )

Purchase of non-controlling interests ( 2,500 ) — —

Net cash used in financing activities ( 514,549 ) ( 125,066 ) ( 10,080 )

2 unchanged sentences

Cash, cash equivalents and restricted cash — Beginning of year 709,105 878,553 682,984

Cash, cash equivalents and restricted cash — End of year (Note 1) $ 709,105 $ 878,553 $ 682,984

Cash, and cash equivalents — End of year $ 698,209 $ 709,105 $ 878,553

Supplemental disclosure of cash flow information:

11 unchanged sentences

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.

Nature of Business — IPG Photonics Corporation (the "Company" or "IPG") develops, manufactures and sells high-performance fiber lasers, fiber amplifiers, and diode lasers 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.

Its world headquarters is located in Marlborough, Massachusetts.

It also has facilities and sales offices elsewhere in North and South America, Europe and Asia.

Evaluation of Russian Operations — In October 2022, the European Union (“EU”) issued sanctions that restricted the Company’s Russian subsidiary from supplying laser components to its other manufacturing facilities beginning in January 2023.

These EU sanctions, coupled with increased tariffs in the United States on items imported from Russia, have negatively impacted forecasts for the Russian subsidiary’s most significant source of revenue, which is selling components and finished goods to other IPG subsidiaries.

As a result of these changes in business conditions in Russia, the Company completed an impairment analysis of assets in Russia during the fourth quarter of 2022 and recorded charges in the accompanying Consolidated Statement of Income.

The Company recorded $ 74,055 of inventory provision and related charges included in Cost of sales, $ 79,030 impairment of long-lived asset charges included in Impairment of long-lived assets and a $ 35,518 valuation allowance for deferred tax assets included in provision for income taxes.

The long-lived asset impairment charge was based on a probability-weighted average of valuations using the discounted cash flow method under the income approach, the guideline public company method and the guideline transaction method under the market approach, to estimate the fair value of the long-lived assets in Russia.

Further, the Company implemented a restructuring program at its Russian subsidiary and recorded restructuring charges of $ 8,542 for personnel-related restructuring charges and other post employment benefits included in Other restructuring charges.

Principles of Consolidation — The accompanying financial statements include the accounts of the Company and its majority-owned subsidiaries.

8 unchanged sentences

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.

Exchange rate differences resulting from translation adjustments are accounted for directly as a component of accumulated other comprehensive (loss) income.

Cash and Cash Equivalents and Short-Term Investments — Cash and cash equivalents consist primarily of highly liquid investments, such as money market fund deposits and term deposits, commercial paper, and corporate bonds 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 commercial paper, corporate bonds, U.S.

government and government agency notes, and term deposits 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 $ 12,977 and $ 39,720 of bank acceptance drafts at December 31, 2022 and 2021, respectively.

15 unchanged sentences

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.

Inventories include parts and components that may be specialized in nature and subject to obsolescence.

The Company periodically reviews the quantities and carrying values of inventories to assess whether the inventories are recoverable.

3 unchanged sentences

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.

If the carrying value of a reporting unit exceeds its fair value, the implied fair value of goodwill is compared with the carrying value of goodwill.

If the carrying value 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, 2022, 2021 and 2020 are discussed in Note 7, "Goodwill and Intangible Assets".

Intangible Assets — Intangible assets result from the Company's various business acquisitions.

8 unchanged sentences

Office furniture and fixtures 5 - 7 years

Expenditures for maintenance and repairs are charged to operating expense.

Expenditures for maintenance and repairs are charged to operating expenses.

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.

The Company incurred $ 79,949 of non-cash impairment charges related to long-lived assets, with the majority related to Russian operations, during the year ended December 31, 2022.

See Note 1, "Nature of Business and Summary of Significant Accounting Policies", section Evaluation of Russian Operations for further detail .

There were no impairment charges during the year ended December 31, 2021.

The Company incurred $ 671 of non-cash impairment charges related to long-lived assets during the year ended December 31, 2020.

Included in other long-term assets is certain demonstration equipment.

2 unchanged sentences

Amortization expense of demonstration equipment for the years ended December 31, 2022, 2021 and 2020, was $ 2,387 , $ 3,596 and $ 4,166 , 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.

IPG PHOTONICS CORPORATION

1 unchanged sentence

(In thousands, except share and per share data)

There are no shares of preferred stock outstanding as of December 31, 2022.

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.

8 unchanged sentences

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 often receives orders with the customer's schedule of delivery dates for products 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.

12 unchanged sentences

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.

4 unchanged sentences

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.

IPG PHOTONICS CORPORATION

1 unchanged sentence

(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 Company enters into contracts to sell customized large scale materials processing systems through its subsidiary Genesis Systems Group, LLC, for which revenue is generally recognized over time, depending on the terms of the contract.

Recognizing revenue over time for these contracts is based on the Company’s judgment that the customized large scale materials processing systems do 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.

8 unchanged sentences

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 issues equity incentive awards in the form of time-based restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs").

The fair value for RSUs is based on the closing share price of the Company's common stock on the date of grant.

PSUs are aligned to specified performance targets such as financial metrics or the relative return of the Company's common stock compared to an index ("TSR PSUs").

The fair value of PSUs aligned to specified financial performance metrics is determined based on the number of units expected to vest upon achievement of the performance conditions.

The fair value for PSUs aligned to the TSR is based on a Monte Carlo simulation model.

The Company recognizes stock-based compensation as an expense on a straight-line basis, over the requisite service period.

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."

The Company has an employee stock purchase plan ("ESPP") offered to its U.S.

and German employees.

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.

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 described in Note 15, "Stock-based Compensation."

Advertising Expense — The cost of advertising is expensed as incurred.

5 unchanged sentences

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.

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, or when there is legal requirement.

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.

The Company recognizes tax positions that are more

IPG PHOTONICS CORPORATION

1 unchanged sentence

(In thousands, except share and per share data)

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.

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 maintains substantially all of its cash and cash equivalents and short-term investments 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.

One of our customers accounted for 14 % and 22 % of our net accounts receivable as of December 31, 2022 and 2021, respectively.

The Company has historically depended on a few customers for a significant percentage of its annual net sales.

4 unchanged sentences

These adjustments are accumulated within the consolidated statements of comprehensive income.

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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

Foreign currency translation adjustments and other Unrealized gain (loss) on derivatives, net of tax Unrealized gain (loss) on available-for-sale securities Total

Balance, January 1, 2020 $ ( 147,161 ) $ 10 $ 232 $ ( 146,919 )

3 unchanged sentences

( 472 ) ( 472 )

Adjustment for net gain realized and included in net income ( 232 ) ( 232 )

Total other comprehensive (loss) income 1,558 ( 472 ) ( 232 ) 854

1 unchanged sentence

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

Foreign currency translation adjustments and other, net of tax benefit of $ 246

( 44,164 ) ( 44,164 )

Adjustment for net gain realized and included in net income ( 232 ) ( 232 )

Unrealized (loss) on derivatives, net of tax of $ 83

Total other comprehensive (loss) income ( 44,164 ) 278 — ( 43,886 )

1 unchanged sentence

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments and other, net of tax benefit of $ 246

Foreign currency translation adjustments and other before reclassification, net of tax of $ 156

( 15,117 ) ( 15,117 )

Reclassification for foreign currency translation adjustments and other included in net income 208 208

Unrealized gain on derivatives, net of tax of $ 104

9 unchanged sentences

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

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.

Throughout the year, the chief 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.

3 unchanged sentences

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."

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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.

Operating leases are included in other assets, accrued expenses and other liabilities, and other long-term liabilities and deferred income taxes 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.

7 unchanged sentences

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.

Adopted Pronouncements — None.

REVENUE FROM CONTRACTS WITH CUSTOMERS

19 unchanged sentences

(In thousands, except share and per share data)

Year Ended December 31,

2022 2021 2020

Sales by Geography

2 unchanged sentences

Other including Eastern Europe/CIS 294,481 289,136 219,540

Asia and Australia:

China 479,926 548,348 502,278

13 unchanged sentences

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.

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 are met.

The Company bills customers for extended warranties upon entering into the agreement with the customer, resulting in deferred revenue that is recognized over the period of the extended warranty contract.

The Company recognizes revenue over time on contracts for the sale of large scale materials processing systems.

The timing of customer payments on these contracts generally differs from the timing of revenue recognized.

If revenue recognized exceeds customer payments, a contract asset is recorded and if customer payments exceed revenue recognized, a contract liability is recorded.

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.

Certain deferred revenues related to extended warranties in excess of one year from the balance sheet date are included within other long-term liabilities and deferred income taxes 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, 2022 and 2021:

15 unchanged sentences

Revenue expected to be recognized for extended warranty agreements $ 4,155 $ 1,296 $ 960 $ 608 $ 250 $ 28 $ 7,297

Revenue to be earned over time from contracts to sell robotic systems 29,116 10,720 — — — — 39,836

Revenue to be earned over time from contracts to sell large scale materials processing systems

26,091 6,345 — — — — 32,436

Total $ 30,246 $ 7,641 $ 960 $ 608 $ 250 $ 28 $ 39,733

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 Company's financial instruments consist of cash equivalents, short-term investments, accounts receivable, accounts payable, 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.

5 unchanged sentences

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.

The carrying amounts of money market fund deposits, cash equivalent term deposits, accounts receivable, and accounts payable 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 Company's bond securities is based upon quoted prices for instruments with identical terms in active markets.

The Company's 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.

IPG PHOTONICS CORPORATION

5 unchanged sentences

Cash equivalents:

Money market fund deposits and term deposits $ 279,066 $ 279,066 $ — $ —

Municipal bonds 3,220 — 3,220 —

Money market fund deposits $ 195,654 $ 195,654 $ — $ —

Commercial paper 94,661 — 94,661 —

Term deposits 68,827 — 68,827 —

Corporate bonds 1,497 — 1,497 —

Short-term investments:

Treasury and agency obligations 21,980 — 21,980 —

Municipal bonds 4,546 — 4,546 —

Corporate bonds 215,754 — 215,754 —

Commercial paper 363,991 — 363,991 —

Certificate of deposit 3,000 — 3,000 —

Foreign government bonds 2,015 — 2,015 —

Total assets $ 1,216,658 $ 279,066 $ 937,592 $ —

Term notes $ 34,226 $ — $ 34,226 $ —

Contingent purchase consideration 1,371 — — 1,371

Corporate bonds 65,022 — 65,022 —

Treasury and agency obligations 39,611 — 39,611 —

Term deposits 10,113 — 10,113 —

Other assets:

Interest rate swap 198 — 198 —

Total assets $ 839,574 $ 195,654 $ 643,920 $ —

Term debt $ 16,031 $ — $ 16,031 $ —

Total liabilities $ 16,031 $ — $ 16,031 $ —

3 unchanged sentences

Money market fund deposits and term deposits $ 279,066 $ 279,066 $ — $ —

Treasury and agency obligations 6,999 — 6,999 —

Commercial paper 117,663 — 117,663 —

Corporate bonds 11,459 — 11,459 —

Municipal bonds 3,220 — 3,220 —

Short-term investments:

Treasury and agency obligations 49,996 — 49,996 —

Corporate bonds 7,997 — 7,997 —

Commercial paper 557,955 — 557,955 —

Certificate of deposit 368,665 — 368,665 —

Corporate bonds 215,754 — 215,754 —

Treasury and agency obligations 21,980 — 21,980 —

Municipal bonds 4,546 — 4,546 —

Term deposit 3,000 — 3,000 —

Foreign government bonds 2,015 — 2,015 —

Total assets $ 1,216,658 $ 279,066 $ 937,592 $ —

Term notes $ 38,402 $ — $ 38,402 $ —

Term debt $ 34,226 $ — $ 34,226 $ —

Contingent purchase consideration 1,371 — — 1,371

12 unchanged sentences

The fair value at December 31, 2022 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

At December 31, 2022, the Company's long-term note consisted of a variable rate note.

The carrying value of the note approximates the estimated fair value of $ 16,031 .

At December 31, 2021, the Company's long-term notes consisted of a variable rate note and a fixed rate note.

The fair value of the notes were estimated using a discounted cash flow model using observable market interest rates.

The fair value of the long-term notes, including the current portion, at December 31, 2021, was $ 34,226 as compared to the carrying value of $ 34,157 .

The long-term notes were reported at amortized cost on the consolidated balance sheets and were classified within Level 2 of the fair value hierarchy.

The fair value of contingent consideration at December 31, 2021 was determined using an income approach at the respective business combination date and at the reporting date.

The 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 contingency period ended during 2022.

The following table presents information about the Company's movement in Level 3 liability measured at fair value:

Contingent purchase consideration

Balance at January 1 $ 1,371 $ 1,963

Period transactions — 1,963 —

Cash payments — ( 466 )

2 unchanged sentences

Balance at December 31 $ — $ 1,371

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.

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Inventories consist of the following:

3 unchanged sentences

$ 509,363 $ 460,747

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.

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.

The Company recorded inventory provisions and related charges totaling $ 127,960 , $ 34,285 and $ 45,375 for the years ended December 31, 2022, 2021 and 2020, respectively.

These provisions relate to the recoverability of the value of inventories due to excess quantities and technological changes.

These provisions are reported as a reduction to components and raw materials, work-in-process and finished goods.

Within the inventory provision and related charges recorded in 2022, $ 74,055 is related to Russian operations.

See Note 1, "Nature of Business and Summary of Significant Accounting Policies", section Evaluation of Russian Operations for further detail .

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

DIVESTITURE AND SALE OF ASSET

During the third quarter of 2022, the Company completed the sale of its telecommunications transmission product line for $ 56,222 .

The Company recorded a gain on divestiture of $ 21,918 for the year ended December 31, 2022, which was included in the Company's consolidated statements of income.

As part of and just prior to closing, the Company also acquired the remaining non-controlling interests related to the business that was sold for $ 2,500 .

During the fourth quarter of 2022, the Company completed the sale of its corporate aircraft for $ 25,693 and recorded a gain of $ 9,928 which was included in the Company's consolidated statements of income.

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.

In the fourth quarter of 2022, the Company implemented a restructuring program at its Russian subsidiary and closed its Lebanon branch office.

These programs resulted in personnel-related restructuring charges of $ 9,697 for the year ended December 31, 2022.

The Company expects to incur approximately $ 1,600 of additional personnel-related restructuring charges in 2023.

All personnel-related restructuring charges are expected to be paid within 12 months.

See Note 1, "Nature of Business and Summary of Significant Accounting Policies", section Evaluation of Russian Operations for further detail .

The Lebanon branch office was closed in conjunction with sale of the telecommunications transmission product line detailed in Note 5, "Divestiture and Sale of Asset".

There was no restructuring related activity in 2021.

The restructuring accrual was included in accrued expenses and other liabilities in the Company's consolidated balance sheets.

Activity related to the restructuring accrual was as follows:

Severance and Employee Benefit Costs Contract Cancellations Total

Restructuring Charges

Balance at January 1, 2022 $ —

1 unchanged sentence

Cash payments ( 4,493 )

Balance at December 31, 2019 149 39 188

Charges 417 89 506

Cash payments ( 560 ) ( 128 ) ( 688 )

Foreign exchange adjustment ( 335 )

Balance at December 31, 2022 $ 4,869

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

GOODWILL AND INTANGIBLE ASSETS

3 unchanged sentences

Goodwill arising from business combinations 1,000 —

Impairment losses — ( 44,589 )

Goodwill written off related to divestiture ( 796 ) —

Foreign exchange adjustment ( 488 ) ( 552 )

1 unchanged sentence

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 .

The Company performed the 2022 and 2021 annual impairment test as of October 1, 2022 and 2021, respectively, and no impairments were recorded as a result of the tests.

The carrying balance of goodwill at December 31, 2022, and 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

As a result, the

IPG PHOTONICS CORPORATION

1 unchanged sentence

(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 .

Company recognized a non-cash impairment loss of $ 44,589 , which was equal to the carrying value of goodwill prior to its impairment.

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 value of goodwill at December 31, 2020 was net of accumulated impairments of $ 81,709 .

Intangible assets, subject to amortization, consisted of the following:

40 unchanged sentences

Total $ 590,264 $ 649,465

ACCRUED EXPENSES AND OTHER LIABILITIES

During the fourth quarter of 2022, the Company recorded an impairment charge for long-lived assets in Russia.

See Note 1, "Nature of Business and Summary of Significant Accounting Policies", section Evaluation of Russian Operations for further detail .

OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

5 unchanged sentences

Total $ 202,764 $ 230,826

Other long-term liabilities and deferred income taxes consist of the following:

Accrued warranty $ 24,358 $ 23,660

Long-term lease liabilities 16,787 18,521

Transition tax related to 2017 U.S.

tax reform act 19,874 26,027

Unrealized tax benefits 15,841 19,209

Deferred income taxes 1,469 1,632

Other 4,945 4,806

Total $ 83,274 $ 93,855

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

PRODUCT WARRANTIES

6 unchanged sentences

Balance at December 31 $ 52,862 $ 49,864 $ 45,669

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.

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Accrued warranty reported in the accompanying consolidated financial statements as of December 31, 2022 and December 31, 2021 consists of $ 28,504 and $ 26,204 in accrued expenses and other liabilities and $ 24,358 and $ 23,660 in other long-term liabilities and deferred income taxes, respectively.

FINANCING ARRANGEMENTS

3 unchanged sentences

Long-term debt, net of current portion $ — $ 16,031

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.

Long-Term Notes — At December 31, 2022, the Company has an unsecured long-term note with an outstanding principal balance of $ 16,031 , all of which is current.

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

Total $ 34,157

The Company had another long-term note that was secured by its corporate aircraft, which matured and was paid in July 2022, at which time the outstanding principal balance was $15,375.

The future principal payments in 2023 for the Company’s Note are $ 16,031 as of December 31, 2022.

Revolving Line of Credit Facilities:

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.

The line of credit bears interest at a variable rate of the Bloomberg Short-term Bank Yield Index ("BSBY") 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.

8 unchanged sentences

in excess of $ 50,000 up to a maximum of $ 500,000 .

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Euro Line of Credit — The Company maintains an unsecured revolving line of credit with a principal amount of € 50,000 ($ 53,493 at December 31, 2022), 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.

This credit facility is available to the Company's foreign subsidiaries including those in Germany, China and Italy based on management discretion.

At December 31, 2022, there were no drawings, however, there were $ 1,737 of guarantees issued against the line which reduced the total availability.

3 unchanged sentences

This facility is collateralized by a common pool of the assets of the Company's Italian subsidiary.

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

DERIVATIVE INSTRUMENTS

3 unchanged sentences

$ 16,031 $ 17,219

Other assets 198 —

Deferred income taxes and other long-term liabilities — 242

(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:

The derivative gains and losses in the consolidated financial statements related to the Company's current and previous interest rate swap contracts were as follows:

Year Ended December 31,

2022 2021 2020

Effective portion recognized in other comprehensive income (loss), pretax:

Effective portion recognized in other comprehensive income (loss), pre-tax:

Interest rate swap $ 440 $ 361 $ ( 616 )

9 unchanged sentences

Short-term lease liabilities Accrued expenses and other liabilities 5,234 5,454

Long-term lease liabilities Deferred income taxes and other long-term liabilities 18,521 18,448

Long-term lease liabilities Other long-term liabilities and deferred income taxes 16,787 18,521

Total lease liabilities $ 22,021 $ 23,975

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The table below presents the maturities of operating lease liabilities as of December 31, 2022:

3 unchanged sentences

Present value of lease liabilities $ 22,021

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, 2022 and 2021:

7 unchanged sentences

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.

Obligations under these agreements were $ 25,070 and $ 19,880 as of December 31, 2022 and 2021, respectively, and the obligations related to raw materials and equipment are generally expected to be fulfilled within one year.

Legal proceedings — From time to time, the Company may be involved in legal disputes and other proceedings in the ordinary course of its business.

1 unchanged sentence

As of December 31, 2022 and through the date of the Company's subsequent review period of February 27, 2023, 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.

The Company has submitted a limited number of voluntary self-disclosures regarding compliance with export control laws and regulations to the Bureau of Industry and Security of the U.S.

Department of Commerce ("BIS").

In October 2021, the U.S.

Department of Justice 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 regarding our export practices.

At this time, the Company is not able to conclude whether it is probable that BIS will assert a claim or assessment against the Company.

Nor can the Company estimate expenses that the Company may incur as a result of the investigation.

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

STOCK-BASED COMPENSATION

Stock-based compensation is included in the following financial statement captions:

Stock-based compensation including employee stock purchase plan is included in the following financial statement captions:

Year Ended December 31,

5 unchanged sentences

Total stock-based compensation 38,335 37,981 35,658

Tax benefit recognized ( 8,071 ) ( 7,498 ) ( 5,114 )

Tax effect of stock-based compensation ( 8,261 ) ( 8,071 ) ( 7,498 )

Net stock-based compensation $ 30,074 $ 29,910 $ 28,160

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.

Incentive Plans — In February 2006, the Company's board of directors adopted the 2006 Incentive Compensation Plan (as amended and restated from time to time, the "2006 Plan"), which provides for the issuance of stock options, PSUs, 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.

3 unchanged sentences

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

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:

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 vesting of awards under the 2006 Plan accelerate following the occurrence of certain change of control events if the participant's employment is terminated within two years by the Company without cause or by the participant for good reason or if an entity acquires control of the Company and does not agree to assume existing awards or replace with equivalent value awards.

Awards granted to non-employee directors automatically become vested upon a change of control.

All shares issued under the 2006 Plan are registered shares, newly issued by the Company.

The Company granted certain RSUs and PSUs to executive officers and other senior managers.

The RSUs provide for time-based vesting of a fixed number of shares over three years .

The PSUs provide the holder with the right to receive one share of the Company's common stock after the applicable award vesting period, generally three years .

The final number of shares, if any, delivered upon vesting of PSUs are determined over the relevant performance period.

The Company has granted two types of PSUs.

In the case of TSR PSUs, performance is measured by the Company's total shareholder return over the performance period compared to the S&P 1500 Composite / Electronic Equipment Instruments & Components Index.

In the case of all other PSUs, performance is measured against internal financial metrics established by the Company's board of directors.

The final number of shares to be delivered under the PSUs range from 0 % to 200 % of the target award amount.

There were no stock options granted for the years ended December 31, 2022 and 2021.

The following table summarizes the option activity for the year ended December 31, 2022:

6 unchanged sentences

Forfeited ( 73,425 ) 170.17

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 .

Outstanding — December 31, 2022 881,887 $ 138.16 3.98 years $ 5,432

Unvested — December 31, 2022 58,907 $ 154.74 6.14 years $ —

Exercisable — December 31, 2022 822,980 $ 136.98 3.83 years $ 5,432

The intrinsic value of the options exercised during the years ended December 31, 2022, 2021 and 2020, was $ 6,069 , $ 28,353 and $ 52,868 , 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 .

The total compensation cost related to non-vested option awards not yet recorded at

IPG PHOTONICS CORPORATION

1 unchanged sentence

(In thousands, except share and per share data)

December 31, 2022 was $ 529 which is expected to be recognized over a weighted-average of 0.3 year.

Cash received from option exercises during the year ended December 31, 2022 was $ 5,507 .

Tax benefit received from option exercises during the year ended December 31, 2022 was $ 1,526 .

The following table summarizes the RSUs activity for the year ended December 31, 2022:

12 unchanged sentences

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

Performance term (years) 3.0 3.0

Volatility 29 % - 51 %

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, 2022:

2 unchanged sentences

Outstanding — January 1, 2022 66,584 $ 195.15

Granted 17,809 236.11

Canceled ( 27,494 ) 200.95

2 unchanged sentences

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.

The TSR PSUs granted in 2019 and 2018 did not achieve the performance target upon vesting in 2022 and 2021, respectively, thus no shares became eligible to vest.

The Company did not grant TSR PSUs in 2022.

The intrinsic value of the TSR PSUs vested during the years ended December 31, 2022, 2021 and 2020 was nil , nil , $ 6,211 .

The aggregate fair value of awards vested during the years ended December 31, 2022, 2021 and 2020 was nil , nil , and $ 5,159 , respectively.

The total compensation cost related to non-vested awards not yet recorded at December 31, 2022 was $ 1,734 which is expected to be recognized over a weighted average of 1.2 years.

IPG PHOTONICS CORPORATION

1 unchanged sentence

(In thousands, except share and per share data)

The following table summarizes OCF PSUs activity for the year ended December 31, 2021:

The following table summarizes financial metric-based PSUs activity for the year ended December 31, 2022:

Number of Shares

4 unchanged sentences

Outstanding — December 31, 2022 97,552 $ 153.56

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, 2022 and 2021, the weighted average grant date fair value for new grants was $ 136.64 and $ 228.62 .

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.

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.

The financial metric-based PSUs are included at 80 % to 100 % of target goals.

The total compensation cost related to non-vested awards not yet recorded at December 31, 2022 was $ 7,455 , which is expected to be recognized over a weighted average period of 2.0 years.

The Company has an employee stock purchase plan ("ESPP") offered to its U.S.

and German employees.

1 unchanged sentence

Payroll deductions may not exceed 10 % of the employee's compensation and are subject to other limitations.

The assumptions used in the Black-Scholes model for the calculation of the ESPP fair values were as follows:

Performance term (year) 0.5 0.5

Volatility 41 % - 52 %

Risk-free rate of return 0.19 % - 2.52 %

0.09 % - 0.05 %

Dividend yield 0.10 % 0.10 %

Fair value per share $ 45.91 - $ 26.68

$ 53.09 - $ 56.43

Compensation expense related to the employee stock purchase plan was $ 1,924 , $ 1,861 and $ 2,033 for the years ended December 31, 2022, 2021 and 2020, respectively.

1 unchanged sentence

As of December 31, 2022, there were 198,160 shares available for issuance under the employee stock purchase plan.

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 $ 6,344 , $ 6,081 and $ 6,253 , respectively, for the years ended December 31, 2022, 2021 and 2020.

Income before the impact of income taxes for the years ended December 31 consisted of the following:

23 unchanged sentences

State income taxes — net 4,904 2,050 697

Stock-based compensation - tax benefit ( 5,440 ) ( 9,664 ) ( 5,114 )

Stock-based compensation - tax detriment (benefit) 2,736 ( 5,440 ) ( 9,664 )

Foreign derived intangible income benefit ("FDII") ( 14,576 ) ( 4,704 ) —

Global intangible low-taxed income taxed in the U.S.

("GILTI") — — 4,648

Goodwill impairment — — 10,009

Withholding tax on intercompany dividend 1,005 2,883 2,193

Federal and state tax credits ( 5,238 ) ( 7,482 ) ( 6,762 )

Russia investment tax credit ( 324 ) ( 3,228 ) —

Foreign investment tax credit ( 9,559 ) ( 324 ) ( 3,228 )

Change in reserves, including interest and penalties ( 3,355 ) 6,041 3,878

2 unchanged sentences

Provision for income taxes $ 72,589 $ 88,615 $ 45,354

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:

Property, plant and equipment $ 6,275 $ ( 12,117 )

Intangible assets 27,044 6,930

Inventory provisions 43,628 25,368

Allowances and accrued liabilities 2,584 5,101

Deferred compensation 17,365 3,256

Withholding tax on intercompany dividend ( 1,461 ) ( 1,098 )

Other tax credits 18,554 17,013

Deferred compensation 27,114 17,365

Net operating loss carryforwards 7,410 11,544

Property, plant, equipment and intangible assets ( 5,187 ) ( 7,401 )

Withholding tax on intercompany dividend ( 1,098 ) ( 2,774 )

Valuation allowance ( 57,465 ) ( 23,977 )

Net deferred tax assets $ 73,683 $ 46,129

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

The Company has recorded $ 1,461 and $ 1,098 as a deferred tax liability on December 31, 2022 and 2021, 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.

8 unchanged sentences

The Company has tax loss carryforwards in foreign jurisdictions totaling $ 22,134 and $ 38,070 as of December 31, 2022 and 2021, 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 does not believe it is more likely than not that most of the loss carryforwards can be used and has provided a valuation allowance against the tax benefit of the losses in foreign jurisdictions of $ 5,942 and $ 10,093 at December 31, 2022 and 2021, respectively.

The decrease in the carryforward losses and related valuation allowance is primarily related to the sale or dissolution of entities that had losses rather than the use of those losses against current taxes.

In addition, during the year ended December 31, 2022, the Company recorded a valuation allowance of $ 35,833 primarily related to deferred tax assets in its Russian subsidiary as it does not believe it is more likely than not that the entities will have future profits sufficient to get the benefit of those deferred assets.

The Company's acquisition of Menara Networks, Inc.

("Menara") in 2016 included net operating loss carryforwards of $ 22,242 .

in 2016 included net operating loss carryforwards of $ 22,242 .

As of December 31, 2022 and 2021, the Company had $ 1,844 and $ 3,106 of these net operating loss carryforwards remaining, respectively.

1 unchanged sentence

The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues.

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.

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 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:

2 unchanged sentences

Change in prior period positions ( 3,921 ) ( 1,969 ) ( 427 )

Settlement of prior period position — — ( 230 )

Additions for tax positions in current period 735 6,400 4,000

1 unchanged sentence

Balance at December 31 $ 15,841 $ 19,209 $ 14,706

The liability for uncertain tax benefits is included in deferred income taxes and other long-term liabilities at December 31, 2021 and 2020.

The liability for uncertain tax benefits is included in other long-term liabilities and deferred income taxes at December 31, 2022 and 2021.

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.

Estimated penalties and interest related to the underpayment of income taxes were a net benefit of $ 168 and $ 359 for the years ended December 31, 2022 and 2021, respectively, and are included within the provision for income taxes.

Total accrued penalties and interest related to the underpayment of income taxes were $ 1,476 and $ 1,641 at December 31, 2022 and 2021, respectively.

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

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.

The Company is currently under a tax audit in the U.S.

for the years 2017 to 2020.

Open tax years by major jurisdictions are:

12 unchanged sentences

Diluted net income attributable to IPG Photonics Corporation per common share $ 2.16 $ 5.16 $ 2.97

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-

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

The weighted average anti-dilutive shares outstanding for the years ended December 31, 2022, 2021 and 2020, respectively, were as follows:

5 unchanged sentences

Total weighed average anti-dilutive shares outstanding 1,020,448 345,639 565,559

On August 2, 2022 and February 15, 2022, the Company announced that its Board of Directors has authorized the purchases of up to $ 300,000 and $ 200,000 of IPG common stock, respectively.

The authorizations are in addition to the Company's previously authorized stock repurchase programs.

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.

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, 2022, 2021 and 2020, respectively, the Company repurchased 5,101,434 shares, 743,969 shares, and 301,660 shares of its common stock with an average price of $ 97.89 , $ 181.28 and $ 125.58 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 May 2020 authorization and February 2022 authorization to repurchase common stock were completed in 2022.

As of December 31, 2022 the remaining amount authorized under the August 2022 was up to $ 112,153 .

The impact on the reduction of weighted average shares for years ended December 31, 2022, 2021 and 2020 was 2,393,478 shares, 244,451 shares and 201,953 shares, respectively.

IPG PHOTONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

RELATED-PARTY TRANSACTIONS

The late founder of the Company, Dr.

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.

Gapontsev, the late Chairman and former CEO of the Company, leased the annual right to use 25 % of the Company's corporate aircraft under a lease signed in July 2017.

The lease terminated in April 2022.

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.

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.

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.

Gapontsev's estate or himself $ 249 , $ 924 and $ 937 in 2022, 2021, and 2020, respectively, under the aircraft lease.

There was $ 77 due at December 31, 2021.

Gapontsev and his estate directly paid an unrelated flight management firm for the operating costs of his private use including pilot fees, fuel and other costs.

Natalia Pavlova, a director, and Angelo Lopresti, an executive officer, are executors of the estate of Dr.

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 9A. Controls and Procedures