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 March 31, 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 April 23, 2014:  103,509,956

 

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3D SYSTEMS CORPORATION

Quarterly Report on Form 10-Q for the

Quarter Ended March 31, 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

(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)

 

 

 

 

 

 

 

 

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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 ended March 31, 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 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

 

No new accounting pronouncements, issued or effective during the first quarter of 2014, 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 2014, which is discussed below.

 

On February 18, 2014, the Company acquired the assets of Digital Playspace, Inc., an online platform that combines home design, gaming, and community sharing to deliver a 3D create-and-make experience for children, families and adults. The fair value of the consideration paid for this acquisition, net of cash acquired, was $4,000, of which $2,000 was paid in cash and $2,000 was paid in shares of the Company’s stock. These shares were issued in a private transaction exempt from registration under the Securities Act of 1933. The operations of Digital Playspace, Inc. have been integrated into the Company’s consumer operations. 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 first quarter 2014 acquisitions. 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.

 

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 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, 2014 as follows:

 

 

 

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Subsequent Acquisitions

 

On April 2, 2014, the Company acquired the outstanding shares and voting rights of Medical Modeling Inc. Based in Golden, Colorado, Medical Modeling, Inc. is a provider of personalized surgical treatments and patient specific medical devices, including virtual surgical planning and clinical transfer tools, using 3D modeling. The acquisition is not significant to the Company’s assets or operating results.

 

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. 

 

(3)  Inventories

 

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

 

 

(4)  Property and Equipment

 

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

 

 

Depreciation and amortization expense on property and equipment for the quarters ended March 31, 2014 and 2013 was $3,036 and $2,180, respectively.

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(5)  Intangible Assets

 

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

 

For the quarters ended March 31, 2014 and 2013, the Company capitalized $210 and $177, 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 quarters ended March 31, 2014 and 2013 was $9,204 and $3,812, respectively.

 

Annual amortization expense for intangible assets for 2014, 2015, 2016, 2017 and 2018 is expected to be $29,767, $23,754, $20,752, $17,799 and $13,094, respectively.

 

(6)  Accrued and Other Liabilities

 

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

 

 

Other liabilities at March 31, 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. 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, 2014  or at December 31, 2013. 

 

The total impact of foreign currency transactions on the condensed consolidated statements of operations and comprehensive income for the quarters ended March 31, 2014 and 2013 reflected losses of  $205 and  $965, respectively.

 

(8) Borrowings

 

5.5% senior convertible notes and interest expense

 

In November 2011, the Company issued $152,000 of 5.50% senior convertible notes due December 2016.  These notes are senior unsecured obligations and rank equal in right of payment with all the Company’s existing and future senior unsecured indebtedness.  They are also senior in right of payment to any subordinated indebtedness that the Company may incur in the future. 

 

The notes accrue interest at the rate of 5.50% per year payable in cash semi-annually on June 15 and December 15 of each year.

 

The following table summarizes the principal amounts and related unamortized discount on convertible notes at March 31, 2014 and December 31, 2013:  

 

 

These notes are convertible into shares of the Company’s Common Stock at a conversion rate equivalent to 69.9032 shares of Common Stock per $1 principal amount of notes, which represents a conversion rate of approximately $14.31 per share of Common Stock.  The conversion rate is subject to adjustment in certain circumstances as more fully set forth in the indenture covering the notes.  Conditions for conversion have been satisfied and the notes are convertible. No notes were converted during the first quarter of 2014.

 

The remaining notes are convertible into approximately 876 shares of common stock. In certain circumstances provided for in the indenture, the number of shares of common stock issuable upon conversion of the notes may be increased, and with it the aggregate principal amount of the notes. Unless earlier repurchased or converted, the notes will mature on December 15, 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. The capitalized issuance costs are being amortized to interest expense over the life of the notes, or realized upon conversion of the notes.

 

Upon certain terms and conditions, the Company may elect to satisfy its conversion obligation with respect to the notes by paying cash, in whole or in part, for specified aggregate principal amount of the notes. In the event of certain types of fundamental changes, the Company will increase the conversion rate by a number of additional shares, up to a maximum of 1,118 shares, which equates to a conversion price of approximately $11.22 per share.

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(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. Stock-based compensation expense for the quarters ended March 31, 2014 and 2013 was as follows:

 

 

The number of shares of restricted common stock awarded and the weighted average fair value per share during the quarters ended March 31, 2014 and 2013 were as follows:

 

 

 

During the first quarter of 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 and 114 shares remained subject to acceptance at March 31, 2014. During the first quarter of 2013, the Company granted restricted stock awards covering 228 shares of common stock pursuant to the Company’s 2004 Incentive Stock Plan, of which 24 shares were awarded to executive officers of the Company.

 

No shares of common stock pursuant to the Company’s 2004 Restricted Stock Plan were granted to Non-Employee Directors during the first quarter of  2014 or 2013.

 

(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 for the quarters ended March 31, 2014 and 2013:

 

 

 

(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.

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The following table reconciles basic weighted average outstanding shares to diluted weighted average outstanding shares at March 31, 2014 and 2013:

 

 

 

 

For the quarter ended March 31, 2014, average common shares for basic and diluted earnings per share were 103,546 and basic and diluted earnings per share were $0.05. For the quarter ended March 31, 2013, average common shares for basic and diluted earnings per share were 91,822 and basic and diluted earnings per share were $0.06.

 

(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:

 

 

 

 

For the Company, the above standard applies to cash equivalents and senior convertible notes. 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:

 

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The Company did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during the quarter ended March 31, 2014.

 

The carrying value of the senior convertible notes as of March 31, 2014 and December 31, 2013 was $11,500 and $11,416, respectively, net of the unamortized discount. As of March 31, 2014 and December 31, 2013, the estimated fair value of the senior convertible notes was $12,242 and $12,035, respectively, based on quoted market prices. The Company determined the fair value of the convertible notes utilizing transactions in the listed markets for identical or similar liabilities. As such, the fair value of the senior convertible notes is considered Level 2.

 

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, 2014 or December 31, 2013.

 

(13)  Income Taxes

 

The Company’s effective tax rate was 42.0%  and 21.1%  for the quarters ended March 31, 2014 and 2013, respectively.

 

During the first quarter of 2014, the Company recorded return-to-provision adjustments totaling $571 that are non-temporary in nature.

 

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 2010 to 2013 are 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 France (2011), Germany (2011), Japan (2007), Italy (2009), Switzerland (2008), the United Kingdom (2009), the Netherlands (2007), Australia (2009), Korea (2008), India (2012), and China (2013).

 

(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 Switzerland that operates a research and production facility, and sales and services offices, including Quickparts services, operated by subsidiaries in Europe (France, Germany, the United Kingdom, Italy and the Netherlands) 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 are based on the location of the selling entity.

 

Summarized financial information concerning the Company’s geographical operations is shown in the following tables:

 

 

 

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The Company’s revenue from unaffiliated customers by type was as follows:

 

 

 

 

Intercompany sales were as follows: