# IPG Photonics Corp: Form 10-Q for the period ended Mar 31, 2013

- Company: [IPG Photonics Corp](/companies/ipgp.md) (CIK 1111928)
- Form: 10-Q
- Filed: 2013-05-10
- Accepted by EDGAR: May 10, 2013, 12:31 ET
- Period: 2013-03-31
- Accession: 0001193125-13-212636
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1111928/000119312513212636/d534329d10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1111928/000119312513212636/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2013-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2013-01-01 to 2013-03-31 | $141.9m | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2013-01-01 to 2013-03-31 | $66.2m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2013-01-01 to 2013-03-31 | $75.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2013-01-01 to 2013-03-31 | $8.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2013-01-01 to 2013-03-31 | $49.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2013-01-01 to 2013-03-31 | $14.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2013-01-01 to 2013-03-31 | $35.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2013-01-01 to 2013-03-31 | $0.67 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2013-01-01 to 2013-03-31 | $0.68 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2013-01-01 to 2013-03-31 | 52,350,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2013-01-01 to 2013-03-31 | −$11.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2013-01-01 to 2013-03-31 | $17.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2013-03-31 | $355.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2013-03-31 | $649.4m | us-gaap:AssetsCurrent |
| Total assets | at 2013-03-31 | $892.3m | us-gaap:Assets |
| Current liabilities | at 2013-03-31 | $88.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2013-03-31 | $119.0m | us-gaap:Liabilities |
| Long-term debt | at 2013-03-31 | $12.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2013-03-31 | $1.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2013-03-31 | $773.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,485 characters.

*You should read the following discussion in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward looking statements that are based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”*

### Overview

We develop and manufacture a broad line of high-performance fiber lasers, fiber amplifiers and diode lasers that are used in numerous applications, primarily in materials processing. We sell our products globally to original equipment manufacturers (“OEMs”), system integrators and end users. We market our products internationally primarily through our direct sales force.

We are vertically integrated such that we design and manufacture most of our key components used in our finished products, from semiconductor diodes to optical fiber preforms, finished fiber lasers and amplifiers. We also manufacture certain complementary products used with our lasers, including optical delivery cables, fiber couplers, beam switches, optical heads and chillers. In addition, we offer laser-based systems for certain markets and applications.

### Factors and Trends That Affect Our Operations and Financial Results

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

*Net sales.* We derive net sales primarily from the sale of fiber lasers and amplifiers. We also sell diode lasers, communications systems, laser systems and complementary products. We sell our products through our direct sales organization and our network of distributors and sales representatives, as well as system integrators. We sell our products to OEMs that supply materials processing laser systems, communications systems and medical laser systems to end users. We also sell our products to end users that build their own systems which incorporate our products or use our products as an energy or light source. Our scientists and engineers work closely with OEMs, systems integrators and end users to analyze their system requirements and match appropriate fiber laser or amplifier specifications. Our sales cycle varies substantially, ranging from a period of a few weeks to as long as one year or more, but is typically several months.

Sales of our products generally are recognized upon shipment, provided that no obligations remain and collection of the receivable is reasonably assured. Our sales typically are made on a purchase order basis rather than through long-term purchase commitments.

We develop our products to standard specifications and use a common set of components within our product architectures. Our major products are based upon a common technology platform. We continually enhance these and other products by improving their components and developing new components and new product designs.

The average selling prices of our products generally decrease as the products mature. These decreases result from factors such as decreased manufacturing costs and increases in unit volumes, increased competition, the introduction of new products and market share considerations. In the past, we have lowered our selling prices in order to penetrate new markets and applications. Furthermore, we may negotiate discounted selling prices from time to time with certain customers that purchase multiple units.

*Gross margin*. Our total gross margin in any period can be significantly affected by total net sales in any period, by product mix, that is, the percentage of our revenue in the period that is attributable to higher or lower-power products, and by other factors, some of which are not under our control.

Our product mix affects our margins because the selling price per watt is generally higher for low, mid-power devices and certain specialty products than for high-power devices sold in large volumes. The overall cost of high-power lasers may be partially offset by improved absorption of fixed overhead costs associated with sales of larger volumes of higher-power products because they use a greater number of optical components and drive economies of scale in manufacturing. Also, the profit margins on systems can be lower than margins for our laser and amplifier sources, depending on the configuration, volume and competitive forces, among other factors.

A high proportion of our costs is fixed so they are generally difficult or slow to adjust in response to changes in demand. In addition, our fixed costs increase as we expand our capacity. Gross margins generally decline if production volumes are lower as a result of a decrease in sales or a reduction in inventory because the absorption of fixed manufacturing costs will be reduced. Gross margins generally improve when the opposite occurs. If both sales and inventory decrease in the same period, the decline in gross margin may be greater if we cannot reduce fixed costs or choose not to reduce fixed costs to match the decrease in the level of production. If we experience a decline in sales that reduces absorption of our fixed costs, or if we have production issues or inventory write-downs, our gross margins will be negatively affected.

We also regularly review our inventory for items that are slow-moving, have been rendered obsolete or determined to be excess. Any write-off of such slow-moving, obsolete or excess inventory affects our gross margins. For example, we recorded provisions for inventory totaling $1.5 million and $1.9 million for the three months ended March 31, 2013 and 2012, respectively and $8.2 million, $6.1 million and $2.7 million for the years ended December 31, 2012, 2011 and 2010, respectively.

*Sales and marketing expense.* We expect to continue to expand our worldwide direct sales organization, build and expand applications centers, hire additional personnel involved in marketing in our existing and new geographic locations, increase the number of units for demonstration purposes and otherwise increase expenditures on sales and marketing activities in order to support the growth in our net sales. As such, we expect that our sales and marketing expenses will increase in the aggregate.

*Research and development expense.* We plan to continue to invest in research and development to improve our existing components and products and develop new components, products and systems. The amount of research and development expense we incur may vary from period to period. In general, if net sales continue to increase we expect research and development expense to increase in the aggregate.

*General and administrative expense.* We expect our general and administrative expenses to increase as we continue to invest in systems and resources to support our worldwide operations. Legal expenses vary from quarter to quarter based primarily upon the level of litigation and transaction activities.

*Major customers.* While we have historically depended on a few customers for a large percentage of our annual net sales, the composition of this group can change from year to year. Net sales derived from our five largest customers as a percentage of our net sales were 22% for the three months ended March 31, 2013 and 16%, 17% and 19% for the full years 2012, 2011 and 2010, respectively. We seek to add new customers and to expand our relationships with existing customers. We anticipate that the composition of our significant customers will continue to change. If any of our significant customers were to substantially reduce their purchases from us, our results would be adversely affected.

### Results of Operations for the three months ended March 31, 2013 compared to the three months ended March 31, 2012

*Net sales.* Net sales increased by $18.7 million, or 15.1%, to $141.9 million for the three months ended March 31, 2013 from $123.2 million for the three months ended March 31, 2012.

|  | Three Months Ended March 31, 2013 | % of Total | 2012 | % of Total | Change |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Materials processing | $133,045 | 93.8% | $103,188 | 83.8% | $29,857 | 28.9% |
| Other applications | 8,807 | 6.2% | 20,004 | 16.2% | (11,197) | (56.0)% |
| Total | $141,852 | 100.0% | $123,192 | 100.0% | $18,660 | 15.1% |

Sales for materials processing applications increased primarily due to higher sales of high-power and medium-power lasers used in cutting and welding applications and pulsed lasers used in marking and engraving applications. We continue to see increased acceptance of the advantages of fiber laser technology. A growing number of OEM customers have developed cutting systems that use our high-power lasers and sales of these systems are gaining sales from gas laser systems. In addition, new welding processes using fiber lasers have been developed, increasing sales of lasers for this application, which are replacing traditional laser and non-laser welding technologies. We also increased sales of pulsed lasers used for marking and engraving applications due to increased demand in consumer electronics applications. The decrease in other applications sales relates primarily to a decrease in sales of high-power, high-brightness lasers used in advanced applications. Orders for certain advanced applications can be uneven and of high unit value so that they can both benefit and impact sales depending on their timing.

*Cost of sales and gross margin.* Cost of sales increased by $11.7 million, or 21.5%, to $66.2 million for the three months ended March 31, 2013 from $54.5 million for the three months ended March 31, 2012. Our gross margin decreased to 53.3% for the three months ended March 31, 2013 from 55.8% for the three months ended March 31, 2012. Gross margin decreased due to product mix, in particular the lower level of sales of high-power, high-brightness lasers used in advanced applications, partially offset by increased absorption of manufacturing costs.

*Sales and marketing expense.* Sales and marketing expense increased by $0.8 million, or 14.3%, to $5.9 million for the three months ended March 31, 2013 from $5.1 million for the three months ended March 31, 2012, primarily as a result of increases in personnel costs and depreciation of product used for demonstration purposes. As a percentage of sales, sales and marketing expense decreased to 4.1% for the three months ended March 31, 2013 from 4.2% for the three months ended March 31, 2012.

*Research and development expense.* Research and development expense increased by $1.7 million, or 23.2%, to $8.8 million for the three months ended March 31, 2013, compared to $7.1 million for the three months ended March 31, 2012, primarily as a result of increases in personnel costs partially offset by a decrease in costs of material used for research and development. Research and development activity continues to focus on enhancing the performance of our internally manufactured components, refining production processes to improve manufacturing yields, the development of new products operating at different wavelengths and higher output powers and new accessories. As a percentage of sales, research and development expense increased to 6.2% for the three months ended March 31, 2013 from 5.8% for the three months ended March 31, 2012.

*General and administrative expense.* General and administrative expense increased by $1.9 million, or 18.7%, to $11.8 million for the three months ended March 31, 2013 from $9.9 million for the three months ended March 31, 2012, primarily as a result of increased personnel, travel and premises costs. As a percentage of sales, general and administrative expense increased to 8.3% for the three months ended March 31, 2013 from 8.1% for the three months ended March 31, 2012.

*Effect of exchange rates on net sales, gross profit and operating expenses.* We estimate that, if exchange rates had been the same as one year ago, net sales for the three months ended March 31, 2013 would have been $1.6 million higher, gross profit would have been $1.0 million higher and total operating expenses would have been $0.1 million higher.

*(Gain) loss on foreign exchange.* We incurred a foreign exchange gain of $0.5 million for the three months ended March 31, 2013 as compared to $1.3 million loss for the three months ended March 31, 2012. The change is primarily attributable to the changes of the U.S. Dollar against the Euro, Russian Ruble and Japanese Yen.

*Interest expense, net.* Interest expense, net remained consistent at $0.1 million of expense for the three months ended March 31, 2013 compared to $0.1 million of expense for the three months ended March 31, 2012.

*Other income (expense), net.* Other income (expense), net increased to $0.1 million of income for the three months ended March 31, 2013 compared to $1.1 million of expense for the three months ended March 31, 2012. The $1.1 million for the three months ended March 31, 2012 was primarily due to final payments related to a contingent consideration agreement from a prior acquisition.

*Provision for income taxes.* Provision for income taxes was $14.5 million for the three months ended March 31, 2013 compared to $13.4 million for the three months ended March 31, 2012, representing an effective tax rates of 29.3% and 30.5% for the three months ended March 31, 2013 and 2012, respectively. The increase in the provision for income taxes was primarily the result of increased income before provision for income taxes. The decrease in effective rate was due primarily to the benefit of 2012 Research and Development Credits included in the American Taxpayer Relief Act of 2012 (the “Act”) which was signed into law on January 2, 2013. Because a change in tax law is accounted for in the period of enactment, certain provisions of the Act benefiting our 2012 U.S. federal taxes, including the research and experimentation credit, could not be recognized in our 2012 financial results and instead is reflected in our 2013 financial results. This net benefit of approximately $0.8 million reduced our effective tax rate as a discrete item in our tax provision for the first quarter of 2013. This benefit was partially offset by approximately $0.3 million of increases in certain tax reserves as well as increases due to adjustments made to reconcile to 2012 tax filings made in certain jurisdictions.

*Net income attributable to IPG Photonics Corporation.* Net income attributable to IPG Photonics Corporation increased by $5.2 million to $35.1 million for the three months ended March 31, 2013 compared to $29.9 million for the three months ended March 31, 2012. Net income attributable to IPG Photonics Corporation as a percentage of our net sales increased by 0.5 percentage points to 24.8% for the three months ended March 31, 2013 from 24.3% for the three months ended March 31, 2012 due to the factors described above.

### Liquidity and Capital Resources

Our principal sources of liquidity as of March 31, 2013 consisted of cash and cash equivalents of $355.7 million, unused credit lines and overdraft facilities of $53.2 million and working capital (excluding cash and cash equivalents) of

$205.5 million. This compares to cash and cash equivalents of $384.1 million, unused credit lines and overdraft facilities of $61.4 million and working capital (excluding cash and cash equivalents) of $155.5 million as of December 31, 2012. The decrease in cash and cash equivalents of $28.3 million from December 31, 2012 relates primarily to cash used in operating activities in the three months ended March 31, 2013 of $11.3 million which includes cash payments for corporation tax in Germany of approximately $32 million for a final payment of fiscal year 2011 and a revised estimated payment for fiscal year 2012 which both became due when we filed our fiscal year 2011 German tax return. In addition to cash used in operating activities, $23.3 million of cash was used on capital expenditures and the purchase of Mobius Photonics. These uses of cash were partially offset by $7.4 million of increased drawings on credit lines.

Our long-term debt consists primarily of a $13.7 million secured variable-rate note, of which $1.3 million is the current portion. This debt matures in June 2015, at which time the outstanding debt balance would be $10.7 million. The variable interest rate was fixed by means of interest rate swap instruments.

We believe that our existing cash and marketable securities, our cash flows from operations and our existing lines of credit provides us with the financial flexibility to meet our liquidity and capital needs, as well as to complete acquisitions of complementary businesses and technologies. Our future long-term capital requirements will depend on many factors including our level of sales, the impact of economic environment on our sales levels, the timing and extent of spending to support development efforts, the expansion of the global sales and marketing activities, the timing and introductions of new products, the need to ensure access to adequate manufacturing capacity and the continuing market acceptance of our products. The following table details our line-of-credit facilities as of March 31, 2013:

| Description | Available Principal | Interest Rate | Maturity | Security |
| --- | --- | --- | --- | --- |
| U.S. Line of Credit(1) | Up to $35.0 million | LIBOR plus 1.125% to 1.625%, depending on our performance | June 2015 | Unsecured |
| Euro Line of Credit (Germany)(2) | Euro 20.0 million ($25.6 million) | Euribor + 1.25% or EONIA 1.75% | June 2014 | Unsecured, guaranteed by parent company |
| Euro Overdraft Facilities | Euro 1.9 million ($2.4 million) | 1.3%-6.5% | October 2013 | Common pool of assets of German and Italian subsidiaries |

(1) $14.1 million of this revolving credit facility is available to our foreign subsidiaries in their respective local currencies, including India, China, Japan and South Korea. Total drawings at March 31, 2013 were $8.0 million with an interest rate of 3.8%.

(2) $16.7 million of this credit facility is available to our German subsidiary, $3.8 million is available to our Russian subsidiary and $5.1 million is available to our Italian subsidiary. Total drawing at March 31, 2013 was $1.8 million with an interest rate of 1.3%.

Our largest committed credit lines are with Bank of America and Deutsche Bank in the amounts of $35.0 million and $25.6 million, respectively, and neither of them is syndicated.

We are required to meet certain financial covenants associated with our U.S. revolving line of credit and long-term debt facilities. These covenants, tested quarterly, include a debt service coverage ratio and a funded debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio. The debt service coverage covenant requires that we maintain a trailing twelve month ratio of cash flow to debt service that is greater than 1.5:1. Debt service is defined as required principal and interest payments during the period. Cash flow is defined as EBITDA less unfunded capital expenditures. The funded debt to EBITDA covenant requires that the sum of all indebtedness for borrowed money on a consolidated basis shall be less than two times our trailing twelve months EBITDA. We were in compliance with all such financial covenants as of and for the three months ended March 31, 2013.

The financial covenants in our loan documents may cause us to not take or to delay investments and actions that we might otherwise undertake because of limits on capital expenditures and amounts that we can borrow or lease. In the event that we do not comply with any one of these covenants, we would be in default under the loan agreement or loan agreements, which may result in acceleration of the debt, cross-defaults on other debt or a reduction in available liquidity, any of which could harm our results of operations and financial condition.

*Operating activities.* Net cash (used) provided by operating activities decreased by $38.3 million to $(11.3) million for the three months ended March 31, 2013 from $27.0 million for the three months ended March 31, 2012, primarily resulting from:

- A decrease in income and other taxes payable of $40.2 million in the three months ended March 31, 2013 compared to an increase of $5.2 million in the three months ended March 31, 2012;
- An increase in inventory of $7.0 million in the three months ended March 31, 2013 compared to an increase of $4.0 million in the three months ended March 31, 2012; and
- An increase in accounts receivable of $8.3 million in the three months ended March 31, 2013 compared to an increase of $12.2 million in the three months ended March 31, 2012; partially offset by
- An increase in cash provided by net income after adding back non-cash charges of $52.4 million in the three months ended March 31, 2013 as compared to $47.2 million in the same period in 2012.

Given our vertical integration, rigorous and time-consuming testing procedures for both internally manufactured and externally purchased components and the lead time required to manufacture components used in our finished products, the rate at which we turn inventory has historically been comparatively low when compared to our cost of sales. Also, our historic growth rates required investment in inventories to support future sales and enable us to quote short delivery times to our customers, providing what we believe is a competitive advantage. Furthermore, if there was a disruption to the manufacturing capacity of any of our key technologies, our inventories of components should enable us to continue to build finished products for a reasonable period of time. We believe that we will continue to maintain a relatively high level of inventory compared to our cost of sales. As a result, we expect to have a significant amount of working capital invested in inventory. A reduction in our level of net sales or the rate of growth of our net sales from their current levels would mean that the rate at which we are able to convert our inventory into cash would decrease.

*Investing activities.* Net cash used in investing activities was $22.8 million and $6.6 million in the three months ended March 31, 2013 and 2012, respectively. The cash used in investing activities in 2013 related to the construction of new buildings in the US, Germany and Russia as well as purchases of machinery and equipment and the purchase of Mobius Photonics during the first quarter. The cash used in investing activities in 2012 related to the construction of new buildings in the U.S., Germany and Russia. These expenditures were partially offset by the proceeds from the maturity of short-term investments of $7.0 million.

We expect to incur between $60 million and $70 million in capital expenditures, excluding acquisitions in 2013. The timing and extent of any capital expenditures in and between periods can have a significant effect on our cash flow. Many of the capital expenditure projects that we undertake have long lead times and are difficult to cancel or defer to a later period.

*Financing activities.* Net cash provided by financing activities was $8.0 million and $171.7 million in the three months ended March 31, 2013 and 2012, respectively. The cash provided by financing activities in 2013 was primarily related to the proceeds from line-of-credit facilities. The cash provided by financing activities in 2012 was primarily related to the follow-on public stock offering for which we received $168.3 million, net of offering expenses.

### Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Quarterly Report on Form 10-Q except for historical information are forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, trends in our businesses, or other characterizations of future events or circumstances are forward-looking statements.

The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to accurately predict and many of which are beyond our control. As such, our actual results may differ significantly from those expressed in any forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in Item 1, “Business” and Item 1A, “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2012. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission. In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to rely on such forward-looking information. We undertake no obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

### Recent Accounting Pronouncements

Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.

## Market risk

As filed, 2,728 characters.

We are exposed to market risk in the ordinary course of business, which consists primarily of interest rate risk associated with our cash and cash equivalents and our debt and foreign exchange rate risk.

*Interest rate risk*. Our investments have limited exposure to market risk. To minimize this risk, we maintain a portfolio of cash, cash equivalents and short-term investments, consisting primarily of bank deposits, money market funds and short-term government securities. The interest rates are variable and fluctuate with current market conditions. Because of the short-term nature of these instruments, a sudden change in market interest rates would not be expected to have a material impact on our financial condition or results of operations.

We are also exposed to market risk as a result of increases or decreases in the amount of interest expense we must pay on our bank debt and borrowings on our bank credit facilities. Our interest obligations on our long-term debt are fixed by means of interest rate swap agreements. Although our U.S. revolving line of credit and our Euro credit facility have variable rates, we do not believe that a 10% change in market interest rates would have a material impact on our financial position or results of operations.

*Exchange rates.* Due to our international operations, a significant portion of our net sales, cost of sales and operating expenses are denominated in currencies other than the U.S. dollar, principally the Euro, the Japanese Yen, the Russian Ruble, and Chinese Yuan. As a result, our international operations give rise to transactional market risk associated with exchange rate movements of the U.S. dollar, the Euro, the Japanese Yen, the Russian Ruble, and Chinese Yuan. Gain on foreign exchange transactions totaled $0.5 million for the three months ended March 31, 2013. Loss on foreign exchange transactions totaled $1.3 million for the three months ended March 31, 2012. Management attempts to hedge these exposures by partially or fully off-setting foreign currency denominated assets and liabilities at our subsidiaries that operate in different functional currencies. Foreign currency derivative instruments can also be used to hedge exposures and reduce the risks of certain foreign currency transactions; however, these instruments provide only limited protection and can carry significant cost. We have no foreign currency hedges as of March 31, 2013. We will continue to analyze our exposure to currency exchange rate fluctuations and may engage in financial hedging techniques in the future to attempt to minimize the effect of these potential fluctuations. Exchange rate fluctuations may adversely affect our financial results in the future.

## Controls and procedures

As filed, 1,030 characters.

### Evaluation of Disclosure Controls and Procedures

Under the supervision of our chief executive officer and our chief financial officer, our management has evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, our chief executive officer and our chief financial officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.

### Changes in Internal Controls

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 637 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Filed May 10, 2013.
Source: SEC EDGAR, the filing index for accession 0001193125-13-212636. Last ingested by Listed: Nov 4, 2026, 17:26 ET. No prices; not investment advice.