0000910638-17-000007.txt : 20170503 0000910638-17-000007.hdr.sgml : 20170503 20170503160204 ACCESSION NUMBER: 0000910638-17-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 75 CONFORMED PERIOD OF REPORT: 20170331 FILED AS OF DATE: 20170503 DATE AS OF CHANGE: 20170503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 3D SYSTEMS CORP CENTRAL INDEX KEY: 0000910638 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 954431352 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-34220 FILM NUMBER: 17809043 BUSINESS ADDRESS: STREET 1: 333 THREE D SYSTEMS CIRCLE CITY: ROCK HILL STATE: SC ZIP: 29730 BUSINESS PHONE: 8033263900 MAIL ADDRESS: STREET 1: 333 THREE D SYSTEMS CIRCLE CITY: ROCK HILL STATE: SC ZIP: 29730 FORMER COMPANY: FORMER CONFORMED NAME: 3 D SYSTEMS CORP DATE OF NAME CHANGE: 19930816 10-Q 1 ddd-20170331x10q.htm 10-Q ddd-20170331 Q1_Taxonomy2016

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________



FORM 10‑Q



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

For the quarterly period ended March 31, 2017

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company, and “emerging growth 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



 

 

 

 



 

 

Emerging growth company



 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.     



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 26, 2017:  113,810,649



1


 



3D SYSTEMS CORPORATION

Quarterly Report on Form 10-Q for the

Quarter Ended March 31, 2017



TABLE OF CONTENTS





 

2


 



PART I — FINANCIAL INFORMATION



Item 1.  Financial Statements.



3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS





 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 

(in thousands, except par value)

 

 

March 31,
2017
(unaudited)

 

 

December 31,
2016

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

161,662 

 

$

184,947 

Accounts receivable, net of reserves — $11,424 (2017) and $12,920 (2016)

 

 

124,581 

 

 

127,114 

Inventories, net of reserves — $12,206 (2017) and $14,770 (2016)

 

 

105,105 

 

 

103,331 

Prepaid expenses and other current assets

 

 

17,909 

 

 

17,558 

Total current assets

 

 

409,257 

 

 

432,950 

Property and equipment, net

 

 

84,803 

 

 

79,978 

Intangible assets, net

 

 

122,594 

 

 

121,501 

Goodwill

 

 

215,156 

 

 

181,230 

Long term deferred income tax asset

 

 

7,958 

 

 

8,123 

Other assets, net

 

 

25,862 

 

 

25,371 

Total assets

 

$

865,630 

 

$

849,153 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of capitalized lease obligations

 

$

584 

 

$

572 

Accounts payable

 

 

40,752 

 

 

40,514 

Accrued and other liabilities

 

 

48,736 

 

 

49,968 

Customer deposits

 

 

6,549 

 

 

5,857 

Deferred revenue

 

 

45,079 

 

 

33,494 

Total current liabilities

 

 

141,700 

 

 

130,405 

Long term portion of capitalized lease obligations

 

 

7,454 

 

 

7,587 

Long term deferred income tax liability 

 

 

18,289 

 

 

17,601 

Other liabilities

 

 

54,863 

 

 

57,988 

Total liabilities

 

 

222,306 

 

 

213,581 

Redeemable noncontrolling interests

 

 

8,872 

 

 

8,872 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value, authorized 220,000 shares; issued 115,419 (2017) and 115,113 (2016)

 

 

115 

 

 

115 

Additional paid-in capital

 

 

1,307,561 

 

 

1,307,428 

Treasury stock, at cost — 1,631 shares (2017) and 1,498 shares (2016)

 

 

(3,746)

 

 

(2,658)

Accumulated deficit

 

 

(621,552)

 

 

(621,787)

Accumulated other comprehensive loss

 

 

(44,874)

 

 

(53,225)

Total 3D Systems Corporation stockholders' equity

 

 

637,504 

 

 

629,873 

Noncontrolling interests

 

 

(3,052)

 

 

(3,173)

Total stockholders’ equity

 

 

634,452 

 

 

626,700 

Total liabilities, redeemable noncontrolling interests and stockholders’ equity

 

$

865,630 

 

$

849,153 



See accompanying notes to condensed consolidated financial statements.



3


 



3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)











 

 

 

 

 

 

Quarter Ended March 31,

(in thousands, except per share amounts)

2017

 

2016

Revenue:

 

 

 

 

 

Products

$

94,730 

 

$

90,964 

Services

 

61,701 

 

 

61,591 

Total revenue

 

156,431 

 

 

152,555 

Cost of sales:

 

 

 

 

 

Products

 

44,748 

 

 

44,161 

Services

 

31,497 

 

 

30,881 

Total cost of sales

 

76,245 

 

 

75,042 

Gross profit

 

80,186 

 

 

77,513 

Operating expenses:

 

 

 

 

 

Selling, general and administrative

 

66,405 

 

 

73,967 

Research and development

 

22,852 

 

 

20,305 

Total operating expenses

 

89,257 

 

 

94,272 

Loss from operations

 

(9,071)

 

 

(16,759)

Interest and other income, net

 

(201)

 

 

(126)

Loss before income taxes

 

(8,870)

 

 

(16,633)

Provision for income taxes

 

1,041 

 

 

1,179 

Net loss

 

(9,911)

 

 

(17,812)

Less: net income (loss) attributable to noncontrolling interests

 

60 

 

 

(24)

Net loss attributable to 3D Systems Corporation

$

(9,971)

 

$

(17,788)



 

 

 

 

 

Net loss per share available to common stockholders — basic and diluted

$

(0.09)

 

$

(0.16)



 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

Pension adjustments, net of taxes

$

20 

 

$

(31)

Foreign currency translation gain

 

8,392 

 

 

7,939 

Total other comprehensive income

 

8,412 

 

 

7,908 

Less foreign currency translation gain attributable to noncontrolling interests

 

61 

 

 

89 

Other comprehensive income  attributable to 3D Systems Corporation

 

8,351 

 

 

7,819 



 

 

 

 

 

Comprehensive loss

 

(1,499)

 

 

(9,904)

Less comprehensive income attributable to noncontrolling interests

 

121 

 

 

65 

Comprehensive loss attributable to 3D Systems Corporation

$

(1,620)

 

$

(9,969)



See accompanying notes to condensed consolidated financial statements.



4


 



3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)







 

 

 

 

 

 

Quarter Ended March 31,

(In thousands)

 

2017

 

 

2016

Cash flows from operating activities:

 

 

 

 

 

Net loss

$

(9,911)

 

$

(17,812)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

14,973 

 

 

15,089 

Stock-based compensation

 

7,131 

 

 

11,667 

Provision for bad debts

 

155 

 

 

2,388 

Benefit of deferred income taxes

 

(1,069)

 

 

(1,092)

Changes in operating accounts, net of acquisitions:

 

 

 

 

 

Accounts receivable

 

5,336 

 

 

21,544 

Inventories

 

(4,120)

 

 

(7,984)

Prepaid expenses and other current assets

 

12 

 

 

(434)

Accounts payable

 

(643)

 

 

(5,956)

Accrued and other current liabilities

 

(2,849)

 

 

(4,056)

Deferred revenue

 

11,218 

 

 

11,019 

All other operating activities

 

(852)

 

 

(6,255)

Net cash provided by operating activities

 

19,381 

 

 

18,118 

Cash flows from investing activities:

 

 

 

 

 

Cash paid for acquisitions, net of cash assumed

 

(34,291)

 

 

Purchases of property and equipment

 

(5,620)

 

 

(4,246)

Additions to license and patent costs

 

(280)

 

 

(231)

Proceeds from disposition of property and equipment

 

24 

 

 

Net cash used in investing activities

 

(40,167)

 

 

(4,477)

Cash flows from financing activities:

 

 

 

 

 

Payments on earnout consideration

 

(3,206)

 

 

Repurchase of stock, net, and employer paid tax on employee awards

 

(1,088)

 

 

(810)

Repayment of capital lease obligations

 

(142)

 

 

(262)

Net cash used in financing activities

 

(4,436)

 

 

(1,072)

Effect of exchange rate changes on cash and cash equivalents

 

1,937 

 

 

1,562 

Net increase (decrease) in cash and cash equivalents

 

(23,285)

 

 

14,131 

Cash and cash equivalents at the beginning of the period

 

184,947 

 

 

155,643 

Cash and cash equivalents at the end of the period

$

161,662 

 

$

169,774 



 

 

 

 

 

Cash interest payments

$

200 

 

$

214 

Cash income tax payments, net

$

573 

 

$

1,707 

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

$

5,379 

 

$

5,760 

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

$

718 

 

$

1,779 

Stock issued for acquisitions

$

3,208 

 

$



(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 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 Earnings (Deficit)

 

Accumulated Other Comprehensive Income (Loss)

 

Total 3D Systems Corporation Stockholders' Equity

 

Equity Attributable to Noncontrolling Interests

 

Total Stockholders' Equity

Balance at December 31, 2016

115,113 

 

$

115 

 

$

1,307,428 

 

1,498 

 

$

(2,658)

 

$

(621,787)

 

$

(53,225)

 

$

629,873 

 

$

(3,173)

 

$

626,700 

Issuance (repurchase) of stock

114 

 

 

 

 

 

133 

 

 

(1,088)

 

 

 

 

 

 

(1,088)

 

 

 

 

(1,088)

Issuance of stock for acquisitions

192 

 

 

 

 

3,208 

 

 

 

 

 

 

 

 

 

3,208 

 

 

 

 

3,208 

Cumulative impact of change in accounting policy

 

 

 

 

(10,206)

 

 

 

 

 

10,206 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

7,131 

 

 

 

 

 

 

 

 

 

7,131 

 

 

 

 

7,131 

Net income (loss)

 

 

 

 

 

 

 

 

 

(9,971)

 

 

 

 

(9,971)

 

 

60 

 

 

(9,911)

Pension adjustment

 

 

 

 

 

 

 

 

 

 

 

20 

 

 

20 

 

 

 

 

20 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

8,331 

 

 

8,331 

 

 

61 

 

 

8,392 

Balance at March 31, 2017

115,419 

 

$

115 

 

$

1,307,561 

 

1,631 

 

$

(3,746)

 

$

(621,552)

 

$

(44,874)

 

$

637,504 

 

$

(3,052)

 

$

634,452 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 See accompanying notes to condensed consolidated financial statements.



 

6


 



3D SYSTEMS CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)



(1)  Basis of Presentation



The accompanying unaudited condensed consolidated financial statements include the accounts of 3D Systems Corporation and its subsidiaries (collectively, the “Company”). All significant intercompany transactions and balances have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim reports. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements and should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (“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 ended March 31, 2017 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.



Recently Adopted Accounting Pronouncements



In the first quarter of 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-09, “Compensation – Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting”. The following summarizes the effects of the adoption on the Company’s unaudited condensed consolidated financial statements:



Forfeitures - Prior to adoption, share-based compensation expense was recognized on a straight-line basis, net of estimated forfeitures, such that expense was recognized only for share-based awards that were expected to vest. A forfeiture rate was estimated annually and revised, if necessary, in subsequent periods if actual forfeitures differed from initial estimates. Upon adoption, the Company will no longer apply a forfeiture rate and instead will account for forfeitures as they occur. The change was applied on a modified retrospective basis resulting in a cumulative effect adjustment to retained earnings of $10,206 as of January 1, 2017. Prior periods have not been adjusted.



Statement of Cash Flows - The Company historically accounted for excess tax benefits related to share-based compensation on the Statement of Cash Flows as a financing activity. Upon adoption of this standard, excess tax benefits are classified along with other income tax cash flows as an operating activity. The Company has elected to adopt this portion of the standard on a prospective basis beginning in 2017. Prior periods have not been adjusted.



Income taxes - Upon adoption of this standard, all excess tax benefits and tax deficiencies related to share-based compensation are recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. Prior periods have not been adjusted.



Recently Issued Accounting Pronouncements



In March 2017, the FASB issued ASU No. 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”), which standardizes the presentation of net benefit cost in the income statement and on the components eligible for capitalization in assets. ASU 2017-07 is effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods. The amendments in ASU 2017-07 should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Company will adopt ASU 2017-07 in the first quarter of 2018 and does not expect the implementation of this guidance to have a material effect on its consolidated financial statements.

7


 



In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which eliminates the performance of Step 2 from the goodwill impairment test. In performing its annual or interim impairment testing, an entity will instead compare the fair value of the reporting unit with its carrying amount and recognize any impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The standard is effective for fiscal years beginning after December 15, 2019.  Early adoption is permitted for interim or annual impairment tests performed on testing dates after January 1, 2017. The Company is currently in the process of evaluating when it will adopt ASU 2017-04 and its impact on its consolidated financial statements.



In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”). ASU 2016-16 permits the recognition of income tax consequences related to an intra-entity transfer of an asset other than inventory when the transfer occurs. It is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods.  Early adoption is permitted for any interim or annual period. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-16 on its consolidated financial statements.



In August 2016, the FASB issued ASU 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 the manner in which certain cash receipts and cash payments are presented and classified in the statement of cash flows. 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 expects that the implementation of this guidance will not have a material effect on its consolidated financial statements.



In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize assets and liabilities arising from operating leases on the balance sheet. It is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Though still evaluating the impact of ASU 2016-02, the Company expects changes to its balance sheet due to the recognition of right-of-use assets and lease liabilities related to its real estate leases, but it does not anticipate material impacts to its results of operations or liquidity.



In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date” (“ASU 2015-14”), a revision to Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers”, which was originally issued on May 28, 2014. For public business entities, certain not-for-profit entities, and certain employee benefit plans, the effective date was for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. ASU 2015-14 will defer these effective dates for all entities by one year. During 2016, the Company continued its evaluation of ASU 2014-09, including the expected impact on its business processes, systems and controls, and potential differences in the timing and/or method of revenue recognition for its contracts. The Company expects to complete its assessment of the cumulative effect of adopting ASU 2014-09 as well as the expected impact of adoption during 2017. The Company will continue its evaluation of ASU 2014-09, including how it may impact new contracts it receives as well as new or emerging interpretations of the standard, through the date of adoption.



No other new accounting pronouncements, issued or effective during the first quarter of 2017, have had or are expected to have a significant impact on the Company’s consolidated financial statements.



(2) Acquisitions



On January 31, 2017, the Company acquired 100 percent of the shares of Vertex-Global Holding B.V. (“Vertex”), a provider of dental materials worldwide under the Vertex and NextDent brands. The cash portion of the purchase price is included in cash paid for acquisitions, net of cash assumed, in the unaudited Condensed Consolidated Statement of Cash Flows. The share portion of the purchase price is included in issuance of stock for acquisitions in the unaudited Condensed Consolidated Statement of Equity. The operating results of Vertex have been included in the Company’s reported results since the closing date. The purchase price of the acquisition has been allocated to the estimated fair value of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill. The Company did not acquire any businesses in 2016.

8


 



(3)  Inventories



Components of inventories, net, as of March 31, 2017 and December 31, 2016 were as follows:



 

 

 

 

 



 

 

 

 

 

(in thousands)

2017

 

2016

Raw materials

$

38,651 

 

$

38,383 

Work in process

 

4,143 

 

 

3,109 

Finished goods and parts

 

62,311 

 

 

61,839 

Inventories, net

$

105,105 

 

$

103,331 

 



(4)  Property and Equipment



Property and equipment, net, as of March 31, 2017 and December 31, 2016 were as follows:



 

 

 

 

 

 

 



 

 

 

 

 

 

 

(in thousands)

2017

 

2016

 

Useful Life (in years)

Land

$

903 

 

$

903 

 

N/A

Building

 

11,122 

 

 

11,122 

 

25-30

Machinery and equipment

 

116,831 

 

 

108,682 

 

2-7

Capitalized software

 

8,709 

 

 

8,651 

 

3-5

Office furniture and equipment

 

3,507 

 

 

3,130 

 

1-5

Leasehold improvements

 

25,037 

 

 

24,423 

 

Life of lease (a)

Rental equipment

 

452 

 

 

144 

 

5

Construction in progress

 

9,125 

 

 

7,760 

 

N/A

Total property and equipment

 

175,686 

 

 

164,815 

 

 

Less: Accumulated depreciation and amortization

 

(90,883)

 

 

(84,837)

 

 

Total property and equipment, net

$

84,803 

 

$

79,978 

 

 



(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.



For the quarters ended March 31, 2017 and 2016, depreciation expense on property and equipment was $5,873 and $6,000, respectively.



(5)  Intangible Assets



Intangible assets, net, other than goodwill, as of March 31, 2017 and December 31, 2016 were as follows:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



2017

 

2016

 

 

 

 

(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

$

16,969 

 

$

(6,337)

 

$

10,632 

 

$

16,263 

 

$

(5,873)

 

$

10,390 

 

1-20

 

9

Acquired technology

 

54,192 

 

 

(31,125)

 

 

23,067 

 

 

52,881 

 

 

(27,543)

 

 

25,338 

 

1-16

 

4

Acquired patents

 

16,982 

 

 

(11,093)

 

 

5,889 

 

 

17,047 

 

 

(9,454)

 

 

7,593 

 

1-6

 

4

Customer relationships

 

103,106 

 

 

(49,576)

 

 

53,530 

 

 

99,067 

 

 

(46,252)

 

 

52,815 

 

1-14

 

6

Trade secrets

 

19,254 

 

 

(9,926)

 

 

9,328 

 

 

19,530 

 

 

(7,919)

 

 

11,611 

 

7

 

4

Trade names

 

32,926 

 

 

(16,936)

 

 

15,990 

 

 

28,110 

 

 

(16,015)

 

 

12,095 

 

1-8

 

5

Other

 

23,971 

 

 

(19,813)

 

 

4,158 

 

 

22,953 

 

 

(21,294)

 

 

1,659 

 

2-4

 

2

Total intangible assets

$

267,400 

 

$

(144,806)

 

$

122,594 

 

$

255,851 

 

$

(134,350)

 

$

121,501 

 

1-20

 

4



Amortization expense related to intangible assets was $8,832 and $8,819 for the quarters ended March 31, 2017 and 2016, respectively.



9


 



(6)  Accrued and Other Liabilities



Accrued liabilities as of March 31, 2017 and December 31, 2016 were as follows:



 

 

 

 

 



 

 

 

 

 

(in thousands)

2017

 

2016

Compensation and benefits

$

20,256 

 

$

22,771 

Vendor accruals

 

8,531 

 

 

8,231 

Accrued professional fees

 

538 

 

 

810 

Accrued taxes

 

9,887 

 

 

9,831 

Royalties payable

 

2,417 

 

 

2,092 

Accrued interest

 

112 

 

 

39 

Accrued earnouts related to acquisitions

 

3,971 

 

 

3,238 

Accrued other

 

3,024 

 

 

2,956 

Total

$

48,736 

 

$

49,968 



Other liabilities as of March 31, 2017 and December 31, 2016 were as follows:



 

 

 

 

 



 

 

 

 

 

(in thousands)

2017

 

2016

Arbitration award

$

11,282 

 

$

11,282 

Long term employee indemnity

 

11,974 

 

 

11,152 

Defined benefit pension obligation

 

7,742 

 

 

7,613 

Long term tax liability

 

7,190 

 

 

7,183 

Long term earnouts related to acquisitions

 

3,897 

 

 

7,568 

Long term deferred revenue

 

7,019 

 

 

7,464 

Other long term liabilities

 

5,759 

 

 

5,726 

Total

$

54,863 

 

$

57,988 













(7)  Hedging Activities and Financial Instruments



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



The Company had $35,302 in notional foreign exchange contracts outstanding as of March 31, 2017, for which the fair value was not material.  No foreign exchange contracts were outstanding as of December 31, 2016



The Company translates foreign currency balance sheets from each international businesses' functional currency (generally the respective local currency) to U.S. dollars at end-of-period exchange rates, and statements of earnings at average exchange rates for each period. The resulting foreign currency translation adjustments are a component of other comprehensive income (loss).



The Company does not hedge the fluctuation in reported revenue and earnings resulting from the translation of these international operations' results into U.S. dollars. The impact of translating the Company’s non-U.S. operations’ revenue and earnings into U.S. dollars was not material to the Company’s results of operations for the quarters ended March 31, 2017 and 2016.

10


 



(8) Borrowings



Credit Facility



As of March 31, 2017, the Company had a $150,000 revolving, unsecured credit facility (the “Credit Agreement”) with a syndicate of banks, to be used for general corporate purposes and working capital needs. The Credit Agreement is scheduled to expire in October 2019. The Credit Agreement includes provisions for the issuance of letters of credit and swingline loans and contains certain restrictive covenants, which include the maintenance of a maximum consolidated total leverage ratio. The Company was in compliance with those covenants at March 31, 2017 and December 31, 2016. There were no outstanding borrowings as of March 31, 2017.



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  $8,038 at March 31, 2017 from $8,159 at December 31, 2016, due to the normal scheduled timing of payments.



(9)  Pension Benefits



The components of the Company’s pension cost recognized in the condensed consolidated statements of operations and comprehensive income (loss) for the quarters ended March 31, 2017 and 2016 were as follows:









 

 

 

 

 



Quarter Ended March 31,

(in thousands)

2017

 

2016

Service cost

$

67 

 

$

83 

Interest cost

 

65 

 

 

73 

Amortization of actuarial loss

 

58 

 

 

32 

Total periodic cost

$

190 

 

$

188 







(10)  Net Loss  Per Share



The Company computes basic loss per share using net loss attributable to 3D Systems Corporation and the weighted average number of common shares outstanding during the applicable period. Diluted loss per share incorporates the additional shares issuable upon assumed exercise of stock options and the release of restricted stock and restricted stock units, except in such case when their inclusion would be anti-dilutive.  











 

 

 

 

 



Quarter Ended March 31,

(in thousands, except per share amounts)

2017

 

2016

Numerator:

 

 

 

 

 

Net loss attributable to 3D Systems Corporation

$

(9,971)

 

$

(17,788)



 

 

 

 

 

Denominator for basic and diluted net loss per share:

 

 

 

 

 

Weighted average shares

 

111,289 

 

 

112,197 



 

 

 

 

 

Net loss per share — basic and diluted

$

(0.09)

 

$

(0.16)



For the quarters ended March 31, 2017 and 2016, the effect of dilutive securities, including non-vested stock options and restricted stock awards/units, was excluded from the denominator for the calculation of diluted net loss per because the Company recognized a net loss for the period and their inclusion would be anti-dilutive. The effect of dilutive securities excluded was 5,503 weighted average shares and 88 weighted average shares for the quarters ended March 31, 2017 and 2016, respectively.







(11)  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:

11


 



·

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 March 31, 2017

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

Description

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (a) 

$

24,133 

 

$

 

$

 

$

24,133 

Earnout consideration (b)

$

 

$

 

$

7,868 

 

$

7,868 



 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of December 31, 2016

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

Description

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (a) 

$

25,206 

 

$

 

$

 

$

25,206 

Earnout consideration (b)

$

 

$

 

$

10,806 

 

$

10,806 



(a)

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

(b)

The fair value of the earnout consideration, which is based on the present value of the expected future payments to be made to the sellers of the acquired businesses, was derived by analyzing the future performance of the acquired businesses using the earnout formula and performance targets specified in each purchase agreement and adjusting those amounts to reflect the ability of the acquired entities to achieve the stated targets. Given the significance of the unobservable inputs, the valuations are classified in Level 3 of the fair value hierarchy. The change in earnout consideration reflects a $3,206 payment, partially offset by $268 of accretion.





The Company did not have any transfers of assets and liabilities between Level 1, Level 2 and Level 3 of the fair value measurement hierarchy during the quarter ended March 31, 2017.



In addition to the assets and liabilities included in the above table, certain of our assets and liabilities are to be initially measured at fair value on a non-recurring basis. This includes goodwill and other intangible assets measured at fair value for impairment assessment, in addition to redeemable noncontrolling interests. For additional discussion, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Estimates” in our Form 10-K.



(12)  Income Taxes



For the quarters ended March 31, 2017 and 2016, the Company recorded provisions  of $1,041 and $1,179, respectively, resulting in effective tax rates of 11.7% and 7.1%, respectively. 



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

12


 



Tax years 2003 through 2015 remain subject to examination by the U.S. Internal Revenue Service, with most of the years open to examination due to the generation and utilization of net operating losses. The Company files income tax returns (which are open to examination beginning in the year shown in parentheses) in Australia (2012), Belgium (2013), Brazil (2011), China (2013), France (2013), Germany (2013), India (2013), Israel (2012), Italy (2011), Japan (2012), Korea (2012), Mexico (2011), Netherlands (2011), Switzerland (2011), the United Kingdom (2015) and Uruguay (2011).



(13)  Segment Information



The Company operates in one reportable business segment. The Company conducts its business through various offices and facilities located throughout the Asia Pacific region (Australia, China, India, Japan and Korea), Europe (Belgium, France, Germany, Italy, the Netherlands, Switzerland and the United Kingdom), Israel, Latin America (Brazil, Mexico and Uruguay), Russia and the United States. The Company has historically disclosed summarized financial information for the geographic areas of operations as if they were segments in accordance with ASC 280, “Segment Reporting.” Financial information concerning the Company’s geographical locations is based on the location of the selling entity. Such summarized financial information concerning the Company’s geographical operations is shown in the following tables:









 

 

 

 

 

 



 

Quarter Ended March 31,

(in thousands)

 

2017

 

2016

Revenue from unaffiliated customers:

 

 

 

 

 

 

Americas

 

$

80,291 

 

$

83,490 

Germany

 

 

19,816 

 

 

18,882 

Other EMEA

 

 

33,142 

 

 

28,549 

Asia Pacific

 

 

23,182 

 

 

21,634 

Total  revenue

 

$

156,431 

 

$

152,555 



 

 

 

 

 

 



 

Quarter Ended March 31,

(in thousands)

 

2017

 

2016

Revenue by class of product and service:

 

 

 

 

 

 

Products

 

$

51,906 

 

$

52,495 

Materials

 

 

42,824 

 

 

38,469 

Services

 

 

61,701 

 

 

61,591 

Total revenue

 

$

156,431 

 

$

152,555 











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31, 2017

 

 

Intercompany Sales to

(in thousands)

 

Americas

 

Germany

 

Other EMEA

 

Asia Pacific

 

Total

Americas

 

$

361 

 

$

9,791 

 

$

2,954 

 

$

3,898 

 

$

17,004 

Germany

 

 

16 

 

 

 —

 

 

1,815 

 

 

 

 

1,833 

Other EMEA

 

 

16,531 

 

 

1,160 

 

 

2,199 

 

 

1,011 

 

 

20,901 

Asia Pacific

 

 

537 

 

 

 —

 

 

135 

 

 

1,014 

 

 

1,686 

Total

 

$

17,445 

 

$

10,951 

 

$

7,103 

 

$

5,925 

 

$

41,424 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31, 2016

 

 

Intercompany Sales to

(in thousands) 

 

Americas

 

Germany

 

Other EMEA

 

Asia Pacific

 

Total

Americas

 

$

289 

 

$

6,201 

 

$

3,265 

 

$

2,956 

 

$

12,711 

Germany

 

 

634 

 

 

 —

 

 

451 

 

 

 —

 

 

1,085 

Other EMEA

 

 

13,169 

 

 

833 

 

 

881 

 

 

1,161 

 

 

16,044 

Asia Pacific

 

 

1,030 

 

 

 —

 

 

 

 

891 

 

 

1,924 

Total

 

$

15,122 

 

$

7,034 

 

$

4,600 

 

$

5,008 

 

$

31,764 













 

 

 

 

 

 

13


 



 

Quarter Ended March 31,

(in thousands)

 

2017

 

2016

Income (loss) from operations:

 

 

 

 

 

 

Americas

 

$

(13,450)

 

$

(14,186)

Germany

 

 

2,057 

 

 

1,011 

Other EMEA

 

 

(1,524)

 

 

(8,118)

Asia Pacific

 

 

4,341 

 

 

5,182 

Subtotal

 

 

(8,576)

 

 

(16,111)

Intercompany elimination

 

 

(495)

 

 

(648)

Total

 

$

(9,071)

 

$

(16,759)







 

 

 

 

 



 

 

 

(in thousands)

March 31, 2017

 

December 31, 2016

Assets:

 

 

 

 

 

Americas

$

307,826 

 

$  

345,412 

Germany 

 

42,788 

 

 

40,547 

Other EMEA

 

398,470 

 

 

341,616 

Asia Pacific 

 

116,546 

 

 

121,578 

Total

$

865,630 

 

$

849,153 



 

 

 

 

 



 

 

 

(in thousands)

March 31, 2017

 

December 31, 2016

Cash and cash equivalents:

 

 

 

 

 

Americas

$

79,057 

 

$  

105,750 

Germany

 

7,488 

 

 

8,885 

Other EMEA

 

42,735 

 

 

35,992 

Asia Pacific 

 

32,382 

 

 

34,320 

Total

$

161,662 

 

$

184,947 









(14)  Commitments and Contingencies



The Company leases certain of its facilities and equipment under non-cancelable operating leases. For the quarters ended March 31, 2017 and 2016, rent expense under operating leases was $3,682 and $3,256, respectively.



Certain of the Company’s acquisitions contain earnout provisions under which the sellers of the acquired businesses can earn additional amounts. The total liability recorded for these earnouts at March 31, 2017 and December 31, 2016 was $7,868 and $10,806, respectively. See Note 6. 



Put Options



Owners of interests in a certain subsidiary have the right in certain circumstances to require the Company to acquire either a portion of or all of the remaining ownership interests held by them. The owners’ ability to exercise any such “put option” right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise. In addition, these rights cannot be exercised prior to a specified exercise date. The exercise of these rights at their earliest contractual date would result in obligations of the Company to fund the related amounts in 2019.

14


 



Management estimates, assuming that the subsidiary owned by the Company at March 31, 2017, performs over the relevant future periods at its forecasted earnings levels, that these rights, if exercised, could require the Company, in future periods, to pay approximately  $8,872 to the owners of such rights to acquire such ownership interests in the relevant subsidiary. This amount has been recorded as redeemable noncontrolling interests on the balance sheet at March 31, 2017 and December 31, 2016. The ultimate amount payable relating to this transaction will vary because it is dependent on the future results of operations of the subject business.



Litigation 



Securities and Derivative Litigation   

  

The Company and certain of its former executive officers have been named as defendants in a consolidated putative stockholder class action lawsuit pending in the United States District Court for the District of South Carolina. The consolidated action is styled KBC Asset Management NV v. 3D Systems Corporation, et al., Case No. 0:15-cv-02393-MGL. The Amended Consolidated Complaint (the “Complaint”), which was filed on December 9, 2015, alleges that defendants violated the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder by making false and misleading statements and omissions and that the former officers are control persons under Section 20(a) of the Exchange Act. The Complaint was filed on behalf of stockholders who purchased shares of the Company’s common stock between October 29, 2013, and May 5, 2015 and seeks monetary damages on behalf of the purported class. Defendants filed a motion to dismiss the Complaint in its entirety on January 14, 2016, which was denied by Memorandum Opinion and Order dated July 25, 2016 (the “Order”). Defendants filed a motion for reconsideration of the Order on August 4, 2016, which was denied by Order dated February 24, 2017.

 

Nine related derivative complaints have been filed by purported Company stockholders against certain of the Company’s former executive officers and members of its Board of Directors.  The Company is named as a nominal defendant in all nine actions. The derivatives complaints are styled as follows: (1) Steyn v. Reichental, et al., Case No. 2015-CP-46-2225, filed on July 27, 2015 in the Court of Common Pleas for the 16th Judicial Circuit, County of York, South Carolina (“Steyn”); (2) Piguing v. Reichental, et al., Case No. 2015-CP-46-2396, filed on August 7, 2015 in the Court of Common Pleas for the 16th Judicial Circuit, County of York, South Carolina (“Piguing”); (3) Booth v. Reichental, et al., Case No. 15-692-RGA, filed on August 6, 2015 in the United States District Court for the District of Delaware; (4) Nally v. Reichental, et al., Case No. 15-cv-03756-MGL, filed on September 18, 2015 in the United States District Court for the District of South Carolina (“Nally”); (5) Gee v. Hull, et al., Case No. BC-610319, filed on February 17, 2016 in the Superior Court for the State of California, County of Los Angeles (“Gee”); (6) Foster v. Reichental, et al., Case No. 0:16-cv-01016-MGL, filed on April 1, 2016 in the United States District Court for the District of South Carolina (“Foster”); (7) Lu v. Hull, et al., Case No. BC629730, filed on August 5, 2016 in the Superior Court for the State of California, County of Los Angeles (“Lu”); (8) Howes v. Reichental, et al., Case No. 0:16-cv-2810-MGL, filed on August 11, 2016 in the United States District Court for the District of South Carolina (“Howes”); and (9) Ameduri v. Reichental, et al., Case No. 0:16-cv-02995-MGL, filed on September 1, 2016 in the United States District Court for the District of South Carolina (“Ameduri”). Steyn and Piguing were consolidated into one action styled as In re 3D Systems Corp. Shareholder Derivative Litig., Lead Case No. 2015-CP-46-2225 in the Court of Common Pleas for the 16th Judicial Circuit, County of York, South Carolina. Gee and Lu were consolidated into one action styled as Gee v. Hull, et al., Case No. BC610319 in the Superior Court for the State of California, County of Los Angeles.  Nally, Foster, Howes, and Ameduri were consolidated into one action in the United States District Court for the District of South Carolina with Nally as the lead consolidated case

  

The derivative complaints allege claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment and seek, among other things, monetary damages and certain corporate governance actions.

  

All of the derivative complaints listed above have been stayed until the earlier of the close of discovery or the deadline for appealing a dismissal in the KBC Asset Management NV securities class action.



The Company believes the claims alleged in the putative securities class action and the derivative lawsuits are without merit and intends to defend the Company and its officers and directors vigorously.

15


 



Ronald Barranco and Print3D Corporation v. 3D Systems Corporation, et. al.   

  

On August 23, 2013, Ronald Barranco, a former Company employee, filed two lawsuits against the Company and certain officers in the United States District Court for the District of Hawaii. The first lawsuit (“Barranco I”) is captioned Ronald Barranco and Print3D Corporation v. 3D Systems Corporation, 3D Systems, Inc., and Damon Gregoire, Case No. CV 13-411 LEK RLP, and alleges seven causes of action relating to the Company’s acquisition of Print3D Corporation (of which Mr. Barranco was a 50% shareholder) and the subsequent employment of Mr. Barranco by the Company. The second lawsuit (“Barranco II”) is captioned Ronald Barranco v. 3D Systems Corporation, 3D Systems, Inc., Abraham Reichental, and Damon Gregoire, Case No. CV 13-412 LEK RLP, and alleges the same seven causes of action relating to the Company’s acquisition of certain website domains from Mr. Barranco and the subsequent employment of Mr. Barranco by the Company.  Both Barranco I and Barranco II allege the Company breached certain purchase agreements in order to avoid paying Mr. Barranco additional monies pursuant to royalty and earn out provisions in the agreements. The Company and its officers timely filed responsive pleadings on October 22, 2013 seeking, inter alia, to dismiss Barranco I due to a mandatory arbitration agreement and for lack of personal jurisdiction and to dismiss Barranco II for lack of personal jurisdiction.

  

With regard to Barranco I, the Hawaii district court, on February 28, 2014, denied the Company’s motion to dismiss and its motion to transfer venue to South Carolina for the convenience of the parties. However, the Hawaii court recognized that the plaintiff’s claims are all subject to mandatory and binding arbitration in Charlotte, North Carolina. Because the Hawaii court was without authority to compel arbitration outside of Hawaii, the court ordered that the case be transferred to the district court encompassing Charlotte (the United States Dist