UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10‑Q

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

 

For the quarterly period ended September 30, 2014

 

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

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3D SYSTEMS CORPORATION

(Exact name of Registrant as specified in its Charter)

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

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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):

 

 

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 November 5, 2014:  111,217,093

 

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3D SYSTEMS CORPORATION

Quarterly Report on Form 10-Q for the

Quarter Ended September 30, 2014

 

TABLE OF CONTENTS

 

 

 

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PART I. — FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

See accompanying notes to condensed consolidated financial statements.

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3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

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3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

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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, 2013.

 

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, 2014 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 June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-12, Compensation – Stock Compensation (“ASU 2014-12”). ASU 2014-12 is intended to resolve diverse accounting treatment for share based awards in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015 and may be applied prospectively or retrospectively.  The Company does not expect adoption of this standard will have a significant impact on the Company’s consolidated financial statements.

 

In August  2014, the FASB  issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements – Going Concern (“ASU 2014-15”). ASU 2014-15 requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern and if those conditions exist, the required disclosures.  The standard is effective for  annual periods ending  after December 15, 2016, and interim periods therein.  The Company does not expect adoption of this standard will have a significant impact on the Company’s consolidated financial statements.

 

No other accounting pronouncements, issued or effective during the third quarter of 2014, have had or are expected to have a significant impact on the Company’s consolidated financial statements.

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(2) Acquisitions

 

The Company completed five acquisitions in the third quarter of 2014, which are discussed below.

 

On August 6, 2014, the Company acquired certain assets of Bordner and Associates, Inc. d/b/a Laser Reproductions (“Laser Reproductions”).  Laser Reproductions, based in Ohio, is a provider of advanced manufacturing, tooling and rapid prototyping solutions. The fair value of the consideration paid for this acquisition, net of cash acquired, was $17,450, of which $13,075 was paid in cash and $4,375 was paid in shares of the Company’s common stock. These shares were issued in a private transaction exempt from registration under the Securities Act of 1933. The operations of Laser Reproductions have been integrated into the Company’s 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 third quarter 2014 acquisitions. Factors considered in determination of goodwill include synergies, vertical integration and strategic fit for the Company.

 

On August 13, 2014, the Company acquired certain assets of sister companies American Precision Machining, L.L.C. (“APM”) and American Precision Prototyping, LLC (“APP”), based in Oklahoma. APM and APP are providers of precision machining and manufacturing services and 3D printing services. The fair value of the consideration paid for these acquisitions, net of cash acquired, was $14,089, all of which was paid in cash. The operations of APM and APP have been integrated into the Company’s service revenues. The fair value of the consideration paid for these acquisitions 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 third quarter 2014 acquisitions. Factors considered in determination of goodwill include synergies, vertical integration and strategic fit for the Company.

 

On August 28, 2014, the Company acquired 100% of the outstanding shares and voting rights of Simbionix USA Corporation (“Simbionix”). Headquartered in Cleveland, Ohio, with a research and development center in Israel, Simbionix is a provider of patient-specific surgical simulation solutions. The fair value of the consideration paid for this acquisition, net of cash acquired, was $121,562, all of which was paid in cash. The operations of Simbionix 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 third quarter 2014 acquisitions. Factors considered in determination of goodwill include synergies, vertical integration and strategic fit for the Company.

 

On September 3, 2014, the Company acquired 100% of the outstanding shares and voting rights of LayerWise NV (“LayerWise”), based in Belgium.  LayerWise is a provider of advanced direct metal 3D printing and manufacturing services and delivers quick-turn, 3D-printed metal parts, manufactured on its own proprietary line of direct metal 3D printers, for aerospace, high-precision equipment, and medical and dental customers. The fair value of the consideration paid for this acquisition, net of cash acquired, was $41,933, all of which was paid in cash. The operations of LayerWise have been integrated into the Company’s 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 third quarter 2014 acquisitions. Factors considered in determination of goodwill include synergies, vertical integration and strategic fit for the Company.

 

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

 

The Company’s purchase price allocation for the acquired companies 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 acquisitions are allocated to the assets acquired and the liabilities assumed and are included in the Company’s unaudited condensed consolidated balance sheet at September 30, 2014 as follows:

 

 

 

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Pending Acquisition

 

On April 16, 2014, the Company entered into a definitive agreement to acquire Robtec, an additive manufacturing service bureau and  distributor of 3D printing and scanning products located in Sao Paulo, Brazil. Under the terms of the agreement, the Company will acquire 70% of the shares of Robtec at closing and the remainder of the shares on the fifth anniversary of the closing. The Company expects to close the acquisition before the end of 2014.

 

(3)  Inventories

 

Components of inventories, net at September 30, 2014 and December 31, 2013 were as follows:

 

 

(4)  Property and Equipment

 

Property and equipment at September 30, 2014 and December 31, 2013 were as follows:

 

 

Depreciation and amortization expense on property and equipment for the quarter and nine months ended September 30, 2014 was $3,828 and $10,320, respectively, compared to $2,552 and $6,984, respectively, for the quarter and nine months ended September 30, 2013.

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(5)  Intangible Assets

 

Intangible assets other than goodwill at September 30, 2014 and December 31, 2013 were as follows:

 

For the nine months ended September 30, 2014 and 2013, the Company capitalized $547 and $1,502, respectively, of costs incurred to acquire, develop and extend patents in the United States and various other countries.

 

Amortization expense for intangible assets for the quarter and nine months ended September 30, 2014 was $11,096 and $28,510, respectively, compared to $6,206 and $15,102, respectively, for the quarter and nine months ended September 30, 2013.

 

Annual amortization expense for intangible assets for 2014, 2015, 2016, 2017 and 2018 is expected to be $41,878,  $29,631,  $26,573,  $23,617 and $18,567, respectively.

 

(6)  Accrued and Other Liabilities

 

Accrued liabilities at September 30, 2014 and December 31, 2013 were as follows:

 

Other liabilities at September 30, 2014 and December 31, 2013 were as follows:

 

 

 

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(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 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 September 30, 2014  or at December 31, 2013. 

 

The total impact of foreign currency transactions on the condensed consolidated statements of operations and comprehensive income (loss) for the quarter and nine months ended September 30, 2014 reflected a loss of $1,740 and a loss of $3,085, respectively, compared to a gain of $505 and a loss of $258, respectively, for the quarter and nine months ended September 30, 2013.

 

(8) Borrowings

 

5.5% senior convertible notes

 

In November 2011, the Company issued $152,000 of 5.50% senior convertible notes due December 2016. The notes were issued with an effective yield of 5.96% based upon an original issue discount at 98.0%. The net proceeds from the issuance of these notes, after deducting original issue discount and capitalized issuance costs of $6,634, amounted to $145,366.

 

During the third quarter of 2014, the remaining $12,540 of outstanding notes were converted, reflecting a loss of $1,806 for the quarter and nine months ended September 30, 2014, compared to losses of $2,022 and $11,275, respectively, for the quarter and nine months ended September 30, 2013.  As of September 30, 2014, there is no outstanding balance for the notes.

 

Other debt

 

In connection with its acquisition of LayerWise, the Company assumed a portion of LayerWise’s outstanding bank debt, consisting of $1,427 of revolving credit facilities and $240 in term loans. The term loans bear interest at rates ranging from 1.34% to 5.40% as of September 30, 2014. The outstanding balance on the term loans was $223, as of September 30, 2014, all of which was current. There were no borrowings outstanding under the revolving credit facilities as of September 30, 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 and nine months ended September 30, 2014 and 2013 was as follows:

 

 

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The number of shares of restricted common stock awarded and the weighted average fair value per share during the quarter and nine months ended September 30, 2014 and 2013 were as follows:

 

 

During the nine months ended September 30, 2014, the Company granted restricted stock awards covering 464 shares of common stock pursuant to the Company’s 2004 Incentive Stock Plan. Of the 464 shares granted in the first nine months of 2014, 30 shares were awarded to executive officers of the Company and 35 shares remained subject to acceptance at September 30, 2014. In the first nine months of 2013, the Company granted restricted stock awards covering 385 shares of common stock pursuant to the Company’s 2004 Incentive Stock Plan, of which 27 shares were awarded to executive officers of the Company. 

 

In the first nine months of 2014 and 2013, respectively, the Company granted 17 and 15 shares, respectively, of common stock pursuant to the Company’s 2004 Restricted Stock Plan for Non-Employee Directors. Stock compensation expense for Non-Employee Directors for the first nine months of 2014 and 2013 was $849 and $727, respectively.

 

(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 and nine months ended September 30, 2014 and 2013:

 

 

 

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(11)  Earnings Per Share

 

The Company presents basic and diluted earnings per share (“EPS”) amounts. Basic EPS is calculated by dividing net income 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 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 shares at September 30, 2014 and 2013: