10-Q 1 ddd-20130930x10q.htm 10-Q 11314440d57d49f

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________

 

FORM 10‑Q

_______________________________

 

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

 

For the quarterly period ended September 30, 2013

 

OR

 

o    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 1

 

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 x No o

 

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 x No o

 

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

x

 

Accelerated filer 

o

 

 

 

 

 

Non-accelerated filer

o

(Do not check if smaller reporting company)

Smaller reporting company

o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act.) Yes o No x

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Shares of Common Stock, par value $0.001, outstanding as of October 23, 2013: 102,780,833

 


 

3D SYSTEMS CORPORATION

 

Quarterly Report on Form 10-Q for the

Quarter Ended September 30, 2013

 

TABLE OF CONTENTS

 

 

 

 

2

 


 

 

PART I. — FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

(in thousands, except par value)

 

2013

 

2012

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

345,356 

 

$

155,859 

Accounts receivable, net of allowance for doubtful accounts of $7,505 (2013) and $4,317 (2012)

 

 

113,993 

 

 

79,869 

Inventories, net

 

 

66,110 

 

 

41,820 

Prepaid expenses and other current assets

 

 

9,830 

 

 

4,010 

Current deferred income taxes

 

 

5,887 

 

 

5,867 

Restricted cash

 

 

14 

 

 

13 

Total current assets

 

 

541,190 

 

 

287,438 

Property and equipment, net

 

 

41,038 

 

 

34,353 

Intangible assets, net

 

 

145,073 

 

 

108,377 

Goodwill

 

 

324,389 

 

 

240,314 

Long term deferred income taxes

 

 

327 

 

 

107 

Other assets, net

 

 

11,465 

 

 

6,853 

Total assets

 

$

1,063,482 

 

$

677,442 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of capitalized lease obligations

 

$

184 

 

$

174 

Accounts payable

 

 

46,534 

 

 

32,095 

Accrued and other liabilities

 

 

32,045 

 

 

24,789 

Customer deposits

 

 

4,280 

 

 

2,786 

Deferred revenue

 

 

21,331 

 

 

15,309 

Total current liabilities

 

 

104,374 

 

 

75,153 

Long term portion of capitalized lease obligations

 

 

7,329 

 

 

7,443 

Convertible senior notes, net

 

 

11,335 

 

 

80,531 

Deferred income tax liability 

 

 

27,303 

 

 

23,142 

Other liabilities

 

 

11,354 

 

 

10,840 

Total liabilities

 

 

161,695 

 

 

197,109 

Commitments and Contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value, authorized 220,000 shares (2013) and 120,000 (2012); issued 103,348 (2013) and 89,783 (2012)

 

 

103 

 

 

60 

Additional paid-in capital

 

 

845,003 

 

 

460,237 

Treasury stock, at cost: 566 shares (2013) and 533 shares (2012)

 

 

(262)

 

 

(240)

Accumulated earnings

 

 

49,262 

 

 

16,410 

Accumulated other comprehensive income

 

 

3,988 

 

 

3,866 

Total 3D Systems Corporation stockholders' equity

 

 

898,094 

 

 

480,333 

Noncontrolling interest

 

 

3,693 

 

 

Total stockholders’ equity

 

 

901,787 

 

 

480,333 

Total liabilities and stockholders’ equity

 

$

1,063,482 

 

$

677,442 

 

See accompanying notes to condensed consolidated financial statements.

 

3

 


 

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

(in thousands, except per share amounts)

2013

 

2012

 

2013

 

2012

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Products

$

93,020 

 

$

59,551 

 

$

244,937 

 

$

161,223 

Services

 

42,697 

 

 

30,981 

 

 

113,646 

 

 

90,839 

Total revenue

 

135,717 

 

 

90,532 

 

 

358,583 

 

 

252,062 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

Products

 

41,609 

 

 

26,729 

 

 

108,569 

 

 

73,621 

Services

 

22,671 

 

 

16,924 

 

 

62,517 

 

 

49,741 

Total cost of sales

 

64,280 

 

 

43,653 

 

 

171,086 

 

 

123,362 

Gross profit

 

71,437 

 

 

46,879 

 

 

187,497 

 

 

128,700 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

32,054 

 

 

22,900 

 

 

97,697 

 

 

70,898 

Research and development

 

10,813 

 

 

5,543 

 

 

26,915 

 

 

15,397 

Total operating expenses

 

42,867 

 

 

28,443 

 

 

124,612 

 

 

86,295 

Income from operations

 

28,570 

 

 

18,436 

 

 

62,885 

 

 

42,405 

Interest and other expense, net

 

2,651 

 

 

2,167 

 

 

15,380 

 

 

8,589 

Income before income taxes

 

25,919 

 

 

16,269 

 

 

47,505 

 

 

33,816 

Provision for income taxes

 

8,279 

 

 

2,752 

 

 

14,639 

 

 

5,787 

Net income 

 

17,640 

 

 

13,517 

 

 

32,866 

 

 

28,029 

Net loss attributable to noncontrolling interest

 

17 

 

 

 

 

17 

 

 

Net income attributable to 3D Systems Corporation

$

17,657 

 

$

13,517 

 

$

32,883 

 

$

28,029 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on pension obligation

$

 

$

(6)

 

$

22 

 

$

Foreign currency translation gain

 

5,821 

 

 

2,016 

 

 

100 

 

 

191 

Comprehensive income

$

23,484 

 

$

15,527 

 

$

33,005 

 

$

28,221 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share available to 3D System's common stockholders' — basic

$

0.17 

 

$

0.16 

 

$

0.34 

 

$

0.35 

Net income per share available to 3D System's common stockholders' — diluted

$

0.17 

 

$

0.16 

 

$

0.34 

 

$

0.35 

 

See accompanying notes to condensed consolidated financial statements.

 

 

4

 


 

 

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

(in thousands)

 

2013

 

 

2012

Cash flows from operating activities:

 

 

 

 

 

Net income 

$

32,866 

 

$

28,029 

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

 

 

 

 

 

Provision for (benefit of) deferred income taxes

 

(4,274)

 

 

2,941 

Depreciation and amortization

 

22,086 

 

 

15,804 

Non-cash interest on convertible notes

 

880 

 

 

2,923 

Provision for bad debts

 

3,254 

 

 

2,369 

Stock-based compensation

 

8,464 

 

 

3,656 

(Gain) loss on the disposition of property and equipment

 

133 

 

 

(631)

Deferred interest income

 

(1,018)

 

 

Loss on conversion of convertible debt

 

11,275 

 

 

1,245 

Changes in operating accounts:

 

 

 

 

 

Accounts receivable

 

(25,962)

 

 

(11,270)

Inventories

 

(21,752)

 

 

(10,582)

Prepaid expenses and other current assets

 

(4,695)

 

 

237 

Accounts payable

 

6,439 

 

 

(4,488)

Accrued liabilities

 

15,838 

 

 

14,298 

Customer deposits

 

1,256 

 

 

(1,347)

Deferred revenue

 

4,282 

 

 

815 

Other operating assets and liabilities

 

(4,637)

 

 

12 

Net cash provided by operating activities

 

44,435 

 

 

44,011 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(5,728)

 

 

(1,902)

Additions to license and patent costs

 

(1,502)

 

 

(535)

Proceeds from disposition of property and equipment

 

1,882 

 

 

Cash paid for acquisitions, net of cash assumed

 

(113,069)

 

 

(148,278)

Other investing activities

 

(4,101)

 

 

Net cash used in investing activities

 

(122,518)

 

 

(150,715)

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of common stock

 

272,116 

 

 

106,890 

Proceeds from exercise of stock options and restricted stock, net

 

545 

 

 

4,582 

Cash disbursed in lieu of fractional shares related to stock split

 

(177)

 

 

Repayment of capital lease obligations

 

(3,680)

 

 

(121)

Net cash provided by financing activities

 

268,804 

 

 

111,351 

Effect of exchange rate changes on cash

 

(1,224)

 

 

164 

Net increase in cash and cash equivalents

 

189,497 

 

 

4,811 

Cash and cash equivalents at the beginning of the period

 

155,859 

 

 

179,120 

Cash and cash equivalents at the end of the period

$

345,356 

 

$

183,931 

 

 

 

 

 

 

 

 

5

 


 

 

 

 

 

 

 

(Continued)

Nine Months Ended September 30,

 

2013

 

2012

Supplemental Cash Flow Information:

 

 

 

 

 

Interest payments

$

1,110 

 

$

5,114 

Income tax payments

$

3,165 

 

$

1,889 

Non-cash items:

 

 

 

 

 

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

$

3,167 

 

$

2,228 

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

$

677 

 

$

1,365 

Stock issued for acquisitions of businesses

$

7,250 

 

$

7,103 

Stock issued for conversions of 5.50% senior convertible notes

 

5,482 

 

 

11,250 

Notes redeemed for shares of common stock

$

78,420 

 

$

11,500 

 

(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 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.

 

 

6

 


 

 

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, 2012

59,855 

 

$

60 

 

$

460,237 

 

355 

 

$

(240)

 

$

16,410 

 

$

3,866 

 

 

480,333 

 

$

 

 

480,333 

Tax benefit of stock options exercised

 

 

(a)

 

15,843 

 

 

 

 

 

 

 

 

 

15,843 

 

 

 

 

15,843 

Issuance (repurchase) of restricted stock, net

621 

 

 

(a)

 

568 

 

34 

 

 

(22)

 

 

 

 

 

 

546 

 

 

 

 

546 

Issuance of stock for 5.50% senior convertible notes

4,675 

 

 

 

 

80,749 

 

 

 

 

 

 

 

 

 

80,754 

 

 

 

 

80,754 

Common stock split

30,867 

 

 

31 

 

 

(177)

 

177 

 

 

 

 

(31)

 

 

 

 

(177)

 

 

 

 

(177)

Issuance of stock for acquisitions

203 

 

 

 

 

7,250 

 

 

 

 

 

 

 

 

 

7,250 

 

 

 

 

7,250 

Issuance of stock for equity raise

7,112 

 

 

 

 

272,069 

 

 

 

 

 

 

 

 

 

272,076 

 

 

 

 

272,076 

Stock-based compensation expense

15 

 

 

 

 

8,464 

 

 

 

 

 

 

 

 

 

8,464 

 

 

 

 

8,464 

Net income

 

 

 

 

 

 

 

 

 

32,883 

 

 

 

 

32,883 

 

 

(17)

 

 

32,866 

Noncontrolling interest for business combinations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,710 

 

 

3,710 

Gain on pension plan – unrealized

 

 

 

 

 

 

 

 

 

 

 

22 

 

 

22 

 

 

 

 

22 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

100 

 

 

100 

 

 

 

 

100 

Balance at September 30, 2013

103,348 

 

$

103 

 

$

845,003 

 

566 

 

$

(262)

 

$

49,262 

 

$

3,988 

(b)

$

898,094 

 

$

3,693 

 

$

901,787 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Amounts not shown due to rounding.

(b)

Accumulated other comprehensive gain of $3,988 consists of a cumulative unrealized loss on pension plan of $886 and a foreign currency translation gain of $4,874.

 

See accompanying notes to condensed consolidated financial statements.

 

 

7

 


 

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, 2012.

 

In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments, consisting of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results of operations for the quarter and nine months ended September 30, 2013 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.

 

The Company’s Board of Directors approved a three-for-two stock split, effected in the form of a 50% stock dividend, which was paid on February 22, 2013 to stockholders of record at the close of business on February 15, 2013. The Company’s stockholders received one additional share of common stock for every two shares of common stock owned. This did not change the proportionate interest that a stockholder maintained in the Company. In lieu of fractional shares, shareholders received a cash payment based on the closing market price of DDD stock on the record date. All share and per share amounts set forth in this report, including earnings per share and the weighted average number of shares outstanding for basic and diluted earnings per share, for each respective period, have been adjusted to reflect the three-for-two stock split.

 

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 third quarter of 2013, have had or are expected to have a significant impact on the Company’s consolidated financial statements.

8

 


 

(2) Acquisitions

 

The Company completed four acquisitions in the third quarter of 2013, which are discussed below. During the previous quarters of 2013, the Company completed three acquisitions which aggregated to a purchase price of $97,449.

 

On July 15, 2013, the Company acquired approximately 82% of the outstanding shares and voting rights of Phenix Systems, a leading global provider of direct metal selective laser sintering 3D Printers based in Riom, France. Phenix Systems designs, manufactures and sells proprietary direct metal 3D printers that can print chemically pure, fully dense metal and ceramic parts from very fine powders. The fair value of the consideration paid for this acquisition, net of cash acquired, was approximately $14,561 based on the exchange rate at the date of acquisition, all of which was paid in cash. Phenix’s operations have been integrated into printers and other products and services revenue.  Factors considered in determination of goodwill include synergies, workforce, vertical integration and strategic fit for the Company.

 

On August 6, 2013, the Company acquired VisPower Technology, Inc.,  a  cloud-based, collaborative design and project management platform (“TeamPlatform”). The fair value of the consideration paid for this acquisition, net of cash acquired, was $4,998, all of which was paid in cash. TeamPlatform’s operations have been integrated into the Company’s professional and consumer offerings, including Geomagic Solutions and Cubify.com. Factors considered in determination of goodwill include synergies, workforce, vertical integration and strategic fit for the Company.

 

On August 20, 2013, the Company acquired CRDM, Ltd. (“CRDM”), a U.K. provider of rapid prototyping and rapid tooling services.  The fair value of the consideration paid for this acquisition, net of cash acquired, was approximately $6,399 based on the exchange rate at the date of acquisition, all of which was paid in cash. CRDM’s operations have been integrated into the Company’s global Quickparts Solutions custom parts and manufacturing services revenue. Factors considered in determination of goodwill include synergies, workforce, vertical integration and strategic fit for the Company.

 

On September 6, 2013, the Company acquired The Sugar Lab, a  start-up micro-design firm based in Los Angeles, California, that is dedicated to 3D printing customized, multi-dimensional, edible confections. The fair value of the consideration paid for this acquisition, net of cash acquired, was $1,500, of which $1,000 was paid in cash and $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 Sugar Lab’s operations have been integrated into the Company’s printers and services revenue.  Factors considered in determination of goodwill include synergies, vertical integration and strategic fit for the Company.

 

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

 

The Company’s purchase price allocation for the acquired companies is preliminary and subject to revision as more detailed analyses are completed and additional information about fair value of assets and liabilities becomes available. The amounts related to the third quarter acquisitions are allocated to the assets acquired and the liabilities assumed and are included in the Company’s condensed consolidated balance sheet at September 30, 2013 as follows:

 

 

 

 

 

 

 

 

(in thousands)

2013

Fixed assets

$

3,824 

Other intangible assets, net

 

9,658 

Goodwill

 

16,625 

Other assets, net of cash acquired

 

9,099 

Liabilities

 

(11,748)

Net assets acquired

$

27,458 

 

 

 

 

 

 

 

9

 


 

(3)  Inventories

 

Components of inventories, net at September 30, 2013 and December 31, 2012 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

2013

 

2012

Raw materials

$

28,866 

 

$

19,785 

Work in process

 

3,071 

 

 

477 

Finished goods and parts

 

34,173 

 

 

21,558 

Inventories, net

$

66,110 

 

$

41,820 

 

 

 

(4)  Property and Equipment

 

Property and equipment at September 30, 2013 and December 31, 2012 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

2013

 

2012

 

Useful Life (in years)

Land

$

541 

 

$

541 

 

N/A

Building

 

9,315 

 

 

9,315 

 

25

Machinery and equipment

 

54,314 

 

 

45,869 

 

3-7

Capitalized software — ERP

 

3,761 

 

 

3,181 

 

5

Office furniture and equipment

 

3,677 

 

 

3,357 

 

5

Leasehold improvements

 

9,281 

 

 

6,467 

 

Life of lease (a)

Rental equipment

 

 

 

57 

 

5

Construction in progress

 

3,500 

 

 

2,595 

 

N/A

Total property and equipment

 

84,389 

 

 

71,382 

 

 

Less: Accumulated depreciation and amortization

 

(43,351)

 

 

(37,029)

 

 

Total property and equipment, net

$

41,038 

 

$

34,353 

 

 

 

(a)

Leasehold improvements are amortized on a straight-line basis over the shorter of (i) their estimated useful lives and (ii) the estimated or contractual life of the related lease.

 

Depreciation and amortization expense on property and equipment for the quarter and nine months ended September 30, 2013 was $2,552 and $6,984, respectively, compared to $2,151 and $6,285, respectively, for the quarter and nine months ended September 30, 2012.

10

 


 

(5)  Intangible Assets

 

Intangible assets other than goodwill at September 30, 2013 and December 31, 2012 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2013

 

2012

 

 

(in thousands)

Gross

 

Accumulated Amortization

 

Net

 

Gross

 

Accumulated Amortization

 

Net

 

Useful Life (in years)

Intangible assets with finite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Licenses

$

5,875 

 

$

(5,875)

 

$

 —

 

$

5,875 

 

$

(5,875)

 

$

 —

 

 

Patent costs

 

30,088 

 

 

(14,459)

 

 

15,629 

 

 

27,635 

 

 

(14,047)

 

 

13,588 

 

6 - 7

Acquired technology

 

28,510 

 

 

(13,087)

 

 

15,423 

 

 

26,262 

 

 

(11,852)

 

 

14,410 

 

5 - 10

Internally developed software

 

17,847 

 

 

(12,503)

 

 

5,344 

 

 

17,847 

 

 

(11,424)

 

 

6,423 

 

5

Customer relationships

 

96,215 

 

 

(15,310)

 

 

80,905 

 

 

60,329 

 

 

(7,754)

 

 

52,575 

 

5 - 13

Non-compete agreements

 

16,521 

 

 

(6,103)

 

 

10,418 

 

 

14,051 

 

 

(3,836)

 

 

10,215 

 

3 - 11

Trade names

 

9,084 

 

 

(1,819)

 

 

7,265 

 

 

5,814 

 

 

(723)

 

 

5,091 

 

2 - 10

Other

 

12,540 

 

 

(4,561)

 

 

7,979 

 

 

6,356 

 

 

(3,051)

 

 

3,305 

 

<1 - 7

Intangibles with indefinite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

2,110 

 

 

 —

 

 

2,110 

 

 

2,770 

 

 

 

 

2,770 

 

N/A

Total intangible assets

$

218,790 

 

$

(73,717)

 

$

145,073 

 

$

166,939 

 

$

(58,562)

 

$

108,377 

 

<1 - 13

 

For the nine months ended September 30, 2013 and 2012, the Company capitalized $1,502 and $535, respectively, of costs incurred to acquire, develop and extend patents in the United States and various other countries.

 

Amortization expense for intangible assets for the quarter and nine months ended September 30, 2013 was $6,206 and $15,102, respectively, compared to $3,079 and $9,519, respectively, for the quarter and nine months ended September 30, 2012.

 

Annual amortization expense for intangible assets for 2013, 2014, 2015, 2016 and 2017 is expected to be $20,517, $20,432,  $18,649, $16,551 and $15,129, respectively.

 

 

(6)  Accrued and Other Liabilities

 

Accrued liabilities at September 30, 2013 and December 31, 2012 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

2013

 

2012

Compensation and benefits

$

13,430 

 

$

13,582 

Vendor accruals

 

5,418 

 

 

3,357 

Accrued professional fees

 

539 

 

 

533 

Accrued taxes

 

3,675 

 

 

3,382 

Royalties payable

 

563 

 

 

550 

Accrued interest

 

246 

 

 

266 

Earnouts and deferred payments related to acquisitions

 

7,322 

 

 

2,657 

Accrued other

 

852 

 

 

462 

Total

$

32,045 

 

$

24,789 

 

 

Other liabilities at September 30, 2013 and December 31, 2012 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

2013

 

2012

Defined benefit pension obligation

$

5,214 

 

$

5,139 

Long term tax liability

 

90 

 

 

803 

Earnouts related to acquisitions

 

674 

 

 

1,454 

Long term deferred revenue

 

4,315 

 

 

2,787 

Other long term liabilities

 

1,061 

 

 

657 

Total

$

11,354 

 

$

10,840 

 

 

 

 

11

 


 

 

 

(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 September 30, 2013  or at December 31, 2012

 

The total impact of foreign currency transactions on the condensed consolidated statements of operations and comprehensive income for the quarter and nine months ended September 30, 2013 reflected a  gain of  $505 and a loss of  $258, respectively, compared to a gain of $653 and a gain of  $138, respectively, for the quarter and nine months ended September 30, 2012.

 

 

(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 September 30, 2013 and December 31, 2012:  

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

2013

 

2012

Principal amount of convertible notes

$

12,540 

 

$

90,960 

Unamortized discount on convertible notes

 

(1,205)

 

 

(10,429)

Net carrying value

$

11,335 

 

$

80,531 

 

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. During the third quarter of 2013 note holders converted $15,000 aggregate principal amount of notes, which converted into 1,049 shares of common stock, on a split-adjusted basis. The Company recognized a $2,022 loss on conversion of these notes in interest and other expense, net. During the first nine months of 2013, note holders converted $78,420 aggregate principal amount of notes, which converted into 5,482 shares of common stock, on a split-adjusted basis. The Company recognized a $11,275 loss on conversion of these notes in interest and other expense, net.

 

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.

12

 


 

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 nine months ended September 30, 2013 and 2012 was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

(in thousands)

2013

 

2012

 

2013

 

2012

Restricted stock awards

$

3,118 

 

$

1,176 

 

$

8,464 

 

$

3,656 

 

The number of shares of restricted common stock awarded and the weighted average fair value per share during the quarter and nine months ended September 30, 2013 and 2012 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30,

 

 

2013

 

 

2012

(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

 

96 

 

$

49.35 

 

 

80 

 

$

34.78 

Granted under the 2004 Restricted Stock Plan for Non-Employee Directors

 

 

 

47.12 

 

 

 

 

 Total restricted stock awards

 

99 

 

$

49.29 

 

 

80 

 

$

34.78 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2013

 

 

2012

(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

 

385 

 

$

41.66 

 

 

237 

 

$

27.78 

Granted under the 2004 Restricted Stock Plan for Non-Employee Directors

 

15 

 

 

48.20 

 

 

11 

 

 

27.42 

 Total restricted stock awards

 

400 

 

$

41.91 

 

 

248 

 

$

27.76 

 

In the nine months ended September 30, 2013, the Company granted restricted stock awards covering 385 shares of common stock pursuant to the Company’s 2004 Incentive Stock Plan. Of the 385 shares granted in the first nine months of 2013, 27 shares were awarded to executive officers of the Company. Additionally, of the 385 shares granted in the first nine months of 2013, 38 remained subject to acceptance at September 30, 2013. In the first nine months of 2012, the Company granted restricted stock awards covering 237 shares of common stock pursuant to the Company’s 2004 Incentive Stock Plan; of which 13 shares were awarded to executive officers of the Company.

 

In the first nine months of 2013 and 2012, respectively, the Company granted 15 and 11 shares, respectively, of common stock pursuant to the Company’s 2004 Restricted Stock Plan for Non-Employee Directors. Stock compensation expense for Non-Employee Directors for the first nine months of 2013 and 2012 was $727 and $300, respectively.

 

13

 


 

(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 nine months ended September 30, 2013 and 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

(in thousands)

2013

 

2012

 

2013

 

2012

Service cost

$

37 

 

$

18 

 

$

84 

 

$

55 

Interest cost

 

78 

 

 

29 

 

 

175 

 

 

93 

Total

$

115 

 

$

47 

 

$

259 

 

$

148 

 

 

 

 

(11)  Earnings Per Share

 

The Company presents basic and diluted earnings per share (“EPS”) amounts. Basic EPS is calculated by dividing net income  available to common stockholders by the weighted average number of common shares outstanding during the applicable period. Diluted EPS is calculated by dividing net income by the weighted average number of common and common equivalent shares outstanding during the applicable period.

 

The following table reconciles basic weighted average outstanding shares to diluted weighted average outstanding shares at September 30, 2013 and 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

(in thousands, except per share amounts)

2013

 

2012

 

2013

 

2012

Numerator:

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to 3D Systems – numerator for basic net earnings per share

$

17,657 

 

$

13,517 

 

$

32,883 

 

$

28,029 

Add: Effect of dilutive securities