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 June 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
__________________________
3D SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
_______________ _____________________________
|
|
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DELAWARE |
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95‑4431352 |
(State or Other Jurisdiction of |
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(I.R.S. Employer |
333 THREE D SYSTEMS CIRCLE |
|
29730 |
(Address of Principal Executive Offices) |
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(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 |
☒ |
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Accelerated filer |
☐ |
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|
|
|
|
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 July 23, 2014: 109,919,858
1
3D SYSTEMS CORPORATION
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2014
3 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
17 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk. |
32 |
33 |
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34 |
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34 |
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34 |
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Exhibit 31.1 |
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Exhibit 31.2 |
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Exhibit 32.1 |
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Exhibit 32.2 |
2
PART I. — FINANCIAL INFORMATION
3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, |
December 31, |
|||||
(in thousands, except par value) |
2014 |
2013 |
||||
ASSETS |
||||||
Current assets: |
||||||
Cash and cash equivalents |
$ |
570,262 |
$ |
306,316 | ||
Accounts receivable, net of allowance for doubtful accounts of $11,154 (2014) and $8,133 (2013) |
137,432 | 132,121 | ||||
Inventories, net |
90,204 | 75,148 | ||||
Prepaid expenses and other current assets |
14,105 | 7,203 | ||||
Current deferred income tax asset |
8,105 | 6,067 | ||||
Total current assets |
820,108 | 526,855 | ||||
Property and equipment, net |
59,671 | 45,208 | ||||
Intangible assets, net |
177,783 | 141,709 | ||||
Goodwill |
404,073 | 370,066 | ||||
Long term deferred income tax asset |
762 | 548 | ||||
Other assets, net |
13,973 | 13,470 | ||||
Total assets |
$ |
1,476,370 |
$ |
1,097,856 | ||
LIABILITIES AND EQUITY |
||||||
Current liabilities: |
||||||
Current portion of capitalized lease obligations |
$ |
194 |
$ |
187 | ||
Accounts payable |
65,440 | 51,729 | ||||
Accrued and other liabilities |
28,543 | 28,430 | ||||
Customer deposits |
7,075 | 5,466 | ||||
Deferred revenue |
26,188 | 24,644 | ||||
Total current liabilities |
127,440 | 110,456 | ||||
Long term portion of capitalized lease obligations |
7,181 | 7,277 | ||||
Convertible senior notes, net |
11,585 | 11,416 | ||||
Long term deferred income tax liability |
21,819 | 19,714 | ||||
Other liabilities |
22,506 | 15,201 | ||||
Total liabilities |
190,531 | 164,064 | ||||
Commitments and contingencies |
||||||
Stockholders’ equity: |
||||||
Common stock, $0.001 par value, authorized 220,000 shares; issued 110,752 (2014) and 103,818 (2013) |
111 | 104 | ||||
Additional paid-in capital |
1,210,017 | 866,552 | ||||
Treasury stock, at cost: 645 shares (2014) and 600 shares (2013) |
(316) | (286) | ||||
Accumulated earnings |
67,489 | 60,487 | ||||
Accumulated other comprehensive income |
7,466 | 5,789 | ||||
Total 3D Systems Corporation stockholders' equity |
1,284,767 | 932,646 | ||||
Noncontrolling interest |
1,072 | 1,146 | ||||
Total stockholders’ equity |
1,285,839 | 933,792 | ||||
Total liabilities and stockholders’ equity |
$ |
1,476,370 |
$ |
1,097,856 |
See accompanying notes to condensed consolidated financial statements.
3
3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
Quarter Ended June 30, |
Six Months Ended June 30, |
||||||||||
(in thousands, except per share amounts) |
2014 |
2013 |
2014 |
2013 |
|||||||
Revenue: |
|||||||||||
Products |
$ |
99,984 |
$ |
83,465 |
$ |
201,178 |
$ |
151,917 | |||
Services |
51,528 | 37,322 | 98,092 | 70,949 | |||||||
Total revenue |
151,512 | 120,787 | 299,270 | 222,866 | |||||||
Cost of sales: |
|||||||||||
Products |
51,232 | 37,215 | 98,048 | 66,960 | |||||||
Services |
27,882 | 20,989 | 53,352 | 39,846 | |||||||
Total cost of sales |
79,114 | 58,204 | 151,400 | 106,806 | |||||||
Gross profit |
72,398 | 62,583 | 147,870 | 116,060 | |||||||
Operating expenses: |
|||||||||||
Selling, general and administrative |
50,322 | 36,189 | 99,042 | 65,643 | |||||||
Research and development |
17,714 | 9,598 | 34,949 | 16,102 | |||||||
Total operating expenses |
68,036 | 45,787 | 133,991 | 81,745 | |||||||
Income from operations |
4,362 | 16,796 | 13,879 | 34,315 | |||||||
Interest and other expense, net |
1,476 | 2,662 | 2,524 | 12,729 | |||||||
Income before income taxes |
2,886 | 14,134 | 11,355 | 21,586 | |||||||
Provision for income taxes |
694 | 4,791 | 4,253 | 6,360 | |||||||
Net income |
2,192 | 9,343 | 7,102 | 15,226 | |||||||
Less: net income attributable to noncontrolling interest |
(67) |
— |
(100) |
— |
|||||||
Net income attributable to 3D Systems Corporation |
$ |
2,125 |
$ |
9,343 |
$ |
7,002 |
$ |
15,226 | |||
Other comprehensive income: |
|||||||||||
Pension adjustments, net of taxes |
$ |
26 |
$ |
(13) |
$ |
45 |
$ |
16 | |||
Foreign currency translation gain (loss) attributable to 3D Systems Corporation |
1,645 | (2,460) | 1,632 | (5,721) | |||||||
Total other comprehensive income (loss) |
1,671 | (2,473) | 1,677 | (5,705) | |||||||
Comprehensive income |
3,796 | 6,870 | 8,679 | 9,521 | |||||||
Foreign currency translation (gain) loss attributable to noncontrolling interest |
24 |
— |
(2) |
— |
|||||||
Comprehensive income attributable to 3D Systems Corporation |
$ |
3,820 |
$ |
6,870 |
$ |
8,677 |
$ |
9,521 | |||
Net income per share available to 3D Systems Corporation common stockholders — basic and diluted |
$ |
0.02 |
$ |
0.10 |
$ |
0.07 |
$ |
0.16 |
See accompanying notes to condensed consolidated financial statements.
4
3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, |
|||||
(in thousands) |
2014 |
2013 |
|||
Cash flows from operating activities: |
|||||
Net income |
$ |
7,102 |
$ |
15,226 | |
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||
Benefit of deferred income taxes |
(13,249) | (4,481) | |||
Depreciation and amortization |
24,390 | 13,328 | |||
Non-cash interest on convertible notes |
193 | 753 | |||
Provision for bad debts |
3,141 | 601 | |||
Stock-based compensation |
15,638 | 5,346 | |||
Loss on the disposition of property and equipment |
296 | 3 | |||
Deferred interest income |
— |
(1,018) | |||
Loss on conversion of convertible debt |
— |
9,253 | |||
Changes in operating accounts: |
|||||
Accounts receivable |
(7,013) | (26,801) | |||
Inventories |
(15,711) | (9,900) | |||
Prepaid expenses and other current assets |
(6,630) | (258) | |||
Accounts payable |
12,983 | 253 | |||
Accrued and other liabilities |
(3,029) | (2,744) | |||
Customer deposits |
1,818 | 2,055 | |||
Deferred revenue |
1,544 | 4,069 | |||
Other operating assets and liabilities |
(2,143) | (2,290) | |||
Net cash provided by operating activities |
19,330 | 3,395 | |||
Cash flows from investing activities: |
|||||
Purchases of property and equipment |
(8,965) | (3,751) | |||
Additions to license and patent costs |
(382) | (1,313) | |||
Proceeds from disposition of property and equipment |
— |
1,882 | |||
Cash paid for acquisitions, net of cash assumed |
(53,526) | (86,199) | |||
Other investing activities |
(300) | (1,500) | |||
Net cash used in investing activities |
(63,173) | (90,881) | |||
Cash flows from financing activities: |
|||||
Tax benefits from share-based payment arrangements |
6,368 | 9,398 | |||
Proceeds from issuance of common stock |
299,749 | 272,081 | |||
Proceeds from exercise of stock options and restricted stock, net |
1,437 | 435 | |||
Cash disbursed in lieu of fractional shares related to stock split |
— |
(177) | |||
Repayment of capital lease obligations |
(88) | (95) | |||
Net cash provided by financing activities |
307,466 | 281,642 | |||
Effect of exchange rate changes on cash |
323 | (760) | |||
Net increase in cash and cash equivalents |
263,946 | 193,396 | |||
Cash and cash equivalents at the beginning of the period |
306,316 | 155,859 | |||
Cash and cash equivalents at the end of the period |
$ |
570,262 |
$ |
349,255 | |
Interest payments |
$ |
608 |
$ |
979 | |
Income tax payments |
9,594 | 1,601 | |||
Transfer of equipment from inventory to property and equipment, net (a) |
5,454 | 1,946 | |||
Transfer of equipment to inventory from property and equipment, net (b) |
3,447 | 441 | |||
Stock issued for acquisitions of businesses |
20,250 | 6,750 | |||
Stock issued for conversions of 5.50% senior convertible notes |
— |
4,433 | |||
Notes redeemed for shares of common stock |
— |
63,420 |
(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 Interest |
Total Stockholders' Equity |
|||||||||||||||||
Balance at December 31, 2013 |
103,818 |
$ |
104 |
$ |
866,552 | 600 |
$ |
(286) |
$ |
60,487 |
$ |
5,789 |
$ |
932,646 |
$ |
1,146 |
$ |
933,792 | |||||||||
Tax benefits from share-based payment arrangements |
— |
— |
6,368 |
— |
— |
— |
— |
6,368 |
— |
6,368 | |||||||||||||||||
Issuance (repurchase) of restricted stock, net |
634 | 1 | 1,466 | 45 | (30) |
— |
— |
1,437 |
— |
1,437 | |||||||||||||||||
Issuance of stock for acquisitions |
350 |
— |
20,250 |
— |
— |
— |
— |
20,250 |
— |
20,250 | |||||||||||||||||
Issuance of stock for equity raise |
5,950 | 6 | 299,743 |
— |
— |
— |
— |
299,749 |
— |
299,749 | |||||||||||||||||
Stock-based compensation expense |
— |
— |
15,638 |
— |
— |
— |
— |
15,638 |
— |
15,638 | |||||||||||||||||
Net income |
— |
— |
— |
— |
— |
7,002 |
— |
7,002 | 100 | 7,102 | |||||||||||||||||
Noncontrolling interest for business combinations |
— |
— |
— |
— |
— |
— |
— |
— |
(176) | (176) | |||||||||||||||||
Pension adjustment |
— |
— |
— |
— |
— |
— |
45 | 45 |
— |
45 | |||||||||||||||||
Foreign currency translation adjustment |
— |
— |
— |
— |
— |
— |
1,632 | 1,632 | 2 | 1,634 | |||||||||||||||||
Balance at June 30, 2014 |
110,752 |
$ |
111 |
$ |
1,210,017 | 645 |
$ |
(316) |
$ |
67,489 |
$ |
7,466 |
(a) |
$ |
1,284,767 |
$ |
1,072 |
$ |
1,285,839 |
(a) |
Accumulated other comprehensive income of $7,466 consists of foreign currency translation gain of $8,324, a $173 gain on the liquidation of a non-US entity and a cumulative unrealized pension loss of $1,031. |
See accompanying notes to condensed consolidated financial statements.
(b) |
|
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, 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 six months ended June 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 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 May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in amounts that reflect the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, may require more judgment and estimates within the revenue recognition process than are required under existing U.S. GAAP.
The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.
(2) Acquisitions
The Company completed one acquisition in the second quarter of 2014, which is discussed below.
On April 2, 2014, the Company acquired 100% of the outstanding shares and voting rights of Medical Modeling Inc. Medical Modeling Inc. is a provider of 3D printing-centric personalized surgical treatments and patient specific medical devices, including virtual surgical planning, personalized medical devices and clinical transfer tools. The fair value of the consideration paid for this acquisition, net of cash acquired, was $69,026 of which $51,526 was paid in cash and $17,500 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 Medical Modeling Inc. 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 second quarter 2014 acquisitions. Factors considered in determination of goodwill include synergies, vertical integration and strategic fit for the Company.
The acquisition completed in the second 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 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 June 30, 2014 as follows:
(in thousands) |
2014 |
|
Fixed assets |
$ |
2,737 |
Other intangible assets, net |
34,300 | |
Goodwill |
44,181 | |
Other assets, net of cash acquired |
2,042 | |
Liabilities |
(14,234) | |
Net assets acquired |
$ |
69,026 |
Subsequent Acquisitions
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 acquisition is expected to close in the second half of 2014.
On July 30, 2014, the Company entered into a definitive agreement to acquire Simbionix USA Corporation (“Simbionix”) for $120,000 in cash, subject to customary closing adjustments. Simbionix is a provider of proprietary, high definition, 3D virtual reality surgical simulation, training and educational products for personalized medicine. Simbionix is headquartered in Cleveland, Ohio and has a research and development center in Israel. Under the terms of the agreement, subject to customary closing conditions, the Company will acquire 100% of the outstanding shares of Simbionix.
(3) Inventories
Components of inventories, net at June 30, 2014 and December 31, 2013 were as follows:
(in thousands) |
2014 |
2013 |
|||
Raw materials |
$ |
42,784 |
$ |
34,144 | |
Work in process |
2,031 | 3,050 | |||
Finished goods and parts |
45,389 | 37,954 | |||
Inventories, net |
$ |
90,204 |
$ |
75,148 |
(4) Property and Equipment
Property and equipment at June 30, 2014 and December 31, 2013 were as follows:
(in thousands) |
2014 |
2013 |
Useful Life (in years) |
||||
Land |
$ |
541 |
$ |
541 |
N/A |
||
Building |
9,315 | 9,315 |
25 |
||||
Machinery and equipment |
67,153 | 56,962 |
3-7 |
||||
Capitalized software — ERP |
3,970 | 3,872 |
5 |
||||
Office furniture and equipment |
3,916 | 3,586 |
5 |
||||
Leasehold improvements |
10,344 | 9,395 |
Life of lease (a) |
||||
Rental equipment |
626 |
— |
5 |
||||
Construction in progress |
12,159 | 4,014 |
N/A |
||||
Total property and equipment |
108,024 | 87,685 | |||||
Less: Accumulated depreciation and amortization |
(48,353) | (42,477) | |||||
Total property and equipment, net |
$ |
59,671 |
$ |
45,208 |
(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. |
8
Depreciation and amortization expense on property and equipment for the quarter and six months ended June 30, 2014 was $3,456 and $6,492, respectively, compared to $2,251 and $4,432, respectively, for the quarter and six months ended June 30, 2013.
(5) Intangible Assets
Intangible assets other than goodwill at June 30, 2014 and December 31, 2013 were as follows:
2014 |
2013 |
||||||||||||||||||||
(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) |
$ |
— |
|||||||||
Patent costs |
22,211 | (7,195) | 15,016 | 21,545 | (5,960) | 15,585 |
6 - 7 |
3 |
|||||||||||||
Acquired technology |
44,591 | (15,410) | 29,181 | 30,095 | (13,615) | 16,480 |
5 - 10 |
5 |
|||||||||||||
Internally developed software |
17,862 | (13,583) | 4,279 | 18,097 | (12,863) | 5,234 |
5 |
<1 |
|||||||||||||
Customer relationships |
113,067 | (28,021) | 85,046 | 95,793 | (18,283) | 77,510 |
5 - 13 |
5 |
|||||||||||||
Non-compete agreements |
21,010 | (8,758) | 12,252 | 16,848 | (6,666) | 10,182 |
3 - 11 |
3 |
|||||||||||||
Trade names |
10,708 | (3,459) | 7,249 | 9,302 | (2,211) | 7,091 |
2 - 10 |
3 |
|||||||||||||
Other |
23,668 | (4,818) | 18,850 | 11,598 | (4,081) | 7,517 |
<1 - 7 |
2 |
|||||||||||||
Intangibles with indefinite lives: |
|||||||||||||||||||||
Trademarks |
5,910 |
— |
5,910 | 2,110 |
— |
2,110 |
N/A |
N/A |
|||||||||||||
Total intangible assets |
$ |
264,902 |
$ |
(87,119) |
$ |
177,783 |
$ |
211,263 |
$ |
(69,554) |
$ |
141,709 |
<1 - 13 |
4 |
For the six months ended June 30, 2014 and 2013, the Company capitalized $382 and $1,313, 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 six months ended June 30, 2014 was $8,211 and $17,414, respectively, compared to $5,084 and $8,896, respectively, for the quarter and six months ended June 30, 2013.
Annual amortization expense for intangible assets for 2014, 2015, 2016, 2017 and 2018 is expected to be $33,517, $24,496, $21,784, $18,886 and $14,024, respectively.
(6) Accrued and Other Liabilities
Accrued liabilities at June 30, 2014 and December 31, 2013 were as follows:
(in thousands) |
2014 |
2013 |
|||
Compensation and benefits |
$ |
14,700 |
|
$ |
13,197 |
Vendor accruals |
|
5,691 |
|
|
5,449 |
Accrued professional fees |
|
582 |
|
|
493 |
Accrued taxes |
|
4,684 |
|
|
1,834 |
Royalties payable |
|
810 |
|
|
750 |
Accrued interest |
|
74 |
|
|
73 |
Accrued earnouts related to acquisitions |
|
1,414 |
|
|
5,872 |
Accrued other |
|
588 |
|
|
762 |
Total |
$ |
28,543 |
|
$ |
28,430 |
9
Other liabilities at June 30, 2014 and December 31, 2013 were as follows:
(in thousands) |
2014 |
2013 |
|||
Defined benefit pension obligation |
$ |
5,830 |
|
$ |
5,861 |
Long term tax liability |
|
90 |
|
|
90 |
Long term earnouts related to acquisitions |
|
8,706 |
|
|
4,206 |
Long term deferred revenue |
|
5,038 |
|
|
4,218 |
Other long term liabilities |
|
2,842 |
|
|
826 |
Total |
$ |
22,506 |
|
$ |
15,201 |
(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 June 30, 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 quarter and six months ended June 30, 2014 reflected a loss of $1,140 and a loss of $1,345, respectively, compared to a gain of $203 and a loss of $762, respectively, for the quarter and six months ended June 30, 2013.
(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. 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 June 30, 2014 and December 31, 2013:
(in thousands) |
2014 |
2013 |
|||
Principal amount of convertible notes |
$ |
12,540 |
$ |
12,540 | |
Unamortized discount on convertible notes |
(955) | (1,124) | |||
Net carrying value |
$ |
11,585 |
$ |
11,416 |
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 six months 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.
10
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.
(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 quarter and six months ended June 30, 2014 and 2013 was as follows:
Quarter Ended June 30, |
Six Months Ended June 30, |
||||||||||
(in thousands) |
2014 |
2013 |
2014 |
2013 |
|||||||
Restricted stock awards |
$ |
8,362 |
$ |
3,125 |
$ |
15,638 |
$ |
5,346 |
The number of shares of restricted common stock awarded and the weighted average fair value per share during the quarter and six months ended June 30, 2014 and 2013 were as follows:
Quarter Ended June 30, |
|||||||||||
2014 |
2013 |
||||||||||
(in thousands, except per share amounts) |
Shares Awarded |
Weighted Average Fair Value |
Shares Awarded |
Weighted Average Fair Value |
|||||||
Restricted stock awards: |
|||||||||||
Granted under the 2004 Incentive Stock Plan |
143 |
$ |
50.31 | 68 |
$ |
46.84 | |||||
Granted under the 2004 Restricted Stock Plan for Non-Employee Directors |
17 | 49.26 | 12 | 48.43 | |||||||
Total restricted stock awards |
160 |
$ |
50.20 | 80 |
$ |
47.09 | |||||
Six Months Ended June 30, |
|||||||||||
2014 |
2013 |
||||||||||
(in thousands, except per share amounts) |
Shares Awarded |
Weighted Average Fair Value |
Shares Awarded |
Weighted Average Fair Value |
|||||||
Restricted stock awards: |
|||||||||||
Granted under the 2004 Incentive Stock Plan |
376 |
$ |
69.00 | 291 |
$ |
39.14 | |||||
Granted under the 2004 Restricted Stock Plan for Non-Employee Directors |
17 | 49.26 | 12 | 48.43 | |||||||
Total restricted stock awards |
393 |
$ |
68.15 | 303 |
$ |
39.52 |
During the six months ended June 30, 2014, the Company granted restricted stock awards covering 376 shares of common stock pursuant to the Company’s 2004 Incentive Stock Plan. Of the 376 shares granted in the first six months of 2014, 30 shares were awarded to executive officers of the Company and 138 shares remained subject to acceptance at June 30, 2014. In the first six months of 2013, the Company granted restricted stock awards covering 291 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 six months of 2014 and 2013, respectively, the Company granted 17 and 12 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 six months of 2014 and 2013 was $849 and $600, respectively.
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 for the quarter and six months ended June 30, 2014 and 2013:
Quarter Ended June 30, |
Six Months Ended June 30, |
||||||||||
(in thousands) |
2014 |
2013 |
2014 |
2013 |
|||||||
Service cost |
$ |
43 |
$ |
24 |
$ |
88 |
$ |
47 | |||
Interest cost |
60 | 48 | 122 | 97 | |||||||
Total |
$ |
103 |
$ |
72 |
$ |
210 |
$ |
144 |
(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 June 30, 2014 and 2013:
Quarter Ended June 30, |
Six Months Ended June 30, |
||||||||||
(in thousands, except per share amounts) |
2014 |
2013 |
2014 |
2013 |
|||||||
Numerator: |
|||||||||||
Net income attributable to 3D Systems Corporation – numerator for basic net earnings per share |
$ |
2,125 |
$ |
9,343 |
$ |
7,002 |
$ |
15,226 | |||
Add: Effect of dilutive securities |
|||||||||||
Interest expense on 5.50% convertible notes (after-tax) |
— |
— |
— |
— |
|||||||
Numerator for diluted earnings per share |
$ |
2,125 |
$ |
9,343 |
$ |
7,002 |
$ |
15,226 | |||
Denominator: |
|||||||||||