[LETTERHEAD
OF IPG PHOTONICS CORPORATION]
April 21,
2008
VIA
EDGAR
Mr. Jay
Webb
Division
of Corporation Finance
Mail Stop
6010
United
States Securities and Exchange Commission
Washington,
D.C. 20549
RE: IPG
Photonics Corporation
Form 10-K
for the year ended December 31, 2007
Filed
March 13, 2008
File No.
001-33155
Dear Mr.
Webb:
Below are
our responses to your Comment Letter dated March 31, 2008 regarding our Form
10-K for the year ended December 31, 2007. The responses are in the
same order in which your letter was written.
We
acknowledge that:
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The
Company is responsible for the adequacy and accuracy of the disclosure in
the filing;
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Staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the
filing; and
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The
Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations, page 36
Liquidity and Capital
Resources, page 48
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1.
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We
note from disclosures on page F-7 that your marketable securities consist
primarily of auction-rate securities that are classified as
available-for-sale securities. Tell us and revise the liquidity
section of MD&A in future filings to discuss whether any of the
securities you hold are reasonably likely to affect your financial
condition, liquidity or results of operations in a material way, expanding
your discussion and analysis in applicable future filings to provide your
investors with information necessary for a clear understanding of any
trend or uncertainty. Refer to Item 303(a) of Regulation
S-K. In addition, provide all appropriate disclosure required
by Item 305 of Regulation S-K.
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We have
concluded that, as of December 31, 2007, the auction-rate securities held by the
Company were not reasonably likely to affect our financial condition, liquidity
or results of operations in a material way. We based this conclusion
on the fact that, prior to filing the Form 10-K on March 13, 2008, we had
already disposed of approximately $4.5 million of the $7.0 million of
auction-rate securities that we held at December 31, 2007. The
proceeds from the sale of these securities were equal to their carrying
value. We intend to dispose of the remaining $2.5 million of
auction-rate securities that we hold during the second quarter of
2008. However, the most recent auctions for the two positions that
comprise the remaining $2.5 million of auction-rate securities have
failed. If, due to further auction failures, it becomes uncertain
that we will be able to dispose of our remaining auction-rate securities during
the second quarter of 2008, we intend to reclassify the carrying value of such
auction-rate securities as long-term investments instead of marketable
securities.
At this
time we do not believe that the fair value of the auction-rate securities that
we hold is less than their carrying value because the securities are insured and
are rated Aaa/AAA by Moody’s and Standard & Poor’s and AA by
Fitch. We will continue to evaluate the fair values of these
securities to the extent that they remain unsold, their ratings are downgraded
in the future or there is other evidence of an impairment.
We will
revise the liquidity section of MD&A in future filings discuss whether any
of the securities that we hold are reasonably likely to affect our financial
condition, liquidity or results of operations in a material way and will expand
our discussion and analysis in applicable future filings to provide our
investors with information necessary for a clear understanding of any trend or
uncertainty. In addition, we will provide all appropriate disclosure
required by Item 305 of Regulation S-K.
The
Company expects that it will include the following additional disclosure in its
Form 10-Q for the three months ended March 31, 2008:
ITEM
7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital
Resources
We held
approximately $2.5 million in auction-rate securities (ARSs) at March 31, 2008
as compared to $7.0 million at December 31, 2007. Our investments in
ARSs at March 31, 2008 consisted solely of taxable municipal debt
securities. None of the ARSs in our portfolio are collateralized debt
obligations (CDOs) or mortgage-backed securities.
The most
recent auctions for these ARSs in April 2008 failed and it is uncertain whether
future auctions relating to these securities will be successful in resetting a
market rate of interest for the ARSs. If an auction is unsuccessful,
the terms of the ARSs provide that the issuer will pay interest at the maximum
contractual rate and that we will hold these securities until their next
scheduled auction reset dates. Auction reset dates for the ARSs that we own
occur every 35 days. Our ability to dispose of these ARSs at the
subsequent auction reset date depends on whether or not the auction is
successful. Therefore, failed auctions may limit the short-term
liquidity of these investments.
As a
result of the recent auction failures, we continue to hold these ARSs and the
issuers are required to pay interest on the ARSs at the maximum contractual
rate. While these auction failures have affected our ability to
access these funds in the near term, we do not believe that the fair value of
the ARSs has been affected because no default has occurred, the ARSs
are insured, and they are rated Aaa/AAA by Moody’s and Standard & Poor’s and
AA by Fitch. If the credit rating of the issuer of the ARSs were to
deteriorate, we may be required to adjust the carrying value of these
investments by recording an impairment charge. Based on our ability
to access our cash, our expected operating cash flows and our available credit
lines, we do not expect that the current lack of liquidity in our investments in
ARSs will have a material impact on our overall liquidity, financial condition,
liquidity or results of operations.
ITEM
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Marketable Securities. Our
marketable securities are auction-rate securities (ARSs) that consist of taxable
municipal note investments with an auction reset feature. The fair
value of an ARS is not affected by changes in the interest rate because the rate
is reset through regular auctions that occur at intervals of generally less than
90 days and, in general, the fair value of an ARS is its principal
amount.
Recent
auctions to reset the interest rate of an ARS have not all been
successful. If an auction is unsuccessful, the terms of the ARSs
provide that the issuer will pay interest at the maximum contractual rate and
that we will hold these securities until their next scheduled auction reset
dates. Our ability to dispose of these ARSs at the subsequent auction
reset date depends on whether or not the auction is
successful. Therefore, failed auctions may limit the short-term
liquidity of these investments. Auction reset dates for the ARSs that
we own occur every 35 days. If the credit rating of the issuer of the
ARSs were to deteriorate, we may be required to adjust the carrying value of
these investments by recording an impairment charge, which could adversely
affect our results of operations. Since the fair value of ARSs is not
currently determined by their interest rates, it is not possible for us to
reasonably estimate the ranges of possible impairments that may result from
changes in their fair value.
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2.
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We
noted your discussion regarding financial covenants on page
49. Please revise future filings to discuss your compliance
with your debt covenants.
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We note
the Staff’s comment and will revise future filings to discuss our compliance
with our debt covenants. As of December 31, 2007, the Company was in
compliance with all of its debt covenants.
Note 1. Nature of
Business and Summary of Significant Accounting Policies, page
F-7
Marketable Securities, page
F-7
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3.
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With
regards to your marketable securities that are classified as
available-for-sale, please tell us about any gains or losses recorded as a
part of net income and other comprehensive income, if any. In
addition, please revise future filings to provide all of the disclosures
required by paragraphs 19-22 of SFAS 115, as
applicable.
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All of
the Company’s marketable securities have been purchased and sold at par and
there have been no gains or losses from the sales of such marketable securities
in any of the periods presented in the Form 10-K. Further, there have
been no unrealized gains or losses recorded during the periods that these
securities were held. Therefore, we do not believe that any of the
disclosures required by paragraphs 19-22 of SFAS 115 are currently
applicable. We will include the disclosures required by paragraphs
19-22 of SFAS 115 in future filings to the extent that they are
applicable.
If you
have any questions regarding our response or require additional information,
please contact me at (508) 373-1124 or Angelo Lopresti, the Company’s General
Counsel, Secretary and Vice President, at (508) 373-1123.
Sincerely,
IPG
Photonics Corporation
By: /s/
Timothy P.V. Mammen
Title:
Chief Financial Officer and Vice President
Cc: Julie
Sherman
Securities and Exchange
Commission
Joseph H. Apke
Deloitte & Touche LLP
David A. Sakowitz
Winston & Strawn
LLP