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EX-32.2 - EX-32.2 - 3D SYSTEMS CORPddd-20160930xex32_2.htm
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EX-31.1 - EX-31.1 - 3D SYSTEMS CORPddd-20160930xex31_1.htm



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 September 30, 2016



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 2



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 October 26, 2016:  112,359,693



1


 

3D SYSTEMS CORPORATION

Quarterly Report on Form 10-Q for the

Quarter and Nine Months Ended September 30, 2016



TABLE OF CONTENTS







2


 



PART I — FINANCIAL INFORMATION



Item 1.  Financial Statements.



3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS





 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

 

(in thousands, except par value)

 

2016

(Unaudited)

 

December 31, 2015

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

179,358 

 

$

155,643 

Accounts receivable, net of reserves — $15,408 (2016) and $14,139 (2015)

 

 

120,630 

 

 

157,406 

Inventories, net of reserves — $25,938 (2016) and $28,225 (2015)

 

 

113,717 

 

 

105,877 

Prepaid expenses and other current assets

 

 

15,196 

 

 

13,541 

Total current assets

 

 

428,901 

 

 

432,467 

Property and equipment, net

 

 

80,837 

 

 

85,995 

Intangible assets, net

 

 

133,518 

 

 

157,466 

Goodwill

 

 

189,018 

 

 

187,875 

Long term deferred income tax asset

 

 

5,374 

 

 

3,216 

Other assets, net

 

 

24,700 

 

 

26,256 

Total assets

 

$

862,348 

 

$

893,275 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of capitalized lease obligations

 

$

581 

 

$

529 

Accounts payable

 

 

37,113 

 

 

46,869 

Accrued and other liabilities

 

 

46,746 

 

 

54,699 

Customer deposits

 

 

5,789 

 

 

8,229 

Deferred revenue

 

 

37,385 

 

 

35,145 

Total current liabilities

 

 

127,614 

 

 

145,471 

Long term portion of capitalized lease obligations

 

 

7,781 

 

 

8,187 

Long term deferred income tax liability 

 

 

15,026 

 

 

17,944 

Other liabilities

 

 

60,338 

 

 

58,155 

Total liabilities

 

 

210,759 

 

 

229,757 

Redeemable noncontrolling interests

 

 

8,872 

 

 

8,872 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value, authorized 220,000 shares; issued 114,301 (2016) and 113,115 (2015)

 

 

114 

 

 

113 

Additional paid-in capital

 

 

1,306,903 

 

 

1,279,738 

Treasury stock, at cost — 1,330 shares (2016) and 892 shares (2015)

 

 

(1,294)

 

 

(1,026)

Accumulated deficit

 

 

(627,017)

 

 

(583,368)

Accumulated other comprehensive loss

 

 

(33,995)

 

 

(39,548)

Total 3D Systems Corporation stockholders' equity

 

 

644,711 

 

 

655,909 

Noncontrolling interests

 

 

(1,994)

 

 

(1,263)

Total stockholders’ equity

 

 

642,717 

 

 

654,646 

Total liabilities, redeemable noncontrolling interests and stockholders’ equity

 

$

862,348 

 

$

893,275 



See accompanying notes to condensed consolidated financial statements.



3


 

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)











 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

(in thousands, except per share amounts)

2016

 

2015

 

2016

 

2015

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Products

$

94,543 

 

$

87,747 

 

$

280,406 

 

$

292,146 

Services

 

61,819 

 

 

63,827 

 

 

186,622 

 

 

190,654 

Total revenue

 

156,362 

 

 

151,574 

 

 

467,028 

 

 

482,800 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

Products

 

56,321 

 

 

48,472 

 

 

146,682 

 

 

156,432 

Services

 

31,104 

 

 

32,064 

 

 

93,485 

 

 

94,719 

Total cost of sales

 

87,425 

 

 

80,536 

 

 

240,167 

 

 

251,151 

Gross profit

 

68,937 

 

 

71,038 

 

 

226,861 

 

 

231,649 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

64,814 

 

 

83,212 

 

 

202,009 

 

 

237,242 

Research and development

 

26,140 

 

 

22,463 

 

 

67,345 

 

 

70,410 

Total operating expenses

 

90,954 

 

 

105,675 

 

 

269,354 

 

 

307,652 

Loss from operations

 

(22,017)

 

 

(34,637)

 

 

(42,493)

 

 

(76,003)

Interest and other expense, net

 

1,624 

 

 

1,373 

 

 

1,290 

 

 

4,029 

Loss before income taxes

 

(23,641)

 

 

(36,010)

 

 

(43,783)

 

 

(80,032)

Provision (benefit) for income taxes

 

(2,214)

 

 

(3,524)

 

 

665 

 

 

(20,563)

Net loss

 

(21,427)

 

 

(32,486)

 

 

(44,448)

 

 

(59,469)

Less: net loss attributable to noncontrolling interests

 

(214)

 

 

(237)

 

 

(799)

 

 

(343)

Net loss attributable to 3D Systems Corporation

$

(21,213)

 

$

(32,249)

 

$

(43,649)

 

$

(59,126)



 

 

 

 

 

 

 

 

 

 

 

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

$

(0.19)

 

$

(0.29)

 

$

(0.39)

 

$

(0.53)



 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

Pension adjustments

$

18 

 

$

14 

 

$

54 

 

$

276 

Foreign currency translation gain (loss)

 

4,282 

 

 

(9,957)

 

 

5,567 

 

 

(17,903)

Total other comprehensive income (loss)

 

4,300 

 

 

(9,943)

 

 

5,621 

 

 

(17,627)

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

 

22 

 

 

(882)

 

 

68 

 

 

(2,588)

Other comprehensive income (loss) attributable to 3D Systems Corporation

 

4,278 

 

 

(9,061)

 

 

5,553 

 

 

(15,039)



 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

(17,127)

 

 

(42,429)

 

 

(38,827)

 

 

(77,096)

Less comprehensive loss attributable to noncontrolling interests

 

(192)

 

 

(1,119)

 

 

(731)

 

 

(2,931)

Comprehensive loss attributable to 3D Systems Corporation

$

(16,935)

 

$

(41,310)

 

$

(38,096)

 

$

(74,165)



See accompanying notes to condensed consolidated financial statements.



4


 



3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)











 

 

 

 

 

 

Nine Months Ended September 30,

(In thousands)

 

2016

 

 

2015

Cash flows from operating activities:

 

 

 

 

 

Net loss

$

(44,448)

 

$

(59,469)

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

 

 

 

 

 

Benefit of deferred income taxes

 

(5,464)

 

 

(21,971)

Depreciation and amortization

 

45,731 

 

 

63,905 

Provision for arbitration award

 

 

 

11,282 

Impairment of assets

 

8,590 

 

 

1,111 

Provision for bad debts

 

1,488 

 

 

4,123 

Inventory reserve of discontinued products

 

10,723 

 

 

Stock-based compensation

 

28,405 

 

 

28,850 

Loss on the disposition of property and equipment

 

2,052 

 

 

1,182 

Changes in operating accounts:

 

 

 

 

 

Accounts receivable

 

36,357 

 

 

37,426 

Inventories

 

(16,977)

 

 

(40,987)

Prepaid expenses and other current assets

 

(1,619)

 

 

(10,136)

Accounts payable

 

(9,938)

 

 

(19,657)

Accrued and other current liabilities

 

(8,452)

 

 

(5,348)

Customer deposits

 

(2,389)

 

 

566 

All other operating activities

 

(5,819)

 

 

(1,485)

Net cash provided by (used in) operating activities

 

38,240 

 

 

(10,608)

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(12,014)

 

 

(18,064)

Additions to license and patent costs

 

(790)

 

 

(719)

Cash paid for acquisitions, net of cash assumed

 

 

 

(91,799)

Other investing activities

 

(1,000)

 

 

(3,750)

Net cash used in investing activities

 

(13,804)

 

 

(114,332)

Cash flows from financing activities:

 

 

 

 

 

Tax benefits from share-based payment arrangements

 

 

 

467 

Proceeds, repurchase and retirement of stock, net

 

(1,507)

 

 

748 

Repayment of capital lease obligations

 

(786)

 

 

(788)

Net cash provided by (used in) financing activities

 

(2,293)

 

 

427 

Effect of exchange rate changes on cash and cash equivalents

 

1,572 

 

 

(2,896)

Net increase (decrease) in cash and cash equivalents

 

23,715 

 

 

(127,409)

Cash and cash equivalents at the beginning of the period

 

155,643 

 

 

284,862 

Cash and cash equivalents at the end of the period

$

179,358 

 

$

157,453 



 

 

 

 

 

Cash interest payments

$

633 

 

$

494 

Cash income tax payments

 

8,040 

 

 

11,532 

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

 

9,395 

 

 

8,812 

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

 

349 

 

 

300 



(a)

Inventory is transferred from inventory to property and equipment, net” at cost when the Company requires additional machines for training or demonstration or for placement into on demand parts manufacturing services 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 Deficit

 

Accumulated Other Comprehensive Loss

 

Total 3D Systems Corporation Stockholders' Equity

 

Equity Attributable to Noncontrolling Interests

 

Total Stockholders' Equity

Balance at December 31, 2015

113,115 

 

$

113 

 

$

1,279,738 

 

892 

 

$

(1,026)

 

$

(583,368)

 

$

(39,548)

 

$

655,909 

 

$

(1,263)

 

$

654,646 

Issuance, repurchase and retirement of restricted stock, net

1,186 

 

 

 

 

(1,240)

 

438 

 

 

(268)

 

 

 

 

 

 

(1,507)

 

 

 

 

(1,507)

Stock-based compensation expense

 

 

 

 

28,405 

 

 

 

 

 

 

 

 

 

28,405 

 

 

 

 

28,405 

Net loss

 

 

 

 

 

 

 

 

 

(43,649)

 

 

 

 

(43,649)

 

 

(799)

 

 

(44,448)

Pension adjustment

 

 

 

 

 

 

 

 

 

 

 

54 

 

 

54 

 

 

 

 

54 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

5,499 

 

 

5,499 

 

 

68 

 

 

5,567 

Balance at September 30, 2016

114,301 

 

$

114 

 

$

1,306,903 

 

1,330 

 

$

(1,294)

 

$

(627,017)

 

$

(33,995)

 

$

644,711 

 

$

(1,994)

 

$

642,717 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



See accompanying notes to condensed consolidated financial statements.



 

6


 



3D SYSTEMS CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

(In thousands, except per share information)



(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 for the year ended December 31, 2015 (“Form 10-K”).



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 and nine months ended September 30, 2016 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.



Recent Accounting Pronouncements



In August 2016, the FASB issued Accounting Standards Update No. 2016-15, “Statement of Cash Flows (Topic 230)Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). With the objective of reducing the existing diversity in practice, ASU 2016-15 addresses eight specific cash flow classification issues: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows and application of the predominance principal.  ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017. The amendments should be applied retrospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-15 on its financial statements.



No other new accounting pronouncements, issued or effective during the third quarter of 2016, have had or are expected to have a significant impact on the Company’s consolidated financial statements.



(2)  Inventories



Components of inventories, net, as of September 30, 2016 and December 31, 2015 were as follows:



 

 

 

 

 



 

 

 

 

 

(in thousands)

2016

 

2015

Raw materials

$

40,576 

 

$

43,960 

Work in process

 

4,999 

 

 

4,067 

Finished goods and parts

 

68,142 

 

 

57,850 

Inventories, net

$

113,717 

 

$

105,877 



During the third quarter of 2016, the Company recorded an inventory reserve of $10,723 in connection with the discontinuation of certain products as a result of the Company’s recently updated strategy. No reserves in connection with the discontinuation of certain products were recorded for the nine months ended September 30, 2015.







7


 



(3)  Property and Equipment



Property and equipment, net, as of September 30, 2016 and December 31, 2015 were as follows:



 

 

 

 

 

 

 



 

 

 

 

 

 

 

(in thousands)

2016

 

2015

 

Useful Life (in years)

Land

$

903 

 

$

903 

 

N/A

Building

 

11,032 

 

 

11,007 

 

25-30

Machinery and equipment

 

112,158 

 

 

105,383 

 

2-7

Capitalized software

 

8,856 

 

 

7,391 

 

3-5

Office furniture and equipment

 

4,950 

 

 

4,714 

 

1-5

Leasehold improvements

 

24,287 

 

 

17,867 

 

Life of lease (a)

Rental equipment

 

154 

 

 

149 

 

5

Construction in progress

 

5,020 

 

 

9,578 

 

N/A

Total property and equipment

 

167,360 

 

 

156,992 

 

 

Less: Accumulated depreciation and amortization

 

(86,523)

 

 

(70,997)

 

 

Total property and equipment, net

$

80,837 

 

$

85,995 

 

 



(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 was $6,176 and $18,386 for the quarter and  nine months ended September 30, 2016, respectively, compared to $5,908 and $15,308 for the quarter and  nine months ended September 30, 2015, respectively.



For the nine months ended September 30, 2016, the Company recognized impairment charges of $7,069 on property and equipment, net. No impairment charges were recognized for the nine months ended September 30, 2015.



(4)  Intangible Assets



Intangible assets, net, other than goodwill, as of September 30, 2016 and December 31, 2015 were as follows:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



2016

 

2015

 

 

 

 

(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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patent costs

$

16,821 

 

$

(5,812)

 

$

11,009 

 

$

16,251 

 

$

(4,895)

 

$

11,356 

 

1-19

 

8

Acquired technology

 

53,773 

 

 

(25,160)

 

 

28,613 

 

 

52,809 

 

 

(16,405)

 

 

36,404 

 

2-15

 

4

Internally developed software

 

4,730 

 

 

(3,371)

 

 

1,359 

 

 

4,730 

 

 

(2,919)

 

 

1,811 

 

3

 

3

Customer relationships

 

102,265 

 

 

(44,619)

 

 

57,646 

 

 

101,933 

 

 

(36,158)

 

 

65,775 

 

2-15

 

7

Non-compete agreements

 

11,945 

 

 

(9,377)

 

 

2,568 

 

 

12,163 

 

 

(8,558)

 

 

3,605 

 

2-5

 

3

Trade names

 

28,435 

 

 

(15,297)

 

 

13,138 

 

 

28,108 

 

 

(12,498)

 

 

15,610 

 

1-9

 

6

Other

 

46,019 

 

 

(26,834)

 

 

19,185 

 

 

46,435 

 

 

(23,530)

 

 

22,905 

 

1-7

 

5

Total intangible assets

$

263,988 

 

$

(130,470)

 

$

133,518 

 

$

262,429 

 

$

(104,963)

 

$

157,466 

 

1-19

 

5



Amortization expense related to intangible assets was $8,857 and $26,536 for the quarter and nine months ended September 30, 2016, respectively, compared to $15,843 and $47,840 for the quarter and nine months ended September 30, 2015, respectively.



Annual amortization expense for intangible assets is expected to be $35,193,  $32,143,  $26,971,  $21,635 and $16,941 for the years ending 2016, 2017, 2018, 2019, and 2020, respectively.

8


 

(5)  Accrued and Other Liabilities



Accrued liabilities as of September 30, 2016 and December 31, 2015 were as follows:



 

 

 

 

 



 

 

 

 

 

(in thousands)

2016

 

2015

Compensation and benefits

$

22,249 

 

$

24,152 

Vendor accruals

 

9,380 

 

 

12,883 

Accrued professional fees

 

542 

 

 

491 

Accrued taxes

 

6,684 

 

 

11,317 

Royalties payable

 

1,717 

 

 

1,431 

Accrued interest

 

40 

 

 

42 

Accrued earnouts related to acquisitions

 

2,586 

 

 

159 

Accrued other

 

3,548 

 

 

4,224 

Total

$

46,746 

 

$

54,699 



Other liabilities as of September 30, 2016 and December 31, 2015 were as follows:



 

 

 

 

 



 

 

 

 

 

(in thousands)

2016

 

2015

Arbitration award

$

11,282 

 

$

11,282 

Long term employee indemnity

 

10,964 

 

 

9,794 

Defined benefit pension obligation

 

6,416 

 

 

6,211 

Long term tax liability

 

11,093 

 

 

8,312 

Long term earnouts related to acquisitions

 

6,977 

 

 

9,673 

Long term deferred revenue

 

7,773 

 

 

7,956 

Other long term liabilities

 

5,833 

 

 

4,927 

Total

$

60,338 

 

$

58,155 





(6)  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 as of September 30, 2016 or December 31, 2015.    



For the quarter and nine months ended September 30, 2016, the condensed consolidated statements of operations includes a foreign currency transaction loss of $1,123 and a gain of $340, respectively, compared to a gain of $126 and a loss of $1,641 for the quarter and nine months ended September 30, 2015, respectively.



For the quarter and nine months ended September 30, 2016,  the total impact of foreign currency translation on accumulated other comprehensive loss reflects gains of $4,260 and $5,499, respectively, compared to losses of $9,075 and $15,315 for the quarter and nine months ended September 30, 2015, respectively.

9


 

(7) 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, 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”). 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 London interbank offered rate (“LIBOR”), 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 LIBOR 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 consolidated total leverage ratio, as well as customary administrative fees. 

  

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. Based on the Company’s current results of operations and financial covenants set forth in the Credit Agreement, availability at September 30, 2016 would be approximately $150,000. Future results may impact availability.

  

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 its common stock, and currently intends to retain any future earnings for use in its business. 

  

There was no outstanding balance on the Credit Facility as of September 30, 2016 or December 31, 2015.



Capitalized Lease Obligations



The Company’s capitalized lease obligations primarily include a lease agreement that was entered into during 2006 with respect to the Company’s corporate headquarters located in Rock Hill, SC. Capitalized lease obligations decreased to $8,362 at September 30, 2016 from $8,716 at December 31, 2015, due to the normal scheduled timing of payments.



(8)  Stock-based Compensation Plans



Effective May 19, 2004, the Company adopted its 2004 Incentive Stock Plan, as further amended and restated on February 3, 2015 (the “2004 Stock Plan”), and its 2004 Restricted Stock Plan for Non-Employee Directors, as further amended and restated on April 1, 2013 (the “Director Plan”). On May 19, 2015, the Company’s stockholders approved the 2015 Incentive Plan of 3D Systems Corporation (the “2015 Plan” and, together with the 2004 Stock Plan, the “Incentive Plans”).

10


 

The 2004 Stock Plan authorizes shares of restricted stock, restricted stock units, stock appreciation rights and the grant of options to purchase shares of the Company’s common stock.  The 2004 Stock Plan also designates measures that may be used for performance awards.



The Director Plan authorizes shares of restricted stock for non-employee directors of the Company.



The 2015 Plan authorizes shares of restricted stock, restricted stock units, stock appreciation rights, cash incentive awards and the grant of options to purchase shares of the Company’s common stock. The 2015 Plan also designates measures that may be used for performance awards. 

  

Generally, awards granted prior to November 13, 2015 become fully-vested on the three-year anniversary of the grant date and awards granted on or after November 13, 2015 will vest one third each year over three years.  



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 quarters and nine months ended September 30, 2016 and 2015 was as follows:











 

 

 

 

 

 

 

 

 

 

 



Quarter Ended September 30,

 

Nine Months Ended September 30,

(in thousands)

2016

 

2015

 

2016

 

2015

Stock-based compensation expense

$

9,512 

 

$

8,800 

 

$

28,405 

 

$

28,850 



Restricted Stock



Stock award activity for the nine months ended September 30, 2016 and 2015 was as follows:







 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended September 30,

 

 

2016

 

 

2015

(in thousands, except per share amounts)

 

Number of Shares/Units

 

Weighted Average Grant Date Fair Value

 

 

Number of Shares/Units

 

Weighted Average Grant Date Fair Value

Outstanding at beginning of period — unvested

 

2,942 

 

 

 

 

 

2,806 

 

 

 

Granted

 

1,482 

 

$

13.69 

 

 

729 

 

$

23.29 

Cancelled

 

(446)

 

$

54.61 

 

 

(162)

 

$

48.44 

Vested

 

(562)

 

$

35.37 

 

 

(300)

 

$

18.64 

Outstanding at end of period — unvested

 

3,416 

 

 

 

 

 

3,073 

 

 

 



During the nine months ended September 30, 2016, the Company awarded certain employees restricted stock under the 2015 Plan, included in the activity above, that vests under specified market conditions. Each employee was generally awarded two equal tranches of market condition restricted stock that immediately vests when the Company’s common stock trades at either $30 or $40 per share for ninety consecutive calendar days.  



At September 30, 2016, there was $5,624 of unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards with market conditions, which the Company expects to recognize over the remaining weighted-average vesting period of four years.



At September 30, 2016, there was $34,859 of unrecognized pre-tax stock-based compensation expense related to all other non-vested restricted stock award shares and units, which the Company expects to recognize over the remaining weighted-average vesting period of 1.5 years.

11


 

Stock Options



The Company estimates the fair value of stock options with market conditions using a binomial lattice Monte Carlo simulation model. The weighted-average fair value and the assumptions used to measure fair value were as follows:







 

 

 

 

 

 

 

 

 

 

 



Quarter Ended September 30,

 

Nine Months Ended September 30,



2016

 

2015

 

2016

 

2015

Stock option assumptions:

 

 

 

 

 

 

 

 

 

 

 

Weighted-average fair value

$

7.94 

 

$

 

$

7.81 

 

$

Expected volatility

 

60.0% 

 

 

 

 

60.0% 

 

 

Risk-free interest rate

 

1.46% 

 

 

 

 

0.76%-1.46

 

 

Expected dividend yield

 

0% 

 

 

 

 

0% 

 

 

Derived term in years

 

3-4 

 

 

 

 

3-4 

 

 



Stock option activity for the nine months ended September 30, 2016 was as follows:







 

 

 

 

 

 

 

 

 



 

Nine Months Ended September 30, 2016

(in thousands, except per share amounts)

 

Number of Shares

 

Weighted Average Exercise

 

 

Weighted Average Remaining Term (in years)

 

Stock option activity:

 

 

 

 

 

 

 

 

 

Outstanding at beginning of period

 

 

$

 

 

 

 

Granted

 

2,160 

 

 

13.95 

 

 

 

 

Exercised

 

 

 

 

 

 

 

Forfeited and expired

 

 

 

 

 

 

 

Outstanding at end of period

 

2,160 

 

$

13.95 

 

 

9.8 

 

Exercisable at end of period

 

 

$

 

 

 



During the nine months ended September 30, 2016, the Company awarded certain employees market condition stock options under the 2015 Plan, included in the activity above, that vest under specified market conditions. Each employee was generally awarded two equal tranches of market condition stock options that immediately vest when the Company’s common stock trades at either $30 or $40 per share for ninety consecutive calendar days.  At September 30, 2016, there was $15,213 of unrecognized pre-tax stock-based compensation expense related to non-vested stock options with market conditions, which the Company expects to recognize over the remaining weighted-average vesting period of four years.











(9)  Loss Per Share



The Company presents basic and diluted loss per share amounts. Basic loss per share is calculated by dividing net loss attributable to 3D Systems Corporation by the weighted average number of common shares outstanding during the applicable period. Diluted loss per share is calculated by dividing net loss by the weighted average number of common and common equivalent shares outstanding during the applicable period. The following table reconciles basic weighted average outstanding shares to diluted weighted average outstanding for the quarter and nine months ended September 30, 2016 and 2015:





 

 

 

 

 

 

 

 

 

 

 



Quarter Ended

September 30,

 

Nine Months Ended September 30,

(in thousands, except per share amounts)

2016

 

2015

 

2016

 

2015

Numerator for basic and diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to 3D Systems Corporation

$

(21,213)

 

$

(32,249)

 

$

(43,649)

 

$

(59,126)



 

 

 

 

 

 

 

 

 

 

 

Denominator for basic and diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares

 

111,008 

 

 

112,010 

 

 

111,194 

 

 

111,920 



 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

$

(0.19)

 

$

(0.29)

 

$

(0.39)

 

$

(0.53)



The calculation for weighted average outstanding diluted loss per share excludes stock options with an exercise price that exceeds the average market price of shares during the period. In addition to unexercised stock options, there was an immaterial number of additional shares issuable upon the vesting of restricted stock units that were excluded from the diluted share calculations because they were anti-dilutive.

12


 





(10)  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 that 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.



For the Company, the above standard applies to cash equivalents and earnout consideration. 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 September 30, 2016

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

Description

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (a) 

$

37,532 

 

$

 

$

 

$

37,532 

Earnout consideration (b)

$

 

$

 

$

9,563 

 

$

9,563 



 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of December 31, 2015

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

Description

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (a) 

$

26,648 

 

$

 

$

 

$

26,648 

Earnout consideration (b)

$

 

$

 

$

9,673 

 

$

9,673 



(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.