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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________

 

FORM 10‑Q

_______________________________

 

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2015

 

OR

 

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________to____________

 

Commission File No. 001-34220

__________________________

 

Picture 1

 

3D SYSTEMS CORPORATION

(Exact name of Registrant as specified in its Charter)

_______________  _____________________________

 

 

 

 

 

 

DELAWARE

 

95‑4431352

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

333 THREE D SYSTEMS CIRCLE
ROCK HILL, SOUTH CAROLINA

 

29730

(Address of Principal Executive Offices)

 

(Zip Code)

 

(Registrant’s Telephone Number, Including Area Code): (803) 326‑3900

__________________________

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

 

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer 

 

 

 

 

 

Non-accelerated filer

(Do not check if smaller reporting company)

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act.) Yes  No 

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Shares of Common Stock, par value $0.001, outstanding as of April 29, 2015:  111,797,093

 

1


 

 

 

3D SYSTEMS CORPORATION

Quarterly Report on Form 10-Q for the

Quarter Ended March 31, 2015

 

TABLE OF CONTENTS

 

 

 

2

 


 

 

 

 

PART I. — FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

(in thousands, except par value)

 

2015

 

2014

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

199,896 

 

$

284,862 

Accounts receivable, net of allowance for doubtful accounts of $13,275 (2015) and $10,300 (2014)

 

 

153,107 

 

 

168,441 

Inventories, net

 

 

114,602 

 

 

96,645 

Prepaid expenses and other current assets

 

 

21,247 

 

 

15,769 

Current deferred income tax asset

 

 

18,755 

 

 

14,973 

Total current assets

 

 

507,607 

 

 

580,690 

Property and equipment, net

 

 

82,737 

 

 

81,881 

Intangible assets, net

 

 

293,481 

 

 

251,561 

Goodwill

 

 

607,570 

 

 

589,537 

Long term deferred income tax asset

 

 

878 

 

 

816 

Other assets, net

 

 

21,154 

 

 

21,485 

Total assets

 

$

1,513,427 

 

$

1,525,970 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of debt and capitalized lease obligations

 

$

563 

 

$

684 

Accounts payable

 

 

58,717 

 

 

64,378 

Accrued and other liabilities

 

 

54,426 

 

 

44,219 

Customer deposits

 

 

7,898 

 

 

6,946 

Deferred revenue

 

 

37,769 

 

 

32,264 

Total current liabilities

 

 

159,373 

 

 

148,491 

Long term portion of capitalized lease obligations

 

 

8,581 

 

 

8,905 

Long term deferred income tax liability 

 

 

31,388 

 

 

30,679 

Other liabilities

 

 

33,756 

 

 

34,898 

Total liabilities

 

 

233,098 

 

 

222,973 

Redeemable noncontrolling interests

 

 

8,872 

 

 

8,872 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value, authorized 220,000 shares; issued 112,301 (2015) and 112,233 (2014)

 

 

112 

 

 

112 

Additional paid-in capital

 

 

1,256,452 

 

 

1,245,462 

Treasury stock, at cost: 421 shares (2015) and 709 shares (2014)

 

 

(228)

 

 

(374)

Accumulated earnings

 

 

58,943 

 

 

72,124 

Accumulated other comprehensive loss

 

 

(44,973)

 

 

(24,406)

Total 3D Systems Corporation stockholders' equity

 

 

1,270,306 

 

 

1,292,918 

Noncontrolling interests

 

 

1,151 

 

 

1,207 

Total stockholders’ equity

 

 

1,271,457 

 

 

1,294,125 

Total liabilities, redeemable noncontrolling interests and stockholders’ equity

 

$

1,513,427 

 

$

1,525,970 

 

See accompanying notes to condensed consolidated financial statements.

3

 


 

 

 

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,

 

(in thousands, except per share amounts)

2015

 

2014

 

Revenue:

 

 

 

 

 

 

Products

$

99,822 

 

$

101,194 

 

Services

 

60,900 

 

 

46,564 

 

Total revenue

 

160,722 

 

 

147,758 

 

Cost of sales:

 

 

 

 

 

 

Products

 

50,476 

 

 

46,816 

 

Services

 

31,262 

 

 

25,470 

 

Total cost of sales

 

81,738 

 

 

72,286 

 

Gross profit

 

78,984 

 

 

75,472 

 

Operating expenses:

 

 

 

 

 

 

Selling, general and administrative

 

74,292 

 

 

48,720 

 

Research and development

 

22,216 

 

 

17,235 

 

Total operating expenses

 

96,508 

 

 

65,955 

 

Income (loss) from operations

 

(17,524)

 

 

9,517 

 

Interest and other expense, net

 

2,567 

 

 

1,048 

 

Income (loss) before income taxes

 

(20,091)

 

 

8,469 

 

Provision (benefit) for income taxes

 

(6,943)

 

 

3,559 

 

Net income (loss)

 

(13,148)

 

 

4,910 

 

Less net income attributable to noncontrolling interests

 

33 

 

 

33 

 

Net income (loss) attributable to 3D Systems Corporation

$

(13,181)

 

$

4,877 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

Pension adjustments, net of taxes

$

265 

 

$

19 

 

Foreign currency translation loss

 

(20,957)

 

 

(13)

 

Other comprehensive income (loss)

 

(20,692)

 

 

 

Less foreign currency translation gain (loss) attributable to noncontrolling interests

 

(125)

 

 

26 

 

Other comprehensive loss attributable to 3D Systems Corporation

 

(20,567)

 

 

(20)

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

(33,840)

 

 

4,916 

 

Less comprehensive income (loss) attributable to noncontrolling interests

 

(92)

 

 

59 

 

Comprehensive income (loss) attributable to 3D Systems Corporation

$

(33,748)

 

$

4,857 

 

 

 

 

 

 

 

 

Net income (loss) per share available to 3D Systems Corporation common stockholders — basic and diluted

$

(0.12)

 

$

0.05 

 

 

See accompanying notes to condensed consolidated financial statements.

4

 


 

 

 

 

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,

(in thousands)

 

2015

 

 

2014

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

$

(13,148)

 

$

4,910 

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

 

 

 

 

 

Benefit of deferred income taxes

 

(10,254)

 

 

(7,610)

Depreciation and amortization

 

19,470 

 

 

12,486 

Non-cash interest on convertible notes

 

 

 

95 

Provision for bad debts

 

2,881 

 

 

1,341 

Stock-based compensation

 

10,329 

 

 

7,276 

Loss on the disposition of property and equipment

 

253 

 

 

286 

Changes in operating accounts:

 

 

 

 

 

Accounts receivable

 

17,986 

 

 

(11,402)

Inventories

 

(20,011)

 

 

(13,034)

Prepaid expenses and other current assets

 

(2,784)

 

 

(7,375)

Accounts payable

 

(5,815)

 

 

4,267 

Accrued and other liabilities

 

(4,373)

 

 

8,273 

Customer deposits

 

1,070 

 

 

976 

Deferred revenue

 

2,535 

 

 

(396)

Other operating assets and liabilities

 

924 

 

 

215 

Net cash provided by (used in) operating activities

 

(937)

 

 

308 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(3,693)

 

 

(3,551)

Additions to license and patent costs

 

(203)

 

 

(210)

Cash paid for acquisitions, net of cash assumed

 

(77,984)

 

 

(2,000)

Other investing activities

 

(600)

 

 

(100)

Net cash used in investing activities

 

(82,480)

 

 

(5,861)

Cash flows from financing activities:

 

 

 

 

 

Tax benefits from share-based payment arrangements

 

447 

 

 

5,448 

Proceeds from exercise of stock options and restricted stock, net

 

360 

 

 

484 

Repayment of capital lease obligations

 

(176)

 

 

(44)

Net cash provided by financing activities

 

631 

 

 

5,888 

Effect of exchange rate changes on cash

 

(2,180)

 

 

53 

Net increase (decrease) in cash and cash equivalents

 

(84,966)

 

 

388 

Cash and cash equivalents at the beginning of the period

 

284,862 

 

 

306,316 

Cash and cash equivalents at the end of the period

$

199,896 

 

$

306,704 

 

 

 

 

 

 

Cash interest payments

$

143 

 

$

132 

Cash income tax payments

 

1,707 

 

 

2,407 

Transfer of equipment from inventory to property and equipment, net (a)

 

2,539 

 

 

2,300 

Transfer of equipment to inventory from property and equipment, net (b)

 

1,822 

 

 

16 

Stock issued for acquisitions of businesses

 

 

 

2,000 

 

(a)

Inventory is transferred from inventory to property and equipment at cost when the Company requires additional machines for training or demonstration or for placement into Quickparts’ locations.

(b)

In general, an asset is transferred from property and equipment, net into inventory at its net book value when the Company has identified a potential sale for a used machine.

 

See accompanying notes to condensed consolidated financial statements

 

 

5

 


 

 

 

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except par value)

Shares

 

Par Value $0.001

 

Additional Paid In Capital

 

Shares

 

Amount

 

Accumulated Earnings

 

Accumulated Other Comprehensive Income (Loss)

 

Total 3D Systems Corporation Stockholders' Equity

 

Equity Attributable to Noncontrolling Interests

 

Total Stockholders' Equity

Balance at December 31, 2014

112,233 

 

$

112 

 

$

1,245,462 

 

709 

 

$

(374)

 

$

72,124 

 

$

(24,406)

 

$

1,292,918 

 

$

1,207 

 

$

1,294,125 

Tax benefits from share-based payment arrangements

 

 

 

 

447 

 

 

 

 

 

 

 

 

 

447 

 

 

 

 

447 

Issuance (repurchase) of restricted stock, net

286 

 

 

 

 

286 

 

24 

 

 

(22)

 

 

 

 

 

 

264 

 

 

 

 

264 

Issuance of restricted stock from treasury shares

(218)

 

 

 

 

(72)

 

(312)

 

 

168 

 

 

 

 

 

 

96 

 

 

 

 

96 

Stock-based compensation expense

 

 

 

 

10,329 

 

 

 

 

 

 

 

 

 

10,329 

 

 

 

 

10,329 

Net income (loss)

 

 

 

 

 

 

 

 

 

(13,181)

 

 

 

 

(13,181)

 

 

33 

 

 

(13,148)

Noncontrolling interests for business combinations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36 

 

 

36 

Pension adjustment

 

 

 

 

 

 

 

 

 

 

 

265 

 

 

265 

 

 

 

 

265 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(20,832)

 

 

(20,832)

 

 

(125)

 

 

(20,957)

Balance at March 31, 2015

112,301 

 

$

112 

 

$

1,256,452 

 

421 

 

$

(228)

 

$

58,943 

 

$

(44,973)

(a)

$

1,270,306 

 

$

1,151 

 

$

1,271,457 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Accumulated other comprehensive loss of $44,973 consists of foreign currency translation loss of $43,027 and a cumulative unrealized pension loss of $1,946.

 

See accompanying notes to condensed consolidated financial statements.

 

 

6


 

 

 

 

3D SYSTEMS CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

 

(1)  Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of 3D Systems Corporation and its subsidiaries (collectively, the “Company”). All significant intercompany transactions and balances have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim reports. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements and should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2014.

 

In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments, consisting of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results of operations for the quarter ended March 31, 2015 are not necessarily indicative of the results to be expected for the full year.

 

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results may differ from those estimates and assumptions.

 

Certain prior period amounts presented in the condensed consolidated financial statements and accompanying footnotes have been reclassified to conform to current year presentation.

 

All amounts presented in the accompanying footnotes are presented in thousands, except for per share information.

 

Recent Accounting Pronouncements

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company is currently in the process of evaluating the impact of adoption of ASU 2015-03 on its consolidated balance sheets.

 

No other new accounting pronouncements, issued or effective during the first quarter of 2015, have had or are expected to have a significant impact on the Company’s consolidated financial statements.

 

(2) Acquisitions

 

The Company completed one acquisition in the first quarter of 2015, which is discussed below.

 

On February 9, 2015, the Company acquired 100% of the outstanding shares and voting rights of Cimatron Ltd. (“Cimatron”), a provider of integrated 3D CAD/CAM software and solutions for manufacturing. The fair value of the consideration paid for this acquisition, net of cash acquired, was $77,984, all of which was paid in cash. The operations of Cimatron have been integrated into the Company’s products and service revenues. The fair value of the consideration paid for this acquisition was allocated to the assets purchased and liabilities assumed, based on their estimated fair values as of the acquisition date, with any excess recorded as goodwill, and is included in the table below, which summarizes the first quarter 2015 acquisition. Factors considered in determination of goodwill include synergies, vertical integration and strategic fit for the Company.

 

The acquisition completed in the first quarter is not material relative to the Company’s assets or operating results; therefore, no proforma financial information is provided.

7


 

 

 

The Company’s purchase price allocation for the acquired company is preliminary and subject to revision as more detailed analyses are completed and additional information about the fair value of assets and liabilities becomes available. The amounts related to the acquisition are allocated to the assets acquired and the liabilities assumed and are included in the Company’s unaudited condensed consolidated balance sheet at March 31, 2015 as follows:

 

 

 

 

 

 

 

 

(in thousands)

2015

Fixed assets

$

287 

Other intangible assets, net

 

50,700 

Goodwill

 

37,580 

Other assets, net of cash acquired

 

17,040 

Liabilities

 

(27,623)

Net assets acquired

$

77,984 

 

Subsequent Acquisition

 

On April 2, 2015, the Company acquired 65% of the equity interests in Wuxi Easyway Model Design and Manufacture Co. Ltd., a manufacturing service bureau and distributor of 3D printing and scanning products in China. Under the terms of the agreement, the Company has an option to acquire the remainder of the equity interests between the third and fifth anniversary of the closing.

 

(3)  Inventories

 

Components of inventories, net at March 31, 2015 and December 31, 2014 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

2015

 

2014

Raw materials

$

54,489 

 

$

46,850 

Work in process

 

2,338 

 

 

2,304 

Finished goods and parts

 

57,775 

 

 

47,491 

Inventories, net

$

114,602 

 

$

96,645 

 

 

(4)  Property and Equipment

 

Property and equipment at March 31, 2015 and December 31, 2014 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

2015

 

2014

 

Useful Life (in years)

Land

$

541 

 

$

541 

 

N/A

Building

 

9,373 

 

 

9,370 

 

25

Machinery and equipment

 

93,467 

 

 

84,443 

 

3-7

Capitalized software

 

3,853 

 

 

3,693 

 

3-5

Office furniture and equipment

 

4,566 

 

 

3,478 

 

3-5

Leasehold improvements

 

14,561 

 

 

12,447 

 

Life of lease (a)

Rental equipment

 

498 

 

 

557 

 

5

Construction in progress

 

11,866 

 

 

20,082 

 

N/A

Total property and equipment

 

138,725 

 

 

134,611 

 

 

Less: Accumulated depreciation and amortization

 

(55,988)

 

 

(52,730)

 

 

Total property and equipment, net

$

82,737 

 

$

81,881 

 

 

 

(a)

Leasehold improvements are amortized on a straight-line basis over the shorter of (i) their estimated useful lives and (ii) the estimated or contractual life of the related lease.

 

Depreciation and amortization expense on property and equipment for the quarters ended March 31, 2015 and 2014 was $4,709 and $3,036 respectively.

8

 


 

 

 

(5)  Intangible Assets

 

Intangible assets other than goodwill at March 31, 2015 and December 31, 2014 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

2014

 

 

 

 

(in thousands)

Gross

 

Accumulated Amortization

 

Net

 

Gross

 

Accumulated Amortization

 

Net

 

Useful Life (in years)

 

Weighted Average Useful Life Remaining (in years)

Intangible assets with finite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Licenses

$

5,875 

 

$

(5,875)

 

$

 —

 

$

5,875 

 

$

(5,875)

 

$

 —

 

N/A

 

N/A

Patent costs

 

20,949 

 

 

(7,613)

 

 

13,336 

 

 

20,733 

 

 

(7,369)

 

 

13,364 

 

5-20

 

3

Acquired technology

 

71,498 

 

 

(20,687)

 

 

50,811 

 

 

57,383 

 

 

(18,241)

 

 

39,142 

 

3-10

 

4

Internally developed software

 

9,072 

 

 

(5,878)

 

 

3,194 

 

 

9,073 

 

 

(5,517)

 

 

3,556 

 

1-8

 

<1

Customer relationships

 

185,497 

 

 

(39,163)

 

 

146,334 

 

 

157,139 

 

 

(36,975)

 

 

120,164 

 

3-11

 

2

Non-compete agreements

 

35,114 

 

 

(12,637)

 

 

22,477 

 

 

35,469 

 

 

(11,784)

 

 

23,685 

 

3-11

 

3

Trade names

 

26,774 

 

 

(4,684)

 

 

22,090 

 

 

21,800 

 

 

(4,455)

 

 

17,345 

 

2-10

 

5

Other

 

41,983 

 

 

(8,854)

 

 

33,129 

 

 

39,100 

 

 

(6,905)

 

 

32,195 

 

4-10

 

1

Intangible assets with indefinite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

2,110 

 

 

 —

 

 

2,110 

 

 

2,110 

 

 

 

 

2,110 

 

N/A

 

N/A

Total intangible assets

$

398,872 

 

$

(105,391)

 

$

293,481 

 

$

348,682 

 

$

(97,121)

 

$

251,561 

 

1-20

 

4

 

For the quarter ended March 31, 2015 and 2014, the Company capitalized $203 and $210, respectively, of costs incurred to internally develop and extend patents in the United States and various other countries.

 

Amortization expense of intangible assets for the quarter ended March 31, 2015 and 2014 was $14,517 and $9,204 respectively.

 

Annual amortization expense for intangible assets is expected to be $54,467,  $48,813,  $43,796,  $35,663 and $25,876 for the years ended 2015, 2016, 2017, 2018 and 2019, respectively.

 

(6)  Accrued and Other Liabilities

 

Accrued liabilities at March 31, 2015 and December 31, 2014 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

2015

 

2014

Compensation and benefits

$

25,507 

 

$

20,726 

Vendor accruals

 

14,858 

 

 

10,451 

Accrued professional fees

 

1,344 

 

 

532 

Accrued taxes

 

8,403 

 

 

8,577 

Royalties payable

 

1,427 

 

 

1,796 

Accrued interest

 

42 

 

 

43 

Accrued earnouts related to acquisitions

 

271 

 

 

185 

Accrued other

 

2,574 

 

 

1,909 

Total

$

54,426 

 

$

44,219 

 

Other liabilities at March 31, 2015 and December 31, 2014 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

2015

 

2014

Defined benefit pension obligation

$

6,307 

 

$

7,062 

Long term tax liability

 

3,083 

 

 

2,029 

Long term earnouts related to acquisitions

 

8,972 

 

 

8,970 

Long term deferred revenue

 

7,911 

 

 

7,627 

Other long term liabilities

 

7,483 

 

 

9,210 

Total

$

33,756 

 

$

34,898 

 

 

 

9

 


 

 

 

(7)  Hedging Activities and Financial Instruments

 

The Company conducts business in various countries using both the functional currencies of those countries and other currencies to effect cross border transactions. As a result, the Company is subject to the risk that fluctuations in foreign exchange rates between the dates that those transactions are entered into and their respective settlement dates will result in a foreign exchange gain or loss. When practicable, the Company endeavors to match assets and liabilities in the same currency on its balance sheet and those of its subsidiaries in order to reduce these risks. When appropriate, the Company enters into foreign currency contracts to hedge exposures arising from those transactions. The Company has elected not to prepare and maintain the documentation to qualify for hedge accounting treatment under Accounting Standards Codification (“ASC”) 815, “Derivatives and Hedging,” and therefore, all gains and losses (realized or unrealized) are recognized in "Interest and other expense, net”  in the condensed consolidated statements of operations and comprehensive income (loss). Depending on their fair value at the end of the reporting period, derivatives are recorded either in prepaid expenses and other current assets or in accrued liabilities on the condensed consolidated balance sheet.

 

There were no foreign currency contracts outstanding at March 31, 2015 or at December 31, 2014. 

 

The condensed consolidated statements of operations for the quarters ended March 31, 2015 and 2014 include a foreign currency transaction loss of $2,194 and $205, respectively, which is included in interest and other expense, net.

 

The total impact of foreign currency translation on accumulated other comprehensive income (loss) for the quarters ended March 31, 2015 and 2014, reflects  a loss of $20,832 and $13, respectively.

 

(8) Borrowings

 

Credit Facility 

 

On October 10, 2014, the Company and certain of its subsidiaries entered into a $150,000 five-year revolving, unsecured credit facility (the “Credit Agreement”) with PNC Bank, National Association, as Administrative Agent, PNC Capital Markets LLC, as Sole Lead Arranger and Sole Bookrunner, HSBC Bank USA, N.A., as Syndication Agent, and the other lenders party thereto (collectively, the “Lenders”). The Credit Agreement comprises a revolving loan facility that provides for advances in the initial aggregate principal amount of up to $150,000 (the “Credit Facility”).  Subject to certain terms and conditions contained in the Credit Agreement, the Company may, at its option and subject to customary conditions, request an increase in the aggregate principal amount available under the Credit Facility by an additional $75,000.  The Credit Agreement includes provisions for the issuance of letters of credit and swingline loans.

 

The Credit Agreement is guaranteed by certain of the Company’s material domestic subsidiaries (the “Guarantors”).  Pursuant to the Credit Agreement, the Guarantors guarantee to the Lenders, among other things, all of the obligations of the Company and each other Guarantor under the Credit Agreement.  From time to time, the Company may be required to cause additional material domestic subsidiaries to become Guarantors under the Credit Agreement. 

 

Generally, amounts outstanding under the Credit Facility bear interest, at the Company’s option, at either the Base Rate or the LIBOR Rate, in each case, plus an applicable margin.  Base Rate advances bear interest at a rate per annum equal to the sum of (i) the highest of (A) the Administrative Agent’s prime rate, (B) the Federal Funds Open Rate plus 0.5% or (C) the Daily LIBOR Rate for a one month interest period plus 1%, and (ii) an applicable margin that ranges from 0.25% to 0.50% based upon the Company’s consolidated total leverage ratio. LIBOR Rate advances bear interest at a rate based upon the London interbank offered rate for the applicable interest period, plus an applicable margin that ranges from 1.25% to 1.50% based upon the Company’s consolidated total leverage ratio. Under the terms of the Credit Agreement, (i) accrued interest on each loan bearing interest at the Base Rate is payable quarterly in arrears and (ii) accrued interest on each loan bearing interest at the LIBOR Rate is payable in arrears on the earlier of (A) quarterly and (B) the last day of each applicable interest payment date for each loan. The Credit Facility is scheduled to mature on October 10, 2019, at which time all amounts outstanding thereunder will be due and payable. 

  

The Company is required to pay certain fees in connection with the Credit Facility, including a quarterly commitment fee equal to the product of the amount of the average daily available revolving commitments under the Credit Agreement multiplied by a percentage that ranges from 0.20% to 0.25% depending upon the Company’s leverage ratio, as well as customary administrative fees. 

10

 


 

 

 

The Credit Agreement contains customary representations, warranties, covenants and default provisions for a Credit Facility of this type, including, but not limited to, financial covenants, limitations on liens and the incurrence of debt, covenants to preserve corporate existence and comply with laws and covenants regarding the use of proceeds of the Credit Facility. The financial covenants include a maximum consolidated total leverage ratio, which is the ratio of consolidated total funded indebtedness to consolidated EBITDA (earnings before interest, taxes, depreciation and amortization expense), as defined in the Credit Agreement, of 3.00 to 1.00, and a minimum interest coverage ratio, which is the ratio of Consolidated EBITDA to cash interest expense, of 3.50 to 1.00.  The Company is only required to be in compliance with the financial covenants as of the end of any fiscal quarter in which there are any loans outstanding at any time during such fiscal quarter. 

 

The payment of dividends on the Company’s common stock is restricted under provisions of the Credit Facility, which limits the amount of cash dividends that the Company may pay in any one fiscal year to $30,000.  The Company currently does not pay, and has not paid, any dividends on their common stock, and currently intends to retain any future earnings for use in their business. 

 

There was no outstanding balance on the Credit Facility as of March 31, 2015 and December 31, 2014.

 

Capitalized Lease Obligations

 

The Company’s capitalized lease obligations include lease agreements that were entered into during 2006 with respect to the Company’s corporate headquarters located in Rock Hill, SC, and lease agreements assumed in the LayerWise acquisition. Total capitalized lease obligations decreased to $9,078 at March 31, 2015 from $9,434 at December 31, 2014, primarily due to the normal scheduled timing of payments.

 

Other debt

 

In connection with its acquisition of LayerWise, the Company assumed a portion of LayerWise’s outstanding bank debt, consisting of revolving credit facilities and term loans. The term loans bear interest at rates ranging from 1.34% to 5.40% as of March 31, 2015. The outstanding balance on the term loans was $66 and $127 as of March 31, 2015 and December 31, 2014, respectively. There were no borrowings outstanding under the revolving credit facilities as of March 31, 2015 or December 31, 2014. There is a 0.125% commitment fee on the unused portion of the facilities.

 

(9)  Stock-based Compensation Plans

 

The Company records stock-based compensation expense in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss). Stock-based compensation expense for the quarter ended March 31, 2015 and 2014 was as follows:

 

 

 

 

 

 

 

 

Quarter Ended March 31,

(in thousands)

2015

 

2014

Restricted stock awards

$

10,329 

 

$

7,276 

 

The number of shares and units of restricted common stock awarded and the weighted average fair value per share and unit during the quarter ended March 31, 2015 and 2014 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,

 

 

2015

 

 

2014

(in thousands, except per share amounts)

 

Number of Shares/Units

 

Weighted Average Fair Value

 

 

Number of Shares/Units

 

Weighted Average Fair Value

Restricted stock awards:

 

 

 

 

 

 

 

 

 

 

 

Granted under the 2004 Incentive Stock Plan

 

273 

 

$

28.62 

 

 

233 

 

$

80.82 

 

During the quarter ended March 31, 2015, the Company granted restricted stock awards covering 273 shares and units of common stock pursuant to the Company’s 2004 Incentive Stock Plan. As of March 31, 2015, 148 shares or units under awards remained subject to acceptance and 60 shares under awards were granted to executive officers of the Company during the quarter. During the quarter ended March 31, 2014, the Company granted restricted stock awards covering 233 shares of common stock pursuant to the Company’s 2004 Incentive Stock Plan, of which 30 shares were awarded to executive officers of the Company.

 

No shares or units of common stock pursuant to the Company’s 2004 Restricted Stock Plan were granted to Non-Employee Directors during the first quarter of 2015 or 2014.

 

11

 


 

 

 

(10)  International Retirement Plan

 

The following table shows the components of net periodic benefit costs and other amounts recognized in the condensed consolidated statements of operations and comprehensive income (loss) for the quarter ended March 31, 2015 and 2014:

 

 

 

 

 

 

 

 

Quarter Ended March 31,

(in thousands)

2015

 

2014

Service cost

$

47 

 

$

45 

Interest cost

 

62 

 

 

62 

Total

$

109 

 

$

107 

 

 

(11)  Earnings (Loss) Per Share

 

The Company presents basic and diluted earnings per share (“EPS”) amounts. Basic EPS is calculated by dividing net income (loss) attributable to 3D Systems Corporation available to common stockholders by the weighted average number of common shares outstanding during the applicable period. Diluted EPS is calculated by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding during the applicable period. For the quarter ended March 31, 2015, restricted stock units were antidilutive because of the net loss, and, as such, their effect has not been included in the calculation of diluted earnings (loss) per share.

 

The following table reconciles basic weighted average outstanding shares to diluted weighted average outstanding shares at March 31, 2015 and 2014:

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,

(in thousands, except per share amounts)

2015

 

2014

Numerator for basic and diluted net earnings per share:

 

 

 

 

 

Net income (loss) attributable to 3D Systems Corporation

$

(13,181)

 

$

4,877 

 

 

 

 

 

 

Denominator for basic and diluted net earnings per share:

 

 

 

 

 

Weighted average shares

 

111,731 

 

 

103,546 

 

 

 

 

 

 

Earnings (loss) per share, basic and diluted

$

(0.12)

 

$

0.05 

 

 

 

 

 

 

Interest expense excluded from diluted earnings per share calculation (a)

$

 

$

156 

5.50% Convertible notes shares excluded from diluted earnings per share calculation (a)

 

 

 

876 

 

(a)

Average outstanding diluted earnings per share calculation excludes shares that may be issued upon conversion of the outstanding senior convertible notes since the effect of their inclusion would have been anti-dilutive.

 

For the quarter ended March 31, 2015, average common shares for basic and diluted loss per share was 111,731 and basic and diluted loss per share was $0.12.  For the quarter ended March 31, 2014, average common shares for basic and diluted earnings per share was 103,546 and basic and diluted earnings per share was $0.05.

 

(12)  Fair Value Measurements

 

ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs that may be used to measure fair value:

 

·

Level 1 - Quoted prices in active markets for identical assets or liabilities;

 

·

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

 

·

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

12

 


 

 

 

For the Company, the above standard applies to cash equivalents. The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

 

Assets and liabilities measured at fair value on a recurring basis are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of March 31, 2015

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

Description

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (a) 

$

87,920 

 

$

 

$

 

$

87,920 

Redeemable noncontrolling interests (b)

$

 

$

 

$

8,872 

 

$

8,872 

 

(a)

Cash equivalents include funds held in money market instruments and are reported at their current carrying value, which approximates fair value due to the short-term nature of these instruments and are included in cash and cash equivalents in the consolidated balance sheet.

(b)

Redeemable noncontrolling interests represents a put option that owners of interests in a certain subsidiary have the right, in certain circumstances, to require the Company to acquire either a portion of, or all of, the remaining ownership interests held by them. The Company determines the fair value of the redeemable noncontrolling interests based on unobservable inputs considering the assumptions that market participants would make in pricing the obligation. Given the significance of the unobservable inputs, the valuations are classified in level 3 of the fair value hierarchy. See Note 15.

 

The Company did not have any transfers of assets and liabilities between Level 1, Level 2 and Level 3, of the fair value measurement hierarchy during the quarter ended March 31, 2015.

 

In addition to the financial assets included in the above table, certain of our non-financial assets and liabilities are to be initially measured at fair value on a non-recurring basis. This includes items such as non-financial assets and liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent periods) and non-financial, long-lived assets measured at fair value for an impairment assessment. In general, non-financial assets and liabilities including goodwill, other intangible assets and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when impairment is recognized. The Company has not recorded any impairments related to such assets and has had no other significant non-financial assets or non-financial liabilities requiring adjustments or write-downs to fair value as of March 31, 2015 or December 31, 2014.

 

(13)  Income Taxes

 

The Company’s effective tax rates were 34.6% and 42.0% for the quarters ended March 31, 2015 and 2014, respectively.

 

The Company has not provided for any taxes on the unremitted earnings of its foreign subsidiaries, as the Company intends to permanently reinvest all such earnings outside of the U.S. We believe a calculation of the deferred tax liability associated with these undistributed earnings is impracticable.

 

Tax years 2011 through 2014 remain subject to examination by the U.S. Internal Revenue Service. The Company has utilized U.S. loss carryforwards causing the years 1997 to 2007 to be subject to examination. The Company files income tax returns (which are open to examination beginning in the year shown in parentheses) in Australia (2009), Belgium (2010), Brazil (2014), China (2010), France (2011), Germany (2011), India (2012), Israel (2010), Italy (2009), Japan (2008), Korea (2009), Mexico (2014), Netherlands (2007), Switzerland (2008), the United Kingdom (2009) and Uruguay (2014).

 

(14)  Segment Information

 

The Company operates in one reportable business segment. The Company conducts its business through subsidiaries in the United States, a subsidiary in Israel that operates a research and production facility and sales and service offices, a subsidiary in Switzerland that operates a research and production facility, subsidiaries in France and Brazil that operate production facilities and sales and service offices, and other sales and service offices in Europe (Belgium, Germany, the United Kingdom, Italy and the Netherlands), Israel and in Asia Pacific (Australia, China, India, Japan and Korea). The Company has historically disclosed summarized financial information for the geographic areas of operations as if they were segments in accordance with ASC 280, “Segment Reporting.” Financial information concerning the Company’s geographical locations is based on the location of the selling entity. Such summarized financial information concerning the Company’s geographical operations is shown in the following tables:

13

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,

(in thousands)

 

2015

 

2014

Revenue from unaffiliated customers:

 

 

 

 

 

 

Americas

 

$

86,262 

 

$

68,032 

Germany

 

 

21,250 

 

 

23,825 

Other EMEA

 

 

27,454 

 

 

23,739 

Asia Pacific

 

 

25,756 

 

 

32,162 

Total

 

$

160,722 

 

$

147,758 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,

(in thousands)

 

2015

 

2014

Products

 

$

62,715 

 

$

60,753 

Materials

 

 

37,107 

 

 

40,441 

Services

 

 

60,900 

 

 

46,564 

Total revenue

 

$

160,722 

 

$

147,758 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31, 2015

 

 

Intercompany Sales to

(in thousands)

 

Americas

 

Germany

 

Other EMEA

 

Asia Pacific

 

Total

Americas

 

$

480 

 

$

10,134 

 

$

5,837 

 

$

4,973 

 

$

21,424 

Germany

 

 

 

 

 —

 

 

804 

 

 

 

 

804 

Other EMEA

 

 

14,915 

 

 

654 

 

 

864 

 

 

646 

 

 

17,079 

Asia Pacific

 

 

626 

 

 

 

 

13 

 

 

758 

 

 

1,397 

Total

 

$

16,021 

 

$

10,788 

 

$

7,518 

 

$

6,377 

 

$

40,704 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31, 2014

 

 

Intercompany Sales to

(in thousands) 

 

Americas

 

Germany

 

Other EMEA

 

Asia Pacific

 

Total