UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | | For the fiscal year ended December 31, 20082009 |
o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 0-22250001-34220
3D SYSTEMS CORPORATION
(Exact name of Registrant as specified in our charter)
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Delaware
| | 95-4431352 |
(State or other jurisdiction of
incorporation or organization) | | 95-4431352
(I.R.S. Employer
Identification No.) |
333 Three D Systems Circle
Rock Hill, SC 29730
(Address of principal executive offices and zip code)
(803) 326-3900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | | Name of Each Exchange on Which Registered |
|
| Common stock, par value $0.001 per share | | The NASDAQ StockGlobal Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation 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 o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. þo
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”filer,” and “smaller reporting company” inRule12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act.) Yes o No þ
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 20082009 was $162,287,996.$128,911,764. For purposes of this computation, it has been assumed that the shares beneficially held by directors and officers of the registrant were “held by affiliates.” This assumption is not to be deemed an admission by these persons that they are affiliates of the registrant.
The number of outstanding shares of the registrant’s common stock as of February 20, 200912, 2010 was 22,356,937.22,860,807.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s definitive proxy statement for our 2009its 2010 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission, are incorporated by reference into Part III of thisForm 10-K.
3D SYSTEMS CORPORATION
Annual Report onForm 10-K for the
Year Ended December 31, 20082009
Table of Contents
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PART I
General
3D Systems Corporation (“3D Systems” or the “Company”) is a holding company that operates through subsidiaries in the United States, Europe and the Asia-Pacific region. We design, develop, manufacture, market and service3-D printing, rapid manufacturing, and prototyping systems and related products and materials that enable complex three-dimensional objects to be produced directly from computer data without tooling, greatly reducingtooling. We also operate 3Dpropartstm, a comprehensive service that offers our customers rapid prototyping and direct rapid manufacturing services for the time and cost required to produce prototypes or customized production of precision parts.
Our customersCustomers who use our proprietary systems are able to produce physical objects from digital data using commonly available computer-aided design software, often referred to as CAD software, or other digital-media devices such as engineering scanners and MRI or CT medical scanners. Our systems’ ability to produce functional parts from digital art enables customers to create detailed prototypes or production-quality parts quickly and effectively without a significant investment in expensive tooling, greatly reducing the time and cost required to produce prototypes or to customize production parts.
Our systems use additive part-production processes for applications that require rapid design iterations, prototyping and manufacturing. We believe that our systems enable our customers to develop better quality, higher functionality new products faster and more economically than other more traditional methods.
Our product development efforts are focused on expanding our portfolio of3-D printing and rapid manufacturing solutions, which we believe representrepresents significant growth opportunities for our business. We also believe that our core rapid prototyping business continues toand our parts production service provide us with significant growth opportunities. In recent years, we have worked to develop new systems and materials and have enhanced our overall technology to rejuvenate and reshape our core business while developing new products that address our3-D printing and rapid manufacturing growth initiatives. With respect to the uses of our systems:
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| | • | In rapid manufacturing applications, our systems are used to manufacture end-use parts that have the appearance and characteristics of high-quality injection-molded parts. Customers who adopt our rapid manufacturing solutions avoid the significant costs of complexset-ups and changeovers and eliminate the costs and lead-times associated with conventional tooling methods or hand labor. Rapid manufacturing enables our customers to produce optimized designs since they can design for function, unconstrained by normaldesign-for-manufacture considerations. |
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| | • | In3-D printing applications, our systems are used to produce three-dimensional shapes, primarily for visualizing and communicating concepts, various design applications and other applications, including supply-chainsupply chain management, functional modeling, architecture, art, surgical modeling, medical end useend-use applications such as hearing aids and dental uses, and entertainment. |
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| | • | In rapid prototyping applications, our systems are used to generate quickly and efficiently generate product-concept models, functional prototypes to test form, fit and function, master patterns and expendable patterns for urethane and investment casting that are often used as a cost-effective means of evaluating product designs and short runshort-run production. |
Our products offer our customers an integrated systems’systems solution consisting of equipment and embedded software, integrated consumable materials and customer service. Our extensive solutions’solutions portfolio is based on four distinct and proprietary technology platforms, discussed in greater detail below, that enable us to offer our customers a way to transform the manner in which they design, develop and manufacture their products.
Products and Services
Our principal technology platforms include our stereolithography or SLA® equipment, our selective laser sintering or SLS® equipment, and our multi-jet3-D printing equipment, which include our multi-jet and layer-deposition equipment and our film transfer imaging (“FTI”)
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equipment. These systems use patented and proprietary stereolithography, selective laser sintering and various3-D printing and film transfer imaging methods and
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processes that take digital data input from CAD software or three-dimensional scanning and sculpting devices to fabricate physical objects from our proprietary family of engineered plastic, metal and composite materials.
We blend, market and distribute a wide range of proprietary consumable, engineered plastics, composites and materials that we market to produce physical parts from digital art using our systems. We augment and complement our own portfolio of engineered materials with materials that we purchase from third parties under private-label and distribution arrangements.
We provide to our customers a comprehensive suite of proprietary software tools that are embedded within our systems and pre-sale as well as post-sale field services, ranging from applications’applications development to installation, warranty and maintenance services.
In 2009, we introduced our 3Dpropartstm service, expanding our distribution channel for rapid prototyping and direct rapid manufacturing parts. 3Dpropartstm offers a broad range of precision plastic and metal parts and assembly capabilities produced from a wide range of materials using a variety of additive and traditional manufacturing processes.
Systems Solutions
SLA® systems and related equipment
Stereolithography, or SLA®, systems convert our engineered materials and composites into solid cross-sections, layer by layer, until the desired fully fused objects are completely produced. Our SLA® systems are capable of making multiple distinct objects at the same time and are designed to produce highly accurate objects in a wide range of sizes and shapes and material performance characteristics.
Stereolithography parts are known for their durability, fine feature detail, resolution and surface quality. Product designers, engineers and marketers in many large manufacturing companies throughout the world use our SLA® systems for a wide variety of applications, ranging from short production runs of end-use products, to producing prototype parts for automotive, aerospace and various consumer and electronic applications.
Our SLA® systems are capable of rapidly producing tools, fixtures, jigs and end-use parts, including parts for dental, hearing aid, jewelry and motor-sport applications. They are also designed for uses such as building functional models that enable users to share ideas and evaluate concepts,concepts; performing form, fit and function testing on working-assembliesworking assemblies and building masterexpendable patterns for metal casting.
Our family of SLA® systems offers a wide range of capabilities, including size, speed, accuracy, throughput and surface finish in different formats and price points. We have devoted substantial efforts to introducing new systems with new capabilities. In 2008, we introduced our newOur iProtm family of SLA® systems. These systems includeincludes our iProtm 8000 and iProtm 9000. The iProtm 8000 system is a completely new mid-range SLA® system. Our new iProtm 9000 SLA® Center is a new professional stereolithography system for the production of ultra high-definition “Pro-Parts” from our integrated portfolio of proprietary Accura® Plastics. Our iProtm SLA® Centers are designed to quickly and economically produce durable plastic parts with unprecedented surface smoothness, feature resolution, edge definition and tolerances that rival the accuracy of CNC-machined plastic parts. The iProtm systems are our most advanced, flexible, high-capacity stereolithography systems that are designed to enable customers to mass customize and produce high-quality, end-use parts, patterns, wind tunnel models, fixtures and tools consistently and economically using our proprietary and other stereolithography materials. In 20082009 we continued to offer the Vipertm Pro SLA® and the Viper Sitm SLA® systems.system. The Vipertm Pro SLA® system is an advanced, flexible, high-capacity stereolithography system that is designed to enable customers to mass customize and produce high-quality, end-use parts, patterns, wind tunnel models, fixtures and tools consistently and economically, using our proprietary and other stereolithography materials. The Viper Sitm SLA® system operates in a similar fashion as the iProtm systems, but has a smaller build area and a lower build throughput rate and is capable of building smaller fine-featured parts.
SLS® systems and related equipment
Our selective laser sintering, or SLS®, additive manufacturing systems convert our proprietary engineered materials and composites by melting and fusing, or sintering, these materials into solid cross-sections,layer-by-layer, layer-
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by-layer, to produce finished parts. SLS® systems can create parts from a variety of proprietary engineered plastic and metal powders and are capable of processing multiple parts in a single build session.
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Customer uses of our SLS® systems include functional test models and end-use parts, which enable our customers to create customized parts economically without tooling. The combination of materials’materials flexibility, part functionality and high throughput of our SLS® technology makes it well suited for rapid manufacturing of durable parts for applications in various industries, including aerospace, automotive, packaging, machinery and motor sportsmotor-sports applications.
Customer uses of our SLS® systems include functional test models and end-use parts, which enable our customers to create customized parts economically without tooling. Early in 2008 we added two direct metal sintering systems to our portfolio through a private label arrangement that we entered into with a third-party supplier. These new systems are capable of producing fully-dense direct metal parts from a variety of metal powders, including stainless steel, cobalt, titanium and tool steel.
Our family of SLS® systems includes theour line of sProtm SLS® system and the Sinterstation® Pro SLS® system,systems, automated selective laser sintering manufacturing systems that are designed to enable our customers to mass customize and produce high-quality end-use parts, patterns, fixtures and tools consistently and economically from our proprietary engineered plastics,on-site and on-demand. We also produce and sellIn 2009 we introduced our Sinterstation® HiQnew sProtm 60 family of SLS® production systems, which features enhanced productivity and part accuracy within an optimized build volume, new CleanSweeptm IR sensor technology, the ability to process multiple materials and the flexibility to change materials quickly.
We offer the Sinterstation® HiQProtm high-speed or HS SLS® manufacturing-capable systems. We also offer our direct-metals lineSLM direct metal sintering system through a private label arrangement that we entered into with a third-party supplier. These systems are capable of selective laser sintering systems mentioned above.producing fully-dense direct metal parts from a variety of metal powders, including stainless steel, chrome cobalt, titanium and tool steel.
3-D printing systems
Our expanding line of3-D printers is ideal for use in engineering design environments for product development, marketing communication groups, rapid manufacturing such as jewelry and dental laboratory direct casting applications and within engineering schools and other educational institutions. Our range of3-D printers includes our multi-jet and layer-deposition equipment as well as our new Film Transfer Imaging (“FTI”)-based equipment that we developed over the last several years and announced in 2007.film transfer imaging-based equipment.
All of our3-D printers accept digital input from either a three-dimensional CAD station or a scanned3-D image, converting this input data one slice thickness at a time, to create a solid part one layer at a time. These printers offer superior finished surfaces, no geometry limitations,plug-and-play installation,point-and-print functionality andbest-in-class part resolution in a variety of price points and materials.
Our portfoliofamily of multi-jet printers consists of several models, including our ProJettm systems that we introduced early in 2008 to replacewhich have replaced our family of InVision® systems. All of our printers are designed to produce high-definition, functional and durable models for form, fit and function analysis, including certain models that are capable of ultra-fine resolution for precision dental and jewelry applications. We plan to beginbegan shipping our new large format3-D printer, the ProJettm 5000, during the thirdfourth quarter of 2009.
Early in 2007,During the second quarter of 2009, we announced that we had developed a new desktop modeling FTI technology and that we planned to introduce several models based on this new technology starting with a general purpose desktop system that we branded as thecommenced commercial shipment of our V-Flash® Desktop Modeler. Throughout 2007Printer, our firstsub-ten thousand dollar desktop printer. As discussed above, we believe that, in addition to our focus on and 2008 we continued to refine this technology. This Modelerpursuit of rapid manufacturing opportunities,3-D printing provides us with a significant opportunity for growth. The V-Flash® Desktop Printer is the first product based on our new Film Transfer ImagingFTI technology platform, and it is designed to build three-dimensional models within hours in a home or an office, enabling designers, engineers, hobbyists and students to imagine, design and build their ideas at their desks. During the second quarter of 2009, we expect to commence commercial shipment of our long-awaited V-Flash® Desktop Modeler, our firstsub-ten thousand dollar desktop modeler. As discussed above, we believe that, in addition to our focus on and pursuit of rapid manufacturing opportunities,3-D printing provides us with a significant opportunity for growth.
Software
As part of our comprehensive and integrated systems solutions, we offer embedded proprietary part-preparation software. This software is designed to enhance the interface between our customers’ digital data and our systems. Digital data, such as a three-dimensional CAD-produced digital image, is converted within our proprietary software so that, depending on the specific software, the image can be viewed, rotated and scaled, and model structures can be added. The software then generates the information that is used by the SLA® or SLS® system or by the3-D printer to create solid objects. From time to time, we also work with third parties to develop complementary software for our systems.
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Materials
As part of our integrated systems approach to business, we blend, market, sell and distribute consumable, engineered plastic and metal materials and composites under several proprietary brand names for use in all of our systems. We market our stereolithography materials under the Accura® brand, our selective laser sintering materials under the DuraForm®, CastFormtm and LaserFormtm brands, and materials for our3-D printers under the VisiJet® brand.
Many of our systems have built-in electronic intelligence that communicates vital processing and quality statistics in real time with the systems. For these systems, we furnish materials that are designed for use in those systems and that are packaged in smart cartridges designed to enhance system functionality, up-time, materials shelf life and overall system reliability, with the objective of providing our customers with a built-in quality management system.
We work closely with our customers to optimize the performance of our materials in their applications. Our expertise in materials formulation, combined with our process, software and equipment-design strengths, enable us to help our customers select the material that best meets their needs and to obtain optimal results from the material. We also work with third parties to develop different types and varieties of materials designed to meet the needs of our customers.
Stereolithography engineered materials and composites
Our family of proprietary stereolithography materials and composites offers a variety of plastic-like performance characteristics and attributes designed to mimic specific engineered thermoplastic materials. When used in our SLA® systems, our proprietary liquid materials turn into a solid surface one layer at a time, and through an additive building process all of the layers bond and fuse together to make a solid part.
Our portfolio of Accura® stereolithography materials includes general-purpose as well as specialized materials and composites that offer our customers the opportunity to choose the material that is best suited for the parts and models that they intend to produce. To further complement and expand the range of materials we offer to our customers, we also distribute SLA® materials under recognized third-party brand names.
In 2008,2009, we introduced our Accura® ClearVuee-Stonetm Plastic, another integrated stereolithography material with excellent transparency, outstanding durabilityfamily of materials developed specifically to produce dental-digital models from data derived from dental intraoral and enhanced yieldsimpression scanners without pouring traditional stone models, saving time and manufacturability. These materials are used primarilymoney for the production of plastic-like jigs, fixturesdentists and functional parts for a variety of automotive, consumer, electronics durable goodsdental laboratories and aerospace applications. We also began to sell our Accura® materials in Japan, expanding our portfolio of proven, dependable Accura® materials in that geographic region.reducing infection risks.
Laser sintering materials and composites
Our family of proprietary selective laser sintering materials and composites includes a range of rigid plastic, elastomeric and metal materials as well as various composites of these ingredients. Because of the built-in versatility of our selective laser sintering systems, the same systems can be used to process multiple materials.
Our expanding family of DuraForm® materials includes CastFormtm and LaserFormtm proprietary SLS® materials. In 2008,2009, we announced the availability ofbegan selling DuraForm® PPFR 100 Plastic, a new sinteringflame-retardant material withthat meets the toughnessrequirements of a broad range of aerospace and durability of molded polypropylene, through our Pro Parts Marketplace and Preferred Service Providers.consumer-product applications.
Our SLS® materials are used to create functional end-use parts, prototypes and durable patterns as well as assembly jigs and fixtures. They are also used to produce flexible, rubber-like parts such as shoe soles, gaskets and seals, patterns for investment-casting,investment casting, functional tooling such as injection molding tool inserts and end-use parts used in customized rapid manufacturing applications. Examples of rapid manufacturing parts produced by our customers using our SLS® systems include air ducts for aircraft and engine cowling parts for unmanned aerial vehicles. Product designers and developers from major automotive, aerospace and consumer products companies use DuraForm® parts extensively as functional test models, even in harsh test environment
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conditions. Aerospace and medical companies also use our SLS® systems to produce end-use parts directly, which enables them to create customized parts economically without tooling. Parts made from DuraForm® and
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LaserFormtm materials are cost-effectivecost effective and can compete favorably with traditional manufacturing methods, especially where part complexity is high. Competing alternatives to our technology generally involve, among other things, costs for tooling and minimum run quantities of the parts produced.
3-D printing materials
Our family of VisiJet®3-D printing materials includes part-building materials and compatible disposable support materials that are used in the modeling process and facilitate an easyeasily melted away support removal process. These materials are sold to our customers packaged in proprietary smart cartridges that are used to produce parts in our3-D printers. Our family of proprietary VisiJet® materials is ideal for study models and form, fit and function engineering studies. We also have specialty VisiJet® materials for direct casting applications, specifically for jewelry custom manufacturing and various dental applications, includingwax-ups for crown and bridge work. In 2008 we launched a newOur family of VisiJet® wax materials and special dissolvable support materials is used for direct casting applications such as custom jewelry manufacturing, dental crowns and bridge work and casting and micro castingmicro-casting applications.
Customer Services
We provide a variety of comprehensive customer services and local application and field support on a worldwide basis for all of our stereolithography and selective laser sintering systems. For our3-D printing systems, we provide these services and field support either directly or through a network of authorized resellers or other sources. We are continuing to build a reseller channel for our line of3-D printers and to train our resellers to perform installations and serviceservices for those printers. We have also entered into arrangements with selected outside service providers to augment our service capabilities with respect to each of our lines of equipment.
The services and field support that we provide include installation of new systems at the customer’s site,customers’ sites, system warranties, several annual maintenance agreement options and a wide variety of hardware upgrades, software updates and upgrades and performance enhancement packages to our customers.packages. We also provide services to assist our customers and resellers in developing new applications for our technologies, to facilitate the use of our technology for the customer’scustomers’ applications, to train customers on the use of newly acquired systems and to maintain our systems at the customer’s site.customers’ sites.
New SLS®, SLA® and3-D printer systems are sold withon-site maintenance support that generally covers a warranty period ranging from 90 days to one year. We offer service contracts that enable our customers to continue maintenance coverage beyond the initial warranty period. These service contracts are offered with various levels of support and are priced accordingly. We employ customer-support sales engineers in North America, several countries in Europe and in parts of the Asia-Pacific region to support our worldwide customer base. As a key element of warranty and service contract maintenance, our salesservice engineers provide regularly scheduled preventive maintenance visits to customer sites. We also provide training to our distributors and resellers to enable them to perform these services.
We distribute spare parts on a worldwide basis to our customers, primarily from locations in the U.S. and Europe.
We also offer upgrade kits for certain of our systems that we sell to existing customers to enable them to take advantage of new or enhanced system capabilities. However, we have discontinued upgrade support for certain of our older legacy systems.
In 2007,We operate a training facility, 3D Systems University, in partnership with York Technical College, we opened a new training center called 3D Systems University, located adjacent to our Rock Hill facility.College. The facility operates as part of York Technical College to train our employees, customers, students and others in the use of our systems and technologies. Through this relationship with York Technical College, we outsource a large portion of training in the use and operation of our systems that we previously performed.
In 2009, with the launch of our 3Dpropartstm service, we began supplying finished parts to our customers through a global network of parts printing service locations. Customers may procure a complete range of precision plastic and metal parts and assemblies produced using a variety of finishing, molding and casting capabilities utilizing both traditional and additive manufacturing processes. Preferred service providers and leading service bureaus also can use 3Dpropartstm as their comprehensive order-fulfillment center.
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Global Operations
We operate in North America and in sevensix countries in Europe and the Asia-Pacific region, and distribute our products in those countries as well as in other parts of the world. Sales of our products and servicesRevenue in countries outside of the U.S. accounted for more than 50% of our consolidated revenue in each year in the three-year period ended December 31, 2008. In fact, revenue in countries outside of the U.S. accounted for56.6%, 60.6%, and 58.2%, and 56.5% of consolidated revenue in the years ended December 31, 2009, 2008 2007 and 2006,2007, respectively.
In maintaining foreign operations, our business is exposed to risks inherent in such operations, including those of currency fluctuations. Information on currency exchange risk appears in Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” and Item 8, “Financial Statements and Supplementary Data,” of this Annual Report onForm 10-K,10-K(“Form 10-K”), which information is incorporated herein by reference.
Financial information about geographic areas, including revenue and long-lived assets, appears in Note 2122 to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report onForm 10-K, which information is incorporated herein by reference.
Marketing and Customers
Our sales and marketing strategy focuses on an integrated systems approach that is directed to providing equipment, materials and services to meet a wide range of customer needs, including traditional prototyping,3-D printing and rapid manufacturing. This integrated approach includes the sales and marketing of our parts service, either as an adjunct to a customer’s in-house use of additive technologies or to the much broader audience of users who do not have dedicated SLA® or SLS® production solutions or3-D printers. Our sales organization is responsible for the sale of our products on a worldwide basis and for the management and coordination of our growing network of authorized resellers of3-D printing and certain of our other systems. Our direct sales force consists of salespersons who work throughout North America, Europe and parts of the Asia-Pacific region. Our application engineers provide professional services through pre-sales support and assist existing customers so that they can take advantage of our latest materials and techniques to improve part quality and machine productivity. This group also leverages our customer contacts to help identify new application opportunities that utilize our proprietary processes and access to our professional parts printing service, 3Dpropartstm. As of December 31, 2009, our worldwide sales, application and service staff consisted of 119 employees.
We sell SLA® and SLS® systems and our related materials and services through our direct sales organization, which is supported by our dedicated sales, service and application engineers worldwide. In certain areas of the world where we do not operate directly, we have appointed sales agents, resellers and distributors who are authorized to sell on our behalf our SLA® and SLS® systems and the materials used in them. Certain of those agents, resellers and distributors also provide serviceservices to customers in those geographic areas.
Our3-D printers and our related materials and services are sold worldwide directly and through a network of authorized distributors and resellers who are managed and directed by a dedicated team of channel sales managers.
OurAs a complement to our equipment and materials sales, in 2009 we introduced our 3Dpropartstm service, a global network of parts printing service locations. 3Dpropartstm is designed to provide our customers and marketing strategy focuses on an integrated systems approach that is directedprospects a single source for all of their design to providing equipment, materials and servicesmanufacturing needs. Through our 3Dpropartstm service, we offer access to meet a wide range of customer needs, includingadditive and traditional prototyping,3-D printingmanufacturing technologies, our full line of available materials from plastics to metals and rapid manufacturing. Our sales organization is responsible for the sale of our products on a worldwide basis and for theproject management and coordination of our growing network of authorized3-D printing resellersfinishing capabilities through 24/7 on-line quoting and certain of our other systems. Our direct sales force consists of sales persons who work throughout North America, Europe and parts of the Asia-Pacific region. Our application engineers provide professional services through pre-sales support and assist existing customers so that they can take advantage of our latest materials and techniques to improve part quality and machine productivity. This group also leverages our customer contacts to help identify new application opportunities that utilize our proprietary processes. As of December 31, 2008, our worldwide sales, application and service staff consisted of 141 employees.secure ordering.
Our customers include major companies in a broad range of industries, including manufacturers of automotive, aerospace, computer, electronic, defense, education, consumer, medical and dental products. Purchasers of our systems include original equipment manufacturers, or OEMs, government agencies and universities that generally use our systems for research activities, and independent service bureaus that provide
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rapid prototyping and manufacturing services to their customers for a fee. No single customer accounted for more than 10 percent of our consolidated revenue in the year ended December 31, 2008.2009.
Production and Supplies
We have outsourced certain of our equipment assembly and refurbishment activities to several selected design and engineering companies and suppliers. These suppliers also carry out quality control procedures on our systems prior to their shipment to customers. As part of these activities, these suppliers have responsibility for procuring the components andsub-assemblies that are used in our systems. This has reduced our need to procure or maintain inventories of raw materials,work-in-process and spare parts related to our equipment assembly and maintenance activities. We purchase finished systems from these suppliers pursuant to forecasts
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and customer orders that we supply to them. While the outsource suppliers of our systems have responsibility for the supply chain of the components for the systems they assemble, the components, parts andsub-assemblies that are used in our systems are generally available from several potential suppliers.
During 2009 we moved the assembly of our ProJetTM line of3-D printers and certain other equipment assembly activities, which previously had been outsourced, to our Rock Hill, South Carolina facility, enabling us to better utilize our facility, plan production and lower costs.
We produce certain materials at our facilities in Marly, Switzerland and Rock Hill, South Carolina. We also have arrangements with third parties who blend to our specifications certain of the materials that we sell under our own brand names, and as discussed above we purchase other materials from third parties for resale to our customers.
Our equipment assembly and blending activities and certain of our research and development activities are subject to compliance with applicable federal, state and local provisions regulating the storage, use and discharge of materials into the environment. We believe that we are in compliance with such regulations as currently in effect in all material respects and that continued compliance with them will not have a material adverse effect on our capital expenditures, results of operations or consolidated financial position.
Research and Development
We maintain an ongoing program of research and development to develop new systems and materials and to enhance our product lines as well as to improve and expand the capabilities of our systems and related software and materials. This includes all significant technology platform developments for SLA®, SLS®,3-D printing and FTI systems and materials. Our development efforts are augmented by development arrangements with research institutions, customers, suppliers of material and hardware and the assembly and design firms that we have engaged to assemble our systems. We also engage third-party engineering companies and specialty materials companies in specific development projects from time to time.
Research and development expenses were $11.1 million, $15.2 million,$14.4 million and $14.1$14.4 million in 2009, 2008 2007 and 2006,2007, respectively.
In 2008, we haveWe did not capitalizedcapitalize any internally developed software costs.costs in 2009 or 2008. In 2007, and 2006, we capitalized $0.4 million and $0.1 million, respectively, of internally developed software costs associated with the V-Flash® Desktop Modeler. We did not recognize any revenue from the V-Flash® Desktop Modeler in any year.Printer. See Note 2 to the Consolidated Financial Statements.
Intellectual Property
At December 31, 2008,2009, we held 406353 patents worldwide. At that date, we also had 166152 pending patent applications worldwide.
The principal issued patents covering our stereolithography processes will expire at varying times through 2022. The principal issued patents covering our selective laser sintering processes will expire at varying times through 2024. The principal issued patents covering our multi-jet3-D printing processes will expire at varying times through 2024. The principal issued patents covering our FTI processes will expire at varying times
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through 2027. We have also filed a number of patent applications covering inventions contained in our recently introduced systems for each of our technology platforms.
We are also a party to various licenses that have had the effect of broadening the range of the patents, patent applications and other intellectual property available to us.
We believe that, while our patents and licenses provide us with a competitive advantage, our success depends primarily on our marketing, business development and applications know-how and on our ongoing research and development efforts. Accordingly, we believe the expiration of any of the patents, patent applications or licenses discussed above would not be material to our business or financial position.
Competition
Competition for most of our3-D printing, prototyping and rapid manufacturing systems is based primarily on process know-how, product application know-how and the ability to provide a full range of products and services to meet customer needs. Competition is also based upon innovations in3-D printing, rapid prototyping and rapid manufacturing systems and materials. Accordingly, our ongoing research and development programs
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are intended to enable us to maintain technological leadership. Certain of the companies producing competing products or providing competing services are well established and may have greater financial resources.
Our principal competitors are companies that manufacture machines that make, or that use machines to make, models, prototypes, molds and small-volume to medium-volume manufacturing parts. These include suppliers of computer numerically controlled machines and machining centers, commonly known as CNC, suppliers of plastics’plastics molding equipment, including injection-molding equipment, suppliers of traditional machining, milling and grinding equipment, and businesses that use such equipment to produce models, prototypes, molds and small-volume to medium-volume manufacturing parts. These conventional machining, plastic molding and metal casting techniques continue to be the most common methods by which plastic and metal parts, models, functional prototypes and metal tool inserts are manufactured.
Our competitors also include other suppliers of stereolithography, laser sintering and3-D printing systems and materials as well as suppliers of alternative additive manufacturing solutions such as suppliers of Fused Deposition Modeling, or FDM, technology and suppliers of vacuum casting equipment. Numerous suppliers of these products operate both internationally and regionally, and many of them have well-recognized product lines that compete with us in a wide range of our product applications.
Competition in the parts printing service business is highly fragmented, with most of the services suppliers operating on a local level.
We have also entered into licensing or cross-licensing arrangements with various companies in the United States and in other countries that enable those companies to utilize our technology in their products or that enable us to use their technologies in our products. Under certain of these licenses, we are entitled to receive, or we are obligated to pay, royalties for the sale of licensed products in the U.S. or in other countries. The amount of such royalties was not material to our results of operations or consolidated financial position for the three-year period ended December 31, 2008.2009.
A number of companies currently sell materials that either complement or compete with those we sell, and there are a wide number of suppliers of services for the equipment that we sell.
We expect future competition to arise both from the development of new technologies or techniques not encompassed by the patents that we own or license, from the conventional machining, plastic molding and metal casting techniques discussed above, and through improvements to existing technologies, such as CNC and rotational molding. We also expect to see increased competition in parts printing services offerings.
Employees
At December 31, 2008,2009, we had 331387 full-time employees. None of these employees is covered by collective bargaining agreements although some of our employees outside of the U.S. are subject to local statutory employment arrangements. We believe that our relations with our employees are satisfactory.
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Available Information
Our website address iswww.3dsystems.com.www.3Dsystems.com.The information contained on our website is neither a part of, nor incorporated by reference into, this Annual Report onForm 10-K. We make available free of charge through our website our Annual Reports onForm 10-K, Quarterly Reports onForm 10-Q, Current Reports onForm 8-K and amendments to those reports, as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC.
Several of our corporate governance materials, including our Code of Conduct, Code of Ethics for Senior Financial Executives and Directors, Corporate Governance Guidelines, the current charters of each of the standing committees of the Board of Directors and our corporate charter documents and By-Laws,by-laws, are also available on our website.
Forward-Looking Statements
Certain statements made in this Annual Report onForm 10-K that are not statements of historical or current facts are forward-looking statements within the meaning of the Private Securities Litigation Reform
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Act of 1995. Forward-looking statements include the cautionary statements and risk factors set forth below as well as other statements made in this Annual Report onForm 10-K that may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from historical results or from any future results expressed or implied by such forward-looking statements.
In addition to the statements set forth below that explicitly describe risks and uncertainties to which our business and our financial condition and results of operations are subject, readers are urged to consider statements in future or conditional tenses or that include terms such as “believes,” “belief,” “expects,” “intends,” “anticipates” or “plans” that appear in this Annual Report onForm 10-K to be uncertain and forward-looking. Forward-looking statements may include comments as to our beliefs and expectations as to future events and trends affecting our business. Forward-looking statements are based upon management’sour beliefs, assumptions and current expectations concerning future events and trends, using information currently available to us, and are necessarily subject to uncertainties, many of which are outside of our control. We assume no obligation, and do not intend, to update these forward-looking statements, except as required by applicable law. The factors stated under the heading “Cautionary Statements and Risk Factors” set forth below, as well as other factors, could cause actual results to differ materially from those reflected or predicted in forward-looking statements.
Any forward-looking statements are based on management’s beliefs and assumptions, using information currently available to us. We assume no obligation, and do not intend, to update these forward-looking statements.
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from those reflected in or suggested by forward-looking statements. Any forward-looking statement that you read in this Annual Report onForm 10-K reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or to individuals acting on our behalf are expressly qualified in their entirety by this discussion. You should specifically consider the factors identified in this Annual Report onForm 10-K, which would cause actual results to differ from those referred to in forward-looking statements.
Cautionary Statements and Risk Factors
The risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks and uncertainties not currently known to us or that we currently deem not to be material also may impair our business operations.operations, results of operations and financial condition. If any of the following risks described below or if any other risks and uncertainties not currently known to us or that we currently deem not to be material actually occur, our business, results of operations and financial condition could suffer.be materially adversely affected. In that event, the trading price of our common stock could decline, and you could lose all or part of your investment in our common stock.
The risks discussed below also include forward-looking statements that are intended to provide our current expectations with regards to those risks. There can be no assurance that our current expectations will
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be met, and our actual results may differ substantially from those discussedthe expectations expressed in these forward-looking statements.
If we were unable to generate net cash flow from operations or if we were unable to raise additional capital, our financial condition could be adversely affected.
In 2008,2009 our unrestricted cash and short-term investments declinedincreased by $7.5$2.7 million to $24.9 million at December 31, 2009 from $22.2 million at December 31, 2008. During 2009, 2008 from $29.7 million at December 31, 2007. During 2008,and 2007, and 2006, net cash provided by (used in) operations was $7.7 million, ($3.5) million $2.6 million and ($8.6)$2.6 million, respectively. We cannot assure you that we would generate cash from operations or other potential sources to fund future working capital needs and meet capital expenditure requirements.
During 2007 and 2006, we depended heavily on external financings, including the issuance of common stock and bank borrowings, to provide us with cash to support our operations. During 2007, we repaid those bank borrowings and elected to permit the credit facility under which we made those borrowings expire. In early 2009 we repaid the remainder of our outstanding debt obligationsindustrial development bonds following the 2008 sale of our Grand Junction facility. Fromtime-to-time we may seek access to external sources of capital to fund working capital needs, capital expenditures, acquisitions and for borrowed money.other general corporate purposes. However, we cannot assure you that capital would be available from external sources such as bank credit facilities, debt or
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equity financings or other potential sources to fund future operating costs, debt-service obligations and capital requirements.
As a result of currentthe recessionary economic conditions including turmoil and uncertainty in capital markets,that have persisted since 2008, credit markets have tightened significantly such that the ability to obtain new capital has become more challenging and more expensive. In addition, several large financial institutions worldwide have recently either failed or been dependent upon government assistance to continue to operate as going concerns. If our ability to generate cash flow from operations and our existing cash is inadequate to meet our needs, our options for addressing such capital constraints include, but are not limited to, (i) obtaining a revolving credit facility from bank lenders, (ii) accessing the public capital markets, or (iii) delaying certain of our existing development projects. If it became necessary to access additional capital it is likely that such alternatives in the current market environment would be on less favorable terms than we have historically obtained, which could have a material adverse impact on our consolidated financial position, results of operations or cash flows.
The lack of additional capital resulting from any inability to generate cash flow from operations or to raise equity or debt financing could force us to substantially curtail or cease operations and would, therefore, have a material adverse effect on our business and financial condition. Furthermore, we cannot assure you that any necessary funds, if available, would be available on attractive terms or that they would not have a significantly dilutive effect on our existing stockholders. If our financial condition worsens and we become unable to attract additional equity or debt financing or enter into other strategic transactions, we could become insolvent or be forced to declare bankruptcy.
WeGlobal economic, political and social conditions may harm our ability to do business, increase our costs and negatively affect our stock price.
The direction and relative strength of the global economy remains uncertain due to softness in the real estate and mortgage markets, among others, volatility in fuel and other energy costs, difficulties in the financial services sector and credit markets, continuing geopolitical uncertainties and other macroeconomic factors affecting spending behavior. The prospects for economic growth in the United States and other countries remain uncertain, and may cause customers to further delay or reduce technology purchases. These and other macroeconomic factors had an adverse impact on the sales of our products in 2008 and 2009, leading to longer sales cycles, slower adoption of new technologies and increased price competition. The global financial crisis affecting the banking system and financial markets have resulted in a tightening of credit markets, lower levels of liquidity in many financial markets, and extreme volatility in fixed income, credit, currency and equity markets. These conditions have made it more difficult to obtain financing.
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Given the continued weakness in the global economy, we face risks that may arise from financial difficulties experienced by our suppliers, resellers or customers.
Given the direction and continued weakening of the global economy, we face a number of risks,customers, including:
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| | • | The risk that customers or resellers to whom we sell our products and services may face financial difficulties or may become insolvent, which could lead to our inability to obtain payment of accounts receivable that those customers or resellers may owe; and |
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| | • | The risk that key suppliers of raw materials, finished products or components used in the products that we sell may face financial difficulties or may become insolvent, which could lead to disruption in the supply of systems, materials or spare parts to our customers.customers; and |
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| • | The inability of customers, including resellers, suppliers and contract manufacturers to obtain credit financing to finance purchases of our products and raw materials used to build those products. |
We have managed through these uncertainties by reducing costs and by the continued introduction of new products and services, but there is no assurance these steps will be sufficient.
We have made, and expect to continue to make, strategic acquisitions that may involve significant risks and uncertainties.
We completed three acquisitions in 2009, which were not considered significant in accordance withrule 3-05 ofRegulation S-X. We intend to continue to evaluate acquisition opportunities in the future in an effort to expand our business and enhance stockholder value. Acquisitions involve certain risks and uncertainties including:
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| • | Difficulty in integrating newly-acquired businesses and operations in an efficient and cost-effective manner and the risk that significant unanticipated costs or other problems associated with integration may be encountered; |
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| • | The challenges in achieving strategic objectives, cost savings and other anticipated benefits; |
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| • | The risk that our marketplaces do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in the marketplaces that we serve; |
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| • | The risk that we assume significant liabilities that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying party; |
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| • | The potential loss of key employees of the acquired businesses; and |
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| • | The risk of diverting management attention from our existing operations. |
Global economic, political and social conditions may harm our ability to do business, increase our costs and negatively affect our stock price.
The direction and relative strength of the global economy has recently deteriorated significantly due to softness in the residential real estate and mortgage markets, volatility in fuel and other energy costs, difficulties in the financial services sector and credit markets, continuing geopolitical uncertainties and other macroeconomic factors affecting spending behavior. Economic growth in the United States and other countries continues to slow, and may cause customers to further delay or reduce technology purchases. These and other macroeconomic factors had an adverse impact in 2008 on the sales of our products, leading to longer sales cycles, slower adoption of new technologies and increased price competition.
The current global financial crisis affecting the banking system and financial markets and the possibility that financial institutions may consolidate or go out of business have resulted in a tightening of credit markets, lower levels of liquidity in many financial markets, and extreme volatility in fixed income, credit, currency and equity markets. These conditions have made it more difficult to obtain financing.
There could be a number of follow-on effects from the credit crisis on our business, including insolvency of certain of our key resellers, key suppliers, contract manufacturers and customers, and the inability of customers, including resellers, suppliers and contract manufacturers to obtain credit financing to finance purchases of our products and raw materials used to build those products.
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We believe that ourOur future success may depend on our ability to deliver products that meet changing technology and customer needs.
Our business may be affected by rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new standards and practices, any of which could render our existing products and proprietary technology and systems obsolete. For that reason, we maintain an ongoing research and development program that is designed to improve our existing products and to develop and introduce new products that enable us to maintain our technological leadership. We believe that to remain competitive we must continually enhance and improve the functionality and features of our products, services and technologies. However, there is a risk that we may not be able to:
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| | • | Develop or obtain leading technologies useful in our business; |
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| | • | Enhance our existing products; |
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| | • | Develop new products and technologies that address the increasingly sophisticated and varied needs of prospective customers, particularly in the area of materials’materials functionality; |
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| | • | Respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis; or |
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| | • | Recruit and retain key technology employees. |
We face risks associated with conducting business outside of the U.S., and, if we do not manage these risks, our costs may increase, our revenue from operations outside of the U.S. may decline, and we may suffer other adverse effects to our results of operations and financial condition.
More than 50% of our consolidated revenue is derived from customers in countries outside of the U.S. There are many risks inherent in business activities outside of the U.S. that, unless managed properly, may adversely affect our profitability, including our ability to collect amounts due from customers. While most of our operations outside of the U.S. are conducted in highly developed countries, they could be adversely affected by:
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| • | Unexpected changes in regulatory requirements; |
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| • | Export controls, tariffs and other barriers; |
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| • | Social and political risks; |
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| • | Fluctuations in currency exchange rates; |
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| • | Seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe; |
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| • | Limited protection for intellectual property rights in some countries; |
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| • | Difficulties in staffing and managing foreign operations; |
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| • | Taxation; |
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| • | Terrorism; and |
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| • | Other factors, depending upon the specific country in which we conduct business. |
In this regard, while the geographic areas outside the U.S. in which we operate are generally not considered to be highly inflationary, these foreign operations are sensitive to fluctuations in currency exchange rates arising from, among other things, certain intercompany transactions that are generally denominated in U.S. dollars rather than their respective functional currencies. Our operating results, assets and liabilities are subject to the effect of foreign currency translation when the operating results and the assets and liabilities of our foreign subsidiaries are translated into U.S. dollars in our consolidated financial statements. The assets and liabilities of our foreign subsidiaries are translated from their respective functional currencies into U.S. dollars based on the translation rate in effect at the end of the related reporting period. The operating results of our foreign subsidiaries are translated to U.S. dollars based on the average conversion rate for the related period.
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Moreover, our operations are exposed to market risk from changes in interest rates and foreign currency exchange rates and commodity prices, which may adversely affect our results of operations and financial condition. We seek to minimize these risks through regular operating and financing activities and, when we consider it to be appropriate, through the use of derivative financial instruments. We do not purchase, hold or sell derivative financial instruments for trading or speculative purposes.
Our balance sheet contains several categories of intangible assets totaling $51.7 million at December 31, 2008 that we could be required to write off or write down in the event of the impairment of certain of those assets arising from any deterioration in our future performance or other circumstances. Such write offs or write downs could adversely impact our future earnings and stock price, our ability to obtain financing and adversely affect our customer relationships.
At December 31, 2008, we had $48.0 million in goodwill capitalized on our balance sheet. Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (“SFAS No. 142”) requires that goodwill and some long-lived intangibles be tested for impairment at least annually. In addition, goodwill and intangible assets are tested for impairment at other times as circumstances warrant, and such testing could result in write-downs of some of our goodwill and long-lived intangibles. Impairment is measured as the excess of the carrying value of the goodwill or intangible asset over the fair value of the underlying asset. A key factor in determining whether impairment has occurred is the relationship between our market capitalization and our book value. Accordingly, we may, from time to time, incur impairment charges, which are recorded as operating expenses when they are incurred and would reduce our net income and adversely affect our operating results in the period in which they are incurred.
As of December 31, 2008, we had $3.7 million of other net intangible assets, consisting of licenses, patents, and other intangibles that we amortize over time. Any material impairment to any of these items could adversely affect our results of operations and could affect the trading price of our common stock in the period in which they are incurred.
For additional information, see Notes 6 and 7 to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Significant Estimates —Goodwill and other intangible and long-lived assets.”
We may incur substantial costs enforcing or acquiring intellectual property rights and defending against third-party claims as a result of litigation or other proceedings.
In connection with the enforcement of our own intellectual property rights, the acquisition of third-party intellectual property rights or disputes related to the validity or alleged infringement of third-party intellectual property rights, including patent rights, we have been, are currently and may in the future be subject to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation may be costly and can be disruptive to our business operations by diverting attention and energies of management and key technical personnel, and by increasing our costs of doing business. Although we have successfully defended or resolved past litigation and disputes, we may not prevail in any ongoing or future litigation and disputes.
Third partyThird-party intellectual property claims asserted against us could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from manufacturing or licensing certain of our products, subject us to injunctions restricting our sale of products, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification commitments with our customers including contractual provisions under various license arrangements. In addition we may incur significant costs in acquiring the necessary third-party intellectual property rights for use in our products. Any of these could seriously harm our business.
A risk exists that we may haveWe derive a significant portion of our revenue from business conducted outside the U.S and are subject to restate our financial statements.the risks of doing business outside the U.S.
In 2007, we restatedMore than 50% of our consolidated revenue is derived from customers in countries outside the U.S. There are many risks inherent in business activities outside the U.S. that, unless managed properly, may adversely affect our profitability, including our ability to collect amounts due from customers. While most of our operations outside the U.S. are conducted in highly developed countries, they could be adversely affected by:
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| • | Unexpected changes in laws, regulations and policies ofnon-U.S. governments relating to investments and operations, as well as U.S. laws affecting the activities of U.S. companies abroad; |
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| • | Changes in regulatory requirements, including export controls, tariffs and embargoes, other trade restrictions and antitrust and data privacy concerns; |
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| • | Rapid changes in government, economic and political policies, political or civil unrest, terrorism or epidemics and other similar outbreaks; |
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| • | Fluctuations in currency exchange rates; |
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| • | Seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe; |
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| • | Limited protection for the enforcement of contract and intellectual property rights in some countries; |
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| • | Difficulties in staffing and managing foreign operations; |
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| • | Taxation; and |
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| • | Other factors, depending upon the specific country in which we conduct business. |
These uncertainties may make it difficult for us and our customers to accurately plan future business activities and may lead our customers in certain countries to delay purchases of our products and services. More generally, these geopolitical, social and economic conditions could result in increased volatility in global financial statements for the first three quarters of 2006markets and all of 2005 and 2004. While we believe that the information set forth in this Annual Report onForm 10-K complies with Section 13(a) of the Securities and Exchange Act of 1934 (the “Securities and Exchange Act”) and that theeconomies.
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financial information contained herein fairly presents, in all material aspects,The consequences of terrorism or armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our financial conditionmarket opportunities or our business. We are uninsured for losses and resultsinterruptions caused by terrorism, acts of operations forwar and similar events.
While the years and periods presented,geographic areas outside the SEC or other authorities may disagree with the mannerU.S. in which we reported various matters or we may discover additional informationoperate are generally not considered to be highly inflationary, our foreign operations are sensitive to fluctuations in currency exchange rates arising from, among other things, certain intercompany transactions that impactsare generally denominated, for example, in U.S. dollars rather than their respective functional currencies. Our operating results, assets and liabilities are subject to the information contained herein. Accordingly, we may be requiredeffect of foreign currency translation when the operating results and the assets and liabilities of our foreign subsidiaries are translated into U.S. dollars in our consolidated financial statements. The assets and liabilities of our foreign subsidiaries are translated from their respective functional currencies into U.S. dollars based on the translation rate in effect at the end of the related reporting period. The operating results of our foreign subsidiaries are translated to restate our financial statements, to amend our prior filings withU.S. dollars based on the SEC or to take other actions that we do not currently contemplate.average conversion rate for the related period.
If we do not make future filings with the SECMoreover, our operations are exposed to market risk from changes in a timely manner, our stockinterest rates and foreign currency exchange rates and commodity prices, which may be delisted.
In the period from September 30, 2006 through March 31, 2007, we did not file certain periodic reports with the SEC in a timely manner and received notices from the NASDAQ Stock Market, LLC that we were not in compliance with its rules, which require timely filing of periodic reports in order to maintain our continued listing on that securities exchange. Although these matters were resolved favorably to us, future delays in the filing of timely periodic reports may negativelyadversely affect the listing of our common stock. As a consequence of such delisting, if it were to occur, an investor could find it more difficult to dispose of, or to obtain quotations as to the price of, our common stock. Delisting of our common stock could also result in lower prices per share of our common stock than would otherwise prevail.
We could experience material weaknesses in our internal control over financial reporting, which could impact negatively our ability to report our results of operations and financial condition accuratelycondition. We seek to minimize these risks through regular operating and in a timely manner.
As required by Section 404financing activities and, when we consider it to be appropriate, through the use of the Sarbanes-Oxley Act of 2002, we have conducted an evaluation of the effectiveness of our internal control overderivative financial reporting at December 31, 2008. As of December 31, 2008 we believe that we have remediated all past material weaknesses but we can provide no assurance that we willinstruments. We do not experience material weaknesses in the future.
As we have previously disclosed, at December 31, 2007 and 2006, material weaknesses existed relating to, among other things, our internal controls overpurchase, hold or sell derivative financial reporting with respect to the oversight and review of our inventory costing system and the design and operation of certain inventory shipments and recognition of the related revenue. We completed a number of remedial actions in the first quarter of 2008 to correct these weaknesses, and we believe that no additional remedial efforts are required with respect to these weaknesses.
Nevertheless, there is a risk of additional errors not being preventedinstruments for trading or detected, which could result in the identification of material weaknesses in our internal controls in the future.speculative purposes.
We face significant competition in many aspects of our business, which could cause our revenue and gross profit margins to decline. The competition in our industryCompetition could also cause us to reduce sales prices or to incur additional marketing or production costs, which could result in decreased revenue, increased costs and reduced margins.
We compete for customers with a wide variety of producers of equipment for models, prototypes, other three-dimensional objects and end-use parts as well as producers of materials and services for this equipment. Some of our existing and potential competitors are researching, designing, developing and marketing other types of competitive equipment, materials and services. Many of these competitors have financial, marketing, manufacturing, distribution and other resources substantially greater than ours.
We also expect that future competition may arise from the development of allied or related techniques for equipment and materials that are not encompassed by our patents, from the issuance of patents to other companies that may inhibit our ability to develop certain products, and from improvements to existing materials and equipment technologies.
We intend to follow a strategy of continuing product development to enhance our position to the extent practicable. We cannot assure you that we will be able to maintain our current position in the field or continue to compete successfully against current and future sources of competition. If we do not keep pace with technological change and introduce new products, we may lose revenue and demand for our products.
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We depend on a single or limited number of suppliers for components andsub-assemblies used in our systems and raw materials used in our materials. If these relationships were to terminate, our business could be disrupted while we locate an alternative supplier and our expenses may increase.
We have outsourced the assembly of certain of our systems to third-party suppliers, we purchase components andsub-assemblies for our systems from third-party suppliers, and we purchase raw materials that are used in our materials, as well as certain of those materials, from third-party suppliers.
While there are several potential suppliers of the material components, parts and subassembliessub-assemblies for our products, we currently choose to use only one or a limited number of suppliers for several of these components, including our lasers, materials and certain jetting components. Our reliance on a single or limited number of vendors involves many risks including:
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| | • | Potential shortages of some key components; |
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| | • | Product performance shortfalls; and |
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| | • | Reduced control over delivery schedules, manufacturing capabilities, quality and costs. |
If any of our suppliers suffers business disruptions or financial difficulties, or if there is any significant change in the condition of our relationship with the supplier, our cost of goods sold may increase and we may be unable to obtain these components from alternative sources quickly.
While we believe that we can obtain all of the components necessary for our products from other manufacturers, we require any new supplier to become “qualified” pursuant to our internal procedures, which could involve evaluation processes of varying duration.durations. We generally have our systems assembled based on our internal forecasts and the supply of raw materials, assemblies, components and finished goods from third parties, which are subject to various lead times. In addition, at any time, certain suppliers may decide to discontinue production of an assembly, component or raw material that we use at any time.use. Any unanticipated change in the sourcesources of our supplies, or unanticipated supply limitations, could increase production or related costs and consequently reduce margins.
If our forecasts exceed actual orders, we may hold large inventories of slow-moving or unusable parts, which could have an adverse effect on our cash flow, profitability and results of operations.
We face risks in connection with the outsourcing of the assembly of our equipment models to selected design and manufacturing companies.
We have engaged selected design and manufacturing companies to assemble certain of our equipment, including our SLA®, SLS® and certain3-D printing systems. In carrying out these outsourcing activities, we face a number of risks, including:
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| | • | The risk that the parties that we identify and retain to perform assembly activities may not perform in a satisfactory manner; |
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| | • | The risk of disruption in the supply of systems to our customers if such third parties either fail to perform in a satisfactory manner or are unable to supply us with the quantity of systems that are needed to meet then current customer demand; and |
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| | • | The risks include the risk of insolvency of these suppliers as well as the risk that we face, as discussed above, in dealing with a limited number of suppliers. |
We rely significantly on enterprise resource technology systemsCosts of certain employee benefits may continue to operate our business, and any failure, inadequacy, interruption, or security lapse of those systems or their related technology could adversely affect our ability to effectively operate our business.rise.
Our abilityAlthough we have taken steps to effectively managecontain volatility in medical and maintain our inventory and internal reports and to ship products to customers and invoice them onemployee benefits, there are risks that these benefit costs may increase as a timely basis depends significantly on our enterprise resource planning system to which we make modifications on an ongoing basis.
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If we were to fail to operate this system or to enter, maintain and process records in it correctly, if the system failed to operate effectively or to integrate with other systems, or a breach in security of this system occurred, we could be subject to delays in product fulfillment and reduced efficiency of our operations, we could be required to incur significant capital investments to remediate any such failure, problem or breach, and our ability to prepare timely and accurate financial information could be impaired.result of:
Any of these events could have a material adverse effect on our business, operations, results of operations and financial condition.
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| • | Continued increases in medical costs related to an aging workforce, increased employee usage of medical benefits or medical inflation; and |
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| • | Material changes in legislation impacting medical or employee benefits. |
We face risks in connection with changes in energy-related expenses.
We and our suppliers depend on various energy products in manufacturing processes used to produce our products. Generally, we acquire products at market prices and do not use financial instruments to hedge energy prices. As a result, we are exposed to market risks related to changes in energy prices. In addition, many of the customers and industries to whom we market our systems and materials are directly or indirectly dependent upon the cost and availability of energy resources.
Our business and profitability may be materially and adversely affected to the extent that our or our customers’ energy-related expenses increase, both as a result of higher costs of producing, and potentially lower profit margins in selling, our products and materials and because increased energy costs may cause our customers to delay or reduce purchases of our systems and materials.
We face risks in connection with the effect of new pronouncements by accounting authorities.
From time to time, accounting authorities issue new rules and pronouncements that may have adverse effects on our reported results of operations or financial condition, influence customers’ ability and willingness to make capital expenditures such as purchases of our systems or may otherwise have material adverse effects on our business and profitability.
We face risks in connection with our success in acquiring and integrating new businesses.
In the past, we have acquired other businesses and technologies as part of our growth and strategic plans. We may make future acquisitions, and those acquisitions may be subject to certain risks, including risks that the costs of such acquisitions may be greater than anticipated and that the anticipated benefits of such acquisitions may be materially delayed or not realized.
The variety of products that we sell could cause significant quarterly fluctuations in our gross profit margins, and those fluctuations in margins could cause fluctuations in operating income or loss and net income or net loss.
We continuously work to expand and improve our product offerings, including our systems, materials and services, the number of geographic areas in which we operate and the distribution channels we use to reach various target product applications and customers. This variety of products, applications and channels involves a range of gross profit margins that can cause substantial quarterly fluctuations in gross profit and gross profit
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margin depending upon the variety of product shipments from quarter to quarter. We may experience significant quarterly fluctuations in gross profit margins or operating income or loss due to the impact of the variety of products, channels or geographic areas in which we sell our products from period to period. In some quarters, it is possible that results could be below expectations of analysts and investors. If so, the price of our common stock may be volatile or decline.
We may be subject to product liability claims, which could result in material expense, diversion of management time and attention and damage to our business reputation.
Products as complex as those we offer may contain undetected defects or errors when first introduced or as enhancements are released that, despite testing, are not discovered until after the product has been installed
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and used by customers. This could result in delayed market acceptance of the product, claims from customers or others, damage to our reputation and business or significant costs to correct the defect or error.
We attempt to include provisions in our agreements with customers that are designed to limit our exposure to potential liability for damages arising from defects or errors in our products. However, the nature and extent of these limitations vary from customer to customer, their effect is subject to a variety of legal limitations, and it is possible that these limitations may not be effective as a result of unfavorable judicial decisions or laws enacted in the future.
The sale and support of our products entails the risk of product liability claims. Any product liability claim brought against us, regardless of its merit, could result in material expense, diversion of management time and attention, damage to our business reputation and cause us to fail to retain existing customers or to fail to attract new customers.
Other factors, many of which are beyondHistorically, our control, may cause fluctuations incommon stock has been characterized by generally low daily trading volume, and our operating results.common stock price has been volatile.
Our operating results could adversely be affected byThe price of our common stock ranged from $3.76 to $11.92 per share during 2009. Factors that may have a significant impact on the following factors:market price of our common stock include:
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| | • | Acceptance and reliability of new productsOur perceived value in the marketplace;securities markets; |
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| | • | Size and timingFuture announcements concerning developments affecting our business or those of product shipments; |
|
| • | Fluctuationsother companies in our industry, including the costsreceipt or loss of materials and parts; |
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| • | Currency and economic fluctuations in foreign marketplaces and other factors affecting international business activities; |
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| • | Price competition; |
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| • | Delays in the introduction of newsubstantial orders for products; |
| |
| | • | General worldwide economic conditions;Overall trends in the stock market; |
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| • | The impact of changes in our results of operations, our financial condition or our prospects on how we are perceived in the securities markets; |
| |
| | • | Changes in the varietyrecommendations of products and services sold; |
|
| • | Impact of ongoing litigation;securities analysts; and |
| |
| | • | ImpactSales or purchases of changing technologies.substantial blocks of stock. |
PoliticalThe number of shares of common stock issuable upon the exercise of outstanding stock options could dilute your ownership and negatively impact the market price for our common stock.
Approximately 0.9 million shares of common stock were issuable upon the exercise of outstanding stock options at December 31, 2009, all of which were fully vested and remained exercisable at that date.
Our Board of Directors is authorized to issue up to 5 million shares of preferred stock.
The Board of Directors is authorized to issue up to 5 million shares of preferred stock, of which 1 million shares have been authorized as Series A Preferred Stock. The Board of Directors is authorized to issue these shares of preferred stock in one or more classes or series without further action of the stockholders and in that regard to determine the issue price, rights, preferences and privileges of any such class or series of preferred stock generally without any further vote or action by the stockholders. The rights of the holders of any outstanding series of preferred stock may adversely affect the rights of holders of common stock.
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Our ability to issue preferred stock gives us flexibility concerning possible acquisitions and financings, but it could make it more difficult for a third party to acquire a majority of our outstanding common stock. In addition, any preferred stock that is issued may have other rights, including dividend rights, liquidation preferences and other economic events andrights, senior to the uncertainty resulting from them maycommon stock, which could have a material adverse effect on ourthe market opportunities and operating results.
External factors such as potential terrorist attacks, acts of war, geopolitical and social turmoil or epidemics and other similar outbreaks, in many parts of the world could prevent or hinder our ability to conduct business, increase our costs and negatively affect our stock price. For example, increased instability may adversely impact the desire of employees and customers to travel, the availability and reliability of transportation and the ability to obtain adequate insurance at reasonable rates and may require us to incur increased costs for security measures. These uncertainties make it difficult for us and our customers to accurately plan future business activities and may lead our customers in certain countries to delay purchasesvalue of our products and services. More generally, these geopolitical, social and economic conditions could result in increased volatility in global financial markets and economies. We are uninsured for losses and interruptions caused by terrorism, acts of war and similar events.
The consequences of terrorism or armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our market opportunities or our business.common stock.
The stockholders’ rights plan adopted by the Board of Directors in 2008 may inhibit takeovers and may adversely affect the market price of our common stock.
Our Board of Directors approved the creation of our Series A Preferred Stock and adopted a stockholders’ rights plan pursuant to which it declared a dividend of one Series A Preferred Stock purchase right for each
17
share of our common stock held by stockholders of record as of the close of business on December 22, 2008. The preferred share purchase rights will also attach to any additional shares of common stock issued after December 22, 2008. Initially,Presently these rights willare not be exercisable and will trade with the shares of our common stock. Under the rights plan, these rights will generally bebecome exercisable only if a person or group acquires or commences a tender or exchange offer for 15 percent or more of our common stock. If the rights become exercisable, each right will permitpermits its holder to purchase one one-hundredth of a share of Series A Preferred Stock for the exercise price of $55.00 per right. The rights plan also contains customary “flip-in” and “flip-over” provisions such that if a person or group acquires beneficial ownership of 15 percent or more of our common stock, each right will permit its holder, other than the acquiring person or group, to purchase shares of our common stock for a price equal to the quotient obtained by dividing $55.00 per right by one-half of the then current market price of our common stock. In addition, if, after a person acquires such ownership, we are later acquired in a merger or similar transaction, each right will permit its holder, other than the acquiring person or group, to purchase shares of the acquiring corporation’s stock for a price equal to the quotient obtained by dividing $55.00 per right by one-half of the then current market price of the acquiring company’s common stock, based on the market price of the acquiring corporation’s stock prior to such merger.
The stockholders’ rights plan and the associated Series A Preferred Stock purchase rights may discourage a hostile takeover and prevent our stockholders from receiving a premium over the prevailing market price for the shares of our common stock.
Various provisions of Delaware law may inhibit changes in control not approved by our Board of Directors and may have the effect of depriving our stockholders of an opportunity to receive a premium over the prevailing market price of our common stock in the event of an attempted hostile takeover.
One of these Delaware laws prohibits us from engaging in a business combination with any interested stockholder (as defined in the statute) for a period of three years from the date that the person became an interested stockholder, unless certain conditions are met.
Historically,Our balance sheet contains several categories of intangible assets totaling $52.3 million at December 31, 2009 that we could be required to write off or write down in the event of the impairment of certain of those assets arising from any deterioration in our commonfuture performance or other circumstances. Such write-offs or write-downs could adversely impact our future earnings and stock has been characterized by generally low daily trading volume,price, our ability to obtain financing and our common stock price has been volatile.customer relationships.
TheAt December 31, 2009, we had $48.7 million in goodwill capitalized on our balance sheet. Accounting Standards Codification (“ASC”) Section 350, “Intangibles — Goodwill and Other,” requires that goodwill and some long-lived intangibles be tested for impairment at least annually. In addition, goodwill and intangible assets are tested for impairment at other times as circumstances warrant, and such testing could result in write-downs of some of our goodwill and long-lived intangibles. Impairment is measured as the excess of the carrying value of the goodwill or intangible asset over the fair value of the underlying asset. A key factor in determining whether impairment has occurred is the relationship between our market capitalization and our book value. Accordingly, we may, from time to time, incur impairment charges, which are recorded as operating expenses when they are incurred and would reduce our net income and adversely affect our operating results in the period in which they are incurred.
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As of December 31, 2009, we had $3.6 million of other net intangible assets, consisting of licenses, patents, and other intangibles that we amortize over time. Any material impairment to any of these items could adversely affect our results of operations and could affect the trading price of our common stock ranged from $5.97 to $15.97 per share during 2008.in the period in which they are incurred.
Factors that may have a significant impact on the market price of our common stock include:
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| • | Our perceived value in the securities markets; |
|
| • | Future announcements concerning developments affecting our business or those of our competitors, including the receipt or loss of substantial orders for products; |
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| • | Overall trends in the stock market; |
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| • | The impact of changes in our results of operations, our financial condition or our prospects on how we are perceived in the securities markets; |
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| • | Changes in recommendations of securities analysts; and |
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| • | Sales or purchases of substantial blocks of stock. |
The number of shares of common stock issuable upon the exercise of outstanding stock options could dilute your ownershipFor additional information, see Notes 6 and negatively impact the market price for our common stock.
Approximately 0.9 million shares of common stock were issuable upon the exercise of outstanding stock options at December 31, 2008, all of which were then exercisable.
Our Board of Directors is authorized to issue up to 5 million shares of preferred stock.
The Board of Directors is authorized to issue classes up to 5 million shares of preferred stock, of which 1 million shares were authorized as Series A Preferred Stock. The Board of Directors is authorized to issue
18
these shares of preferred stock in one or more classes or series without further action of the stockholders and in that regard to determine the issue price, rights, preferences and privileges of any such class or series of preferred stock generally without any further vote or action by the stockholders. The rights of the holders of any outstanding series of preferred stock may adversely affect the rights of holders of common stock.
Our ability to issue preferred stock gives us flexibility concerning possible acquisitions and financings, but it could make it more difficult for a third party to acquire a majority of our outstanding common stock. In addition, any preferred stock that is issued may have other rights, including economic rights, senior7 to the common stock, which could have a material adverse effect on the market valueConsolidated Financial Statements and “Management’s Discussion and Analysis of our common stock.Financial Condition and Results of Operations — Critical Accounting Policies and Significant Estimates —Goodwill and other intangible and long-lived assets.”
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| Item 1B. | Unresolved Staff Comments. |
On November 30, 2007, the staff of the SEC’s Division of Corporation Finance (the “SEC Staff”) issued a comment letter to us regarding ourForm 10-K/A for the Fiscal Year Ended December 31, 2006 and ourForm 10-Q for the Quarterly Period Ended September 30, 2007. We responded to the SEC Staff’s comments on February 7, 2008, and the SEC Staff replied with additional comments on March 4, 2008. We responded to these additional comments on May 2, 2008 and have received no additional comments from the SEC Staff since that date. We do not believe that the SEC Staff’s comments are material in nature. However, no assurances can be given that we will not receive additional comments from the SEC Staff or that the SEC Staff will agree with our assessment of those comments.None.
We own office and production facilities in Lawrenceburg, Tennessee and lease allthe remainder of our operating facilities, which are general purpose facilities.
We occupy an 80,000 square footsquare-foot headquarters and research and development facility in Rock Hill, South Carolina, which we lease pursuant to a lease agreement with KDC-Carolina Investments 3, LP. After its initial term ending August 31, 2021, the lease provides us with the option to renew the lease for two additional five-year terms as well as the right to cause KDC, subject to certain terms and conditions, to expand the leased premises during the term of the lease, in which case the term of the lease would be extended. The lease is a triple net lease and provides for the payment of base rent of $0.7 million annually through 2020, including rent escalations in 2011 and 2016, and $0.5 million in 2021. Under the terms of the lease, we are obligated to pay all taxes, insurance, utilities and other operating costs with respect to the leased premises. The lease also grants us the right to purchase the leased premises and undeveloped land surrounding the leased premises on terms and conditions described more particularly in the lease.
We own 35,000 square feet of office and production facilities in Lawrenceburg, Tennessee at which we produce a broad range of finished parts and assemblies.
We lease an 11,000 square-foot advanced research and development facility in Valencia, California. We also lease a 9,000 square-foot general-purposegeneral purpose facility in Marly, Switzerland at which we blend stereolithography and3-D printing materials and composites. We lease space in a small manufacturing facility in Goodland, Indiana where we manufacture finished parts for sale to customers. We also lease various sales and service offices in Texas, France, Germany, the United Kingdom, Italy Japan and Hong Kong.Japan.
We believe that the facilities described above are adequate to meet our needs for the foreseeable future.
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| Item 3. | Legal Proceedings. |
On March 14, 2008, DSM Desotech Inc. filed a complaint, as amended, in an action titledDSM Desotech Inc. v. 3D Systems Corporationin the United States District Court for the Northern District of Illinois (Eastern Division) asserting that we engageengaged in anticompetitive behavior with respect to resins used in large-frame stereolithography machines. The complaint further assertsasserted that we are infringing upon two of DSM Desotech’s patents relating to stereolithography machines. We understand that DSM Desotech estimates the damages associated with its claims to be in excess of $40 million.
On or about June 6, 2008, we filedFollowing a decision of the Court on our motion to dismiss the non-patent causes of action. This motion to dismiss was granted in part and denied in part on January 26, 2009, with leave granted to DSM Desotech to amend its complaint with respect to the dismissed claims. We have filed an answer to DSM Desotech’s competition and patent claims in which we denied the material allegations of those claims and asserted various defenses and counterclaims. In view of the Court’s decision of January 26, 2009, discovery is proceeding on
19
the claims pending in this case. On March 2, 2009,action, DSM Desotech filed a second amended complaint on March 2, 2009 in which it reasserted causes of action previously dismissed by the Court. We filed an answer to the second amended complaint on March 19, 2009 in which, among other things, it reassertswe denied the material allegations of the second amended complaint. Discovery is proceeding on the claims previously dismissed by the Court’s decision of January 26, 2009. pending in this case.
We intend to vigorously contest all of the claims asserted by DSM Desotech.
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We are also involved in various other legal matters incidental to our business. We believe, after consulting with counsel, that the disposition of these other legal matters will not have a material effect on our consolidated results of operations or consolidated financial position.
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| Item 4. | Submission of Matters to a Vote of Security Holders. |
No matters were submitted to a vote of security holders during the fourth quarter of 2008.2009.
Executive and Other Officers
The information appearing in the table below sets forth the current position or positions held by each of our officers and his age as of MarchFebruary 1, 2009.2010. All of our officers serve at the pleasure of the Board of Directors. There are no family relationships among any of our officers or directors.
| | | | | |
| | | Age as of
| |
Name and Current Position | | MarchFebruary 1, 20092010 | |
| |
Abraham N. Reichental
President and Chief Executive Officer | | | 5253 | |
Charles W. Hull
Executive Vice President, Chief Technology Officer | | | 6970 | |
Robert M. Grace, Jr.
Vice President, General Counsel and Secretary | | | 62 | |
Damon J. Gregoire
Vice President and Chief Financial Officer | | | 4041 | |
Kevin P. McAlea
Vice President | | | 5051 | |
We have employed each of the individuals in the foregoing table other than Mr. Gregoire for more than five years.
Mr. Gregoire joined us on April 25, 2007 as Vice President and Chief Financial Officer. Previously, he was employed by Infor Global Solutions, Inc., an international software company, as Vice President of Finance since 2006 with responsibility for its Datastream Systems and Customer Relationship Management division. Mr. Gregoire previously served as Corporate Controller of Datastream Systems Inc., a software company, from 2005 until it was acquired by Infor Global Solutions, Inc. in March 2006. From 2001 to 2005, Mr. Gregoire served as Director of Accounting and Financial Analysis of Paymentech, L.P., an international credit card processing company.
2019
PART II
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| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
The following table sets forth, for the periods indicated, the range of high and low prices of our common stock, $0.001 par value, as quoted on theThe NASDAQ Stock Global Market. Our common stock trades under the symbol “TDSC.”
| | | | | | | | | | | | | | | | | | | | | |
Year | | Period | | High | | Low | | | Period | | High | | Low | |
| |
| 2007 | | | | | | | | | | | |
| First Quarter | | $ | 21.91 | | | $ | 14.28 | | |
| Second Quarter | | $ | 25.60 | | | $ | 18.16 | | |
| Third Quarter | | $ | 26.50 | | | $ | 19.35 | | |
| Fourth Quarter | | $ | 24.99 | | | $ | 14.83 | | |
| 2008 | | | | | | | | | | | | | | | | | | | | |
| First Quarter | First Quarter | | $ | 15.97 | | | $ | 12.57 | | First Quarter | | $ | 15.97 | | | $ | 12.57 | |
| Second Quarter | Second Quarter | | $ | 15.90 | | | $ | 8.55 | | Second Quarter | | $ | 15.90 | | | $ | 8.55 | |
| Third Quarter | Third Quarter | | $ | 15.03 | | | $ | 8.23 | | Third Quarter | | $ | 15.03 | | | $ | 8.23 | |
| Fourth Quarter | Fourth Quarter | | $ | 14.00 | | | $ | 5.97 | | Fourth Quarter | | $ | 14.00 | | | $ | 5.97 | |
| 2009 | | | | | | | | | | | |
| First Quarter | | First Quarter | | $ | 8.27 | | | $ | 3.76 | |
| Second Quarter | | Second Quarter | | $ | 8.00 | | | $ | 5.92 | |
| Third Quarter | | Third Quarter | | $ | 10.71 | | | $ | 6.40 | |
| Fourth Quarter | | Fourth Quarter | | $ | 11.92 | | | $ | 8.14 | |
As of February 20, 2009,12, 2010, our outstanding common stock was held of record by approximately 357337stockholders.
Dividends
We do not currently pay, and have not paid, any dividends on our common stock, and we currently intend to retain any future earnings for use in our business. Any future determination as to the declaration of dividends on our common stock will be made at the discretion of the Board of Directors and will depend on our earnings, operating and financial condition, capital requirements and other factors deemed relevant by the Board of Directors, including the applicable requirements of the Delaware General Corporation Law, which provides that dividends are payable only out of surplus or current net profits.
The payment of dividends on our common stock may be restricted by the provisions of credit agreements or other financing documents that we may enter into or the terms of securities that we may issue from time to time.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the fourth quarter of 2008,2009, except for unvested restricted stock awards repurchased pursuant to our 2004 Incentive Stock Plan. See Note 14 to the Consolidated Financial Statements.
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StockholderStock Performance Graph
The graph below shows, for the five years ended December 31, 2008,2009, the cumulative total return on an investment of $100 assumed to have been made on December 31, 20032004 in our common stock. For purposes of the graph, cumulative total return assumes the reinvestment of all dividends. The graph compares such return with thatthose of comparable investments assumed to have been made on the same date in (a) the NASDAQ Composite — Total Returns Index and (b) the S & P Information Technology Index, which are published Standard & Poor’s market indices with which we are sometimes compared.
Although total return for the assumed investment assumes the reinvestment of all dividends on December 31 of the year in which such dividends were paid, we paid no cash dividends were paid on our common stock during the periods presented.
Our common stock is quoted on The NASDAQ Stock Market’s Global Market (trading symbol: TDSC).
COMPARISON OF5-YEAR CUMULATIVE TOTAL RETURN*
Assumes Initial Investment of $100
December 20082009
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| * | $100 invested on12/31/0304 in stock or index-including reinvestment of dividends. Fiscal year ending December 31. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 12/03 | | | 12/04 | | | 12/05 | | | 12/06 | | | 12/07 | | | 12/08 |
| 3D Systems Corporation | | | | 100.00 | | | | | 195.85 | | | | | 177.32 | | | | | 157.19 | | | | | 152.09 | | | | | 78.21 | |
| NASDAQ Composite | | | | 100.00 | | | | | 109.16 | | | | | 111.47 | | | | | 123.05 | | | | | 140.12 | | | | | 84.12 | |
| S & P Information Technology | | | | 100.00 | | | | | 102.56 | | | | | 103.57 | | | | | 112.28 | | | | | 130.59 | | | | | 74.26 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 12/04 | | | 12/05 | | | 12/06 | | | 12/07 | | | 12/08 | | | 12/09 |
| 3D Systems Corporation | | | | 100.00 | | | | | 90.54 | | | | | 80.26 | | | | | 77.65 | | | | | 39.93 | | | | | 56.83 | |
| NASDAQ Composite — Total Returns Index | | | | 100.00 | | | | | 102.12 | | | | | 112.73 | | | | | 124.73 | | | | | 74.87 | | | | | 108.83 | |
| S & P Information Technology Index | | | | 100.00 | | | | | 101.01 | | | | | 109.51 | | | | | 127.36 | | | | | 72.41 | | | | | 117.11 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| Item 6. | Selected Financial Data. |
The selected consolidated financial data set forth below for the five years ended December 31, 2008 have2009 has been derived from our historical consolidated financial statements. You should read this information together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, the notes to the selected consolidated financial data, and our consolidated financial statements and the notes thereto for the year ended December 31, 20082009 and prior years included in this Annual Report onForm 10-K.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2008 | | 2007 | | 2006(1) | | 2005(1) | | 2004(1) | | | 2009 | | 2008 | | 2007 | | 2006 | | 2005(1) | |
| | | (In thousands, except per share amounts) | | | (In thousands, except per share amounts) | |
| |
Consolidated Statement of Operations Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Systems and other products | | $ | 41,323 | | | $ | 58,178 | | | $ | 46,463 | | | $ | 55,133 | | | $ | 46,208 | | | $ | 30,501 | | | $ | 41,323 | | | $ | 58,178 | | | $ | 46,463 | | | $ | 55,133 | |
| Materials | | | 62,290 | | | | 61,969 | | | | 52,062 | | | | 44,648 | | | | 37,999 | | | | 50,297 | | | | 62,290 | | | | 61,969 | | | | 52,062 | | | | 44,648 | |
| Services | | | 35,327 | | | | 36,369 | | | | 36,295 | | | | 39,297 | | | | 41,403 | | | | 32,037 | | | | 35,327 | | | | 36,369 | | | | 36,295 | | | | 39,297 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | | | 138,940 | | | | 156,516 | | | | 134,820 | | | | 139,078 | | | | 125,610 | | | | 112,835 | | | | 138,940 | | | | 156,516 | | | | 134,820 | | | | 139,078 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 55,968 | | | | 63,460 | | | | 46,257 | | | | 62,162 | | | | 56,556 | | | | 49,730 | | | | 55,568 | | | | 63,412 | | | | 46,315 | | | | 62,916 | |
Income (loss) from operations | | | (5,090 | ) | | | (5,129 | ) | | | (25,691 | ) | | | 8,415 | | | | 6,062 | | | | 3,073 | | | | (5,490 | ) | | | (5,177 | ) | | | (25,633 | ) | | | 9,169 | |
Net income (loss)(2)(3) | | | (6,154 | ) | | | (6,740 | ) | | | (29,280 | ) | | | 9,406 | | | | 3,020 | | | | 1,066 | | | | (6,154 | ) | | | (6,740 | ) | | | (29,280 | ) | | | 9,406 | |
Series B convertible preferred stock dividends(3)(4) | | | — | | | | — | | | | 1,414 | | | | 1,679 | | | | 1,534 | | | | — | | | | — | | | | — | | | | 1,414 | | | | 1,679 | |
| Net income (loss) available to common stockholders | | | (6,154 | ) | | | (6,740 | ) | | | (30,694 | ) | | | 7,727 | | | | 1,486 | | | | 1,066 | | | | (6,154 | ) | | | (6,740 | ) | | | (30,694 | ) | | | 7,727 | |
| Net income (loss) available to common stockholders per share(1): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.28 | ) | | $ | (0.33 | ) | | $ | (1.77 | ) | | $ | 0.52 | | | $ | 0.11 | | | $ | 0.05 | | | $ | (0.28 | ) | | $ | (0.33 | ) | | $ | (1.77 | ) | | $ | 0.52 | |
| Diluted | | $ | (0.28 | ) | | $ | (0.33 | ) | | $ | (1.77 | ) | | $ | 0.48 | | | $ | 0.11 | | | $ | 0.05 | | | $ | (0.28 | ) | | $ | (0.33 | ) | | $ | (1.77 | ) | | $ | 0.48 | |
Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Working capital | | $ | 35,279 | | | $ | 40,906 | | | $ | 17,335 | | | $ | 43,809 | | | $ | 28,545 | | | $ | 36,718 | | | $ | 35,279 | | | $ | 40,906 | | | $ | 17,335 | | | $ | 43,809 | |
| Total assets | | | 153,002 | | | | 167,385 | | | | 166,194 | | | | 153,800 | | | | 135,028 | | | | 150,403 | | | | 153,002 | | | | 167,385 | | | | 166,194 | | | | 153,800 | |
| Current portion of long-term debt and capitalized lease obligations | | | 3,280 | | | | 3,506 | | | | 11,913 | | | | 200 | | | | 180 | | | | 213 | | | | 3,280 | | | | 3,506 | | | | 11,913 | | | | 200 | |
| Long-term debt and capitalized lease obligations, less current portion | | | 8,467 | | | | 8,663 | | | | 24,198 | | | | 26,149 | | | | 26,449 | | | | 8,254 | | | | 8,467 | | | | 8,663 | | | | 24,198 | | | | 26,149 | |
Series B convertible preferred stock(3)(4) | | | — | | | | — | | | | — | | | | 15,242 | | | | 15,196 | | | | — | | | | — | | | | — | | | | — | | | | 15,242 | |
| Total stockholders’ equity | | | 102,234 | | | | 104,769 | | | | 69,669 | | | | 70,212 | | | | 55,656 | | | | 104,697 | | | | 102,234 | | | | 104,769 | | | | 69,669 | | | | 70,212 | |
Other Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 6,676 | | | | 6,970 | | | | 6,529 | | | | 5,926 | | | | 6,956 | | | | 5,886 | | | | 6,676 | | | | 6,970 | | | | 6,529 | | | | 5,926 | |
| Interest expense | | | 918 | | | | 1,830 | | | | 1,645 | | | | 1,755 | | | | 2,490 | | | | 618 | | | | 918 | | | | 1,830 | | | | 1,645 | | | | 1,775 | |
Capital expenditures(4)(5) | | | 5,811 | | | | 946 | | | | 10,100 | | | | 2,516 | | | | 781 | | | | 974 | | | | 5,811 | | | | 946 | | | | 10,100 | | | | 2,516 | |
| | |
| (1) | | We restated our 2005 financial statements during 2006 as a result of our identification of errors in the financial statements. |
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| | |
| | The effect of these restatements on our operating results for the yearsThe effect of these restatements on our operating results for the year ended December 31, 2005 and 2004, respectively, was as follows (in thousands, except per share data): |
| | | | | | | | | | | | | |
| | | Year Ended December 31, 2005 | |
| | | As Previously
| | | | | | | |
| | | Reported | | | Adjustments | | | Restated | |
| |
| Consolidated revenue | | $ | 139,670 | | | $ | (592 | ) | | $ | 139,078 | |
| Net income | | $ | 10,083 | | | $ | (677 | ) | | $ | 9,406 | |
| Net income (loss) per share available to common stockholders: | | | | | | | | | | | | |
| Basic | | $ | 0.56 | | | $ | (0.04 | ) | | $ | 0.52 | |
| Diluted | | $ | 0.53 | | | $ | (0.05 | ) | | $ | 0.48 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Year Ended December 31, 2005 |
| | | Year Ended December 31, 2004 | | | As Previously
| | | | |
| | | As Previously
| | | | | | | Reported | | Adjustments | | Restated |
| | | Reported | | Adjustments | | Restated | | | (In thousands, except per share amounts) |
| |
| Consolidated revenue | | $ | 125,379 | | | $ | 231 | | | $ | 125,610 | | | $ | 139,670 | | | $ | (592 | ) | | $ | 139,078 | |
| Net income | | $ | 2,561 | | | $ | 459 | | | $ | 3,020 | | | $ | 10,083 | | | $ | (677 | ) | | $ | 9,406 | |
| Net income per share available to common stockholders: | | | | | | | | | | | | | |
| Net income (loss) per share available to common stockholders: | | | | | | | | | | |
| Basic | | $ | 0.08 | | | $ | 0.03 | | | $ | 0.11 | | | $ | 0.56 | | | $ | (0.04 | ) | | $ | 0.52 | |
| Diluted | | $ | 0.07 | | | $ | 0.04 | | | $ | 0.11 | | | $ | 0.53 | | | $ | (0.05 | ) | | $ | 0.48 | |
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| | We corrected an error related to the manner in which we recorded and maintained goodwill related to the acquisition in 2001 of our Swiss subsidiary, 3D Systems S.A. Neither this error nor its correction had any effect on net income (loss) reported for any period on our Consolidated Statements of Operations. As a result of the correction of this error, at December 31, 2006, our Consolidated Balance Sheet reflects ana $1,822 cumulative net increase in goodwill and a corresponding cumulative net increase in other comprehensive income (loss), together with appropriate adjustments to stockholders’ equity, arising from foreign currency translation related to such goodwill in each year ended on or before December 31, 2006. Such net increase in other comprehensive income (loss) consists of a $574 increase for the year ended December 31, 2004, a $969 decrease for the year ended December 31, 2005 and a $498 increase for the year ended December 31, 2006. |
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| (2) | | To conform to current year presentation, foreign exchange gain (loss) was reclassified for 2008 and prior years from product cost of sales to interest and other expenses, net. The amount of foreign exchange gain (loss) that was reclassified for each year is as follows: $401 in 2008, $48 in 2007, $(58) in 2006 and $(754) in 2005. This had the effect of decreasing gross profit and income (loss) from operations in 2008 and 2007 and increasing gross profit and income (loss) from operations in 2006 and 2005 by the respective amounts. |
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| (3) | | Our net loss for 2008 included a $1,185 tax benefit arising from the settlement of a tax audit for the years 2000 tothrough 2005 with a foreign tax authority. This tax settlement reduced 2008 income tax expense by $1,185 as amounts owing under the settlement were less than amounts previously estimated. The settlement enabled us to recognize foreign tax loss carry-forwards, resulting in a $911 increase in our foreign deferred tax asset. Net income in 2005 included a $2,500 non-cash benefit arising from the reduction of the valuation allowance that we maintain against our deferred income tax assets. In 2006, however, we recorded a $2,500 valuation allowance against this deferred income tax asset (before giving effect to the benefit of $748 of foreign net deferred income tax assets that we recognized in 2006) that had the effect of reversing the 2005 reduction of our valuation allowance as a result of our determination that it was more likely than not that we would not be able to utilize this deferred income tax asset to offset anticipated U.S. income. We believe that these entries were prudent and appropriate in accordance with SFAS No. 109, “Accounting for Income Taxes.” See Notes 2 and 20 to the Consolidated Financial Statements. |
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(3)(4) | | On June 8, 2006, all of our then outstanding Series B Convertible Preferred Stock was converted by its holders into 2,639,772 shares of common stock, including 23,256 shares of common stock covering accrued and unpaid dividends to June 8, 2006. As a consequence of the conversion of the Series B Convertible Preferred Stock, commencing with the third quarter of 2006, we ceased recording dividends with respect to the outstanding Series B Convertible Preferred Stock that we paid from its original issuance in May 2003 until its full conversion in June 2006. See Note 13 to the Consolidated Financial Statements. |
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(4)(5) | | Excludes capital lease additions. |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations. |
The following discussion and analysis should be read together with the selected consolidated financial data and our consolidated financial statements set forth in this Annual Report onForm 10-K. Certain statements contained in this discussion may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those reflected in forward-looking statements, as discussed more fully in this Annual Report onForm 10-K. See “Forward-Looking Statements” and “Cautionary Statements and Risk Factors” in Item 1A.
The forward-looking information set forth in this Annual Report onForm 10-K is provided as of the date of this filing, and, except as required by law, we undertake no duty to update that information.
Overview
We design, develop, manufacture, market and service3-D printing, rapid prototypingmanufacturing and manufacturingprototyping systems and related products and materials that enable complex three-dimensional objects to be produced directly from computer data without tooling,tooling. Our products and materials help to greatly reducingreduce the time and cost required to produce prototypes or customized production parts. In 2009, with the introduction of our 3Dpropartstm service, we began supplying finished parts to our customers through a network of parts printing service locations. Our consolidated revenue is derived primarily from the sale of our systems, the sale of the related materials used by the systems to produce solid objects and the provision of services and parts to our customers. Revenue from our 3Dpropartstm service is included in the service revenue line in our consolidated financial statements.
Growth strategy
We are continuing to pursue a growth strategy that focuses on seven strategic initiatives:
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| | • | Improving our customers’ bottom line; |
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| | • | Developing significant product applications; |
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| | • | Expanding our range of customer services; |
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| | • | Accelerating new product development; |
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| | • | Optimizing cash flow and supply chain; |
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| | • | Creating a performance-based ethical culture; and |
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| | • | Developing people and opportunities. |
Improving our customer’scustomers’ bottom line. We believe that our success depends on the success of our customers. Understanding our customers’ objectives and businesses should enable us to quickly incorporate their needs into our product offerings and to offer them effective solutions to their business needs. By offering them effective solutions to their needs, we should be able to provide them with solutions that significantly improve their own profitability.
Developing significant product applications. We believe that our ability to focus on industries that provide significant growth opportunities enables us to accelerate the adoption of our business solutions and to create significant new applications for a continually expanding customer base. By focusing our efforts on two significant addressable opportunities,3-D printing and Rapid Manufacturing, we are working to build a business model that can provide sustained growth. Pursuing these market opportunities also complements our strategy to increase, as a percent of total revenue, the amount of revenue we derive from materials and other consumables. Our materials are used in these systems and provide a recurring revenue stream, which should be less sensitive to cyclical economic behavior.
Expanding our range of customer services. We believe that improving our customers’ bottom line demands the creation of new and innovative services designed to meet specific customer needs. We are
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working to establish faster, simpler business practices designed to make our customer experience with us easier and friendlier.
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Accelerating new product development. We believe that our growth depends on our ability to bring to market new materials, systems and services through quick and targeted development cycles. Technology and innovation are at the heart of this initiative. As an industry leader, we believe that the only sure way to sustain growth is through our commitment to technological leadership.
Optimizing cash flow and supply chain. We believe that our profitability, competitiveness and cash flow should be enhanced by our ability to optimize our overall manufacturing operations and supply chain. Through the implementation of leanorder-to-cash operations, coupled with selective strategic outsourcing, we are working to derive tangible operating improvements and to improve our overall return on assets.
Creating a performance-based ethical culture. We believe that the success of our strategic initiatives will depend on our ability to execute them within the framework of a performance-based culture dedicated to meeting the needs of our customers, stockholders and other constituencies, supported by a corporate culture that is committed to strong principles of business ethics and compliance with the law. We recognize the need to align our performance with our organizational capabilities and practices and our strategic vision to enable us to grow at the rate we expect, to drive operating improvements at the rate we expect and to make the progress against targets necessary to create the necessary alignment.
Developing people and opportunities. We believe that our success depends heavily on the skill and motivation of our employees and that we must therefore invest in the skills that our employees possess and in those that we need to accomplish our strategic initiatives.
We intend to accomplish this growth organically and, as opportunities present themselves, through selective acquisitions. As with any growth strategy, there can be no assurance that we will succeed in accomplishing our strategic initiatives.
Stockholders’ Rights Plan
In December 2008, our Board of Directors approved the creation of our Series A Preferred Stock, adopted a stockholder rights plan (the “Rights Plan”) and declared a dividend of one right for each share of our Common Stock held by stockholders of record as of the close of business on December 22, 2008. The preferred stock purchase rights will also attach to any additional shares of Common Stock issued after December 22, 2008.
Initially, these rights will not be exercisable and will trade with the shares of our Common Stock. Under the Rights Plan, these rights will generally be exercisable only if a person or group acquires or commences a tender or exchange offer for 15 percent or more of our Common Stock. If the rights become exercisable, each right will permit its holder to purchase from us one one-hundredth of a share of Series A Preferred Stock for the exercise price of $55.00 per right.
The Rights Plan also contains customary “flip-in” and “flip-over” provisions such that if a person or group acquires beneficial ownership of 15 percent or more of our Common Stock, each right will permit its holder, other than the acquiring person or group, to purchase shares of our Common Stock for a price equal to the quotient obtained by dividing $55.00 per right by one-half of the then current market price of our Common Stock. In addition, if, after a person acquires such ownership, we are later acquired in a merger or similar transaction, each right will permit its holder, other than the acquiring person or group, to purchase shares of the acquiring corporation’s stock for a price equal to the quotient obtained by dividing $55.00 per right by one-half of the then current market price of the acquiring company’s Common Stock, based on the market price of the acquiring corporation’s stock prior to such merger.
Summary of 20082009 Financial Results
As discussed in greater detail below, revenue for 20082009 declined primarily due to lower sales of systems and services, which decline was partially offset by the favorable effect of foreign currency translation.across all revenue categories. Our revenue decreased by 11.2%18.8% to $112.8 million in 2009 from $138.9 million in 2008, after having decreased from $156.5 million for 2007, which increased from $134.8 million in 2006.2007. These results largely reflected the recessionary business conditions that became apparent in 2008 and continued to deteriorate throughout 2008.2009.
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Our gross profit for 20082009 decreased by 11.8%10.5% to $56.0$49.7 million from $63.5$55.6 million in 2007.2008. Our lower gross profit for 20082009 arose primarily from a lower volume of systems and materials sales. Costs associated with the initial commercialization of our lower system sales, which resulted in absorption of overhead over lower revenue.V-Flash® Desktop Printer also negatively affected our gross margin. These negative impacts were partially offset by supply chain efficiencies and productivity improvements. Gross profit was also negativelyfavorably affected by certain supply chainhigher service margins due to systems upgrades and third-party logistics inefficiencies, which resulted in higher cost of goods sold and additional freight costs, and by higher warranty costs.improved margins on maintenance contracts. Our gross margin percentage remained fairly constant at 40.3%improved to 44.1% in 2008 compared to 40.5%2009 from 40.0% in 2007.2008.
Our total operating expenses declined by $7.5$14.4 million in 20082009 from the previous year,2008, reflecting lower SG&A expenses, partially offset by increasedand R&D expenses. We expect our operating expenses, for 2009 to fall in the range of $48 million to $54 million.
For 2008, our operating loss was unchanged from $5.1 million in 2007. This was primarily due to lower total operating expenses, offset by the reduction in our gross margin noted above. We believe that even though our operating results did not improve, we reduced our operating costs, demonstrating thatreflecting the strategic actions that we have taken to reshape our organization are taking effect.organization. We expect to continue to manage expenses and drive down our costs where possible without impairing our ability to operate and service our customers. We expect operating expenses for 2010 to fall in the range of $46 million to $52 million.
For 2009, our operating income improved by $8.6 million to $3.1 million compared to an operating loss of $5.5 million in 2008. This was primarily due to lower total operating expenses and the increase in our gross margin noted above.
Our operating lossincome for 20082009 included $8.9$8.5 million of non-cash expenses, which primarily consisted of depreciation and amortization, stock-based compensation and the provision for bad debts, partially offset by the provision for deferred income taxes;debts; this compared to $9.5$8.9 million of non-cash expenses in 2007.2008.
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On February 25, 2009, we received notice that our largest customer in Japan filed for protection under the Civil Rehabilitation Act, which we understand to be similar to a Chapter 11 filing under the U.S. Bankruptcy Code. We immediately began assessing the bad debt and business risk arising from this filing. The total receivable due to us from this customer as of February 25 was $1.3 million; of this amount, $0.8 million related to accounts receivable as of December 31, 2008 that was unpaid as of the date of the customer’s filing. Accordingly, we increased our allowance for doubtful accounts as of December 31, 2008 based on our best estimate of the ultimate expected loss associated with the 2008 receivables, based on the facts as we presently understand them. In the future we may have additional adjustments relating to transactions with this customer that occurred in 2009. The net adverse impact of this adjustment on 2008 earnings per share was $0.02 per share.
We are taking additional actions to identify and monitor other potential risks associated with our customers. Customer solvency issues may result in reduced recurring revenue as we balance potential credit risks against revenue opportunities.
A number of actions or events occurred in 2008 and early 2009 that affected our liquidity and our balance sheet including the following:
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| | • | In December 2008, we sold our Grand Junction facility for $5.5 million. We received $3.5 million in cash at closing together with a $2.0 million five-year non-interest bearing note that is guaranteed by the purchaser of the facility and further secured by certain real property. |
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| • | We used $2.0 million of the $3.5 million of cash proceeds from the 2008 sale of our Grand Junction facility, together with $1.2 million of pre-existing restricted cash, to fully collateralize the redemption ofredeem the remaining $3.1 million of outstanding industrial development bonds.bonds in January 2009. With the redemption of these bonds, we have no outstanding indebtedness for borrowed money; |
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| | • | WithDuring the subsequent redemptionsecond half of the remaining $3.12009, we used $4.1 million of outstanding bonds in January 2009, we have no outstanding indebtedness for borrowed money.cash to acquire three businesses to augment our3-D printing and 3Dpropartstm service. See “Liquidity and Capital Resources —Cash Flow-Cash Flow from Investing Activities;” |
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| | • | Our unrestricted cash and cash equivalents decreasedincreased by $7.5$2.7 million to $24.9 million at December 31, 2009 from $22.2 million at December 31, 2008 from $29.7 million at December 31, 2007. See “Liquidity and Capital Resources —Working capital.”2008; |
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| | • | As discussed below, our working capital decreasedincreased by $5.6$1.4 million from December 31, 20072008 to December 31, 2008.2009. See “Liquidity and Capital Resources —Working capital” below.below; and |
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| | • | Among other major components of working capital, accounts receivable, net of allowances, declined by $5.9$1.5 million from December 31, 20072008 to December 31, 20082009 primarily reflecting our lower sales in 2008.2009. Inventory at December 31, 20082009 was $1.0$2.6 million abovelower than its December 31, 20072008 level, reflecting short-term materialslower sales and systems inventory purchases, including purchases of V-Flash® Desktop Modelersoperational efficiencies implemented in our supply chain and certain key components of3-D printers undertaken to support future revenue opportunities.logistics area. |
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Based upon current economic conditions, we expect 20092010 to continue to be extremely challenging. It is possible that we may experience a continued decline in sales during this global recession. In the absence of the historical surge in systems revenue in the fourth quarter of 2008, we anticipate lower growth in integrated systems material revenue in 2009. Softness in demand in key industries we serve such as automotive, aerospace and consumer electronics, may result in a continued decline in revenue from our Direct Rapid Manufacturing Systemssystems during the next several quarters. In addition,As previously disclosed, in connection with our expected commercialization of our V-Flash® Desktop ModelerPrinter in the second quarter of 2009, we expect our earnings per share to be negatively impacted in the range of $0.02 to $0.04 per share for each of the initial four quarters of commercial activity.
Results of Operations for 2009, 2008 2007 and 20062007
Table 1 below sets forth revenue and percentage of revenue by class of product and service.
Table 1
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| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | | (Dollars in thousands) | | | (Dollars in thousands) | |
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| Systems and other products | | $ | 41,323 | | | | 29.8 | % | | $ | 58,178 | | | | 37.2 | % | | $ | 46,463 | | | | 34.5 | % | | $ | 30,501 | | | | 27.0 | % | | $ | 41,323 | | | | 29.8 | % | | $ | 58,178 | | | | 37.2 | % |
| Materials | | | 62,290 | | | | 44.8 | | | | 61,969 | | | | 39.6 | | | | 52,062 | | | | 38.6 | | | | 50,297 | | | | 44.6 | | | | 62,290 | | | | 44.8 | | | | 61,969 | | | | 39.6 | |
| Services | | | 35,327 | | | | 25.4 | | | | 36,369 | | | | 23.2 | | | | 36,295 | | | | 26.9 | | | | 32,037 | | | | 28.4 | | | | 35,327 | | | | 25.4 | | | | 36,369 | | | | 23.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Totals | | $ | 138,940 | | | | 100.0 | % | | $ | 156,516 | | | | 100.0 | % | | $ | 134,820 | | | | 100.0 | % | | $ | 112,835 | | | | 100.0 | % | | $ | 138,940 | | | | 100.0 | % | | $ | 156,516 | | | | 100.0 | % |
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Consolidated revenue
For 2008, our consolidatedConsolidated revenue decreased by 11.2%in both 2009 and 2008 due primarily to $138.9 million in 2008 from $156.5 million in 2007, which increased from $134.8 million in 2006.
The $17.6 million decline in consolidated revenue for 2008 was caused primarily by decreased volume across all sales categories as a result of weakened economic conditions. These decreases are explained in systems, partially offset by a favorable effect of foreign currency translation. Sales of new products and services introducedmore detail in the last three years decreasedRevenue by $19.4 million to $49.3 million in 2008, representing approximately 35.5%class of revenue for the year. Lower volume of our core older products continued their downward trend in 2008 as expected,product and are expected to be replacedserviceandRevenue by new products. SeeProducts and Servicesgeographic regionin Item 1 above.
Large-frame systems (generally defined as systems with sale prices of $0.5 million and above) represented 35.7% of total systems’ revenue for 2008 compared to 42.2% in 2007, while sales of small-frame systems and3-D Printers accounted for the remaining 64.3% compared to 57.8% in 2007. Revenue from3-D Printers was helped by the introduction early in 2008 of our ProJettm 30003-D Printers and growing demand for our Dental Professional Printers.
Revenue from3-D Printers increased by 51% in 2008 compared to 2007. Additionally,3-D printer revenue increased by 64% in the fourth quarter of 2008 compared to the fourth quarter of 2007.
New products and services consist of those products and services introduced in the last three calendar years. Prior to 2008, new products and services were defined as those introduced since the latter part of 2003.
In 2007, consolidated revenue increased 16.1% from $134.8 million in 2006.
The $21.7 million increase in consolidated revenue for 2007 was caused primarily by higher unit volume of new products, the favorable combined effect of price and mix and the favorable effect of foreign currency translation. Sales of new products and services introduced since the latter part of 2003 increased by $19.2 million to $69.8 million in 2007, representing approximately 44.6% of revenue for the year. New product volume and the combined effect of price and mix were partially offset by lower volume of our core older products in 2007, continuing its downward trend.
As used in this Management’s Discussion and Analysis, the combined effect of changes in product mix and average selling prices, sometimes referred to as price and mix effects, relates to changes in revenue that are not able to be specifically related to changes in unit volume. Among these changes are changes in the
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product mix of our materials and our systems as the trend toward smaller, more economical systems that has affected our business for the past several years has continued and the influence of new systems and materials on our operating results has grown. Our reporting systems are not configured to produce more quantitative information regarding the effect of price and mix changes on revenue. However, we believe that changes in product mix, rather than changes in average selling prices, are the principal contributor to the price and mix effects that we experienced in 2008, 2007 and 2006. sections below.
Systems orders and sales tend to fluctuate on a quarterly basis as a result of a number of factors, including the types of systems ordered by customers, customer acceptance of newly-introduced products, the timing of product orders and shipments, global economic conditions and fluctuations in foreign currency exchange rates. Our customers generally purchase our systems as capital equipment items, and their purchasing decisions may have a long lead time.times.
Due to the relatively high list priceprices of certain systems and the overall low unit volume of systems sales in any particular period, the acceleration or delay of orders and shipments of a small number of systems from one period to another can significantly affect revenue reported for our systems for a particular period. Revenue
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reported for systems’systems sales in any particular period is also affected by revenue recognition rules prescribed by generally accepted accounting principles.
Backlog has historically not been a significant factor in our business, reflecting our relatively short production and delivery lead times. We had approximately $1.4 million of booked orders outstanding at December 31, 2008,2009, of which $0.7$0.5 million was related to3-D printers, all of which weprinters. We expect to ship all of these orders in 2009, compared to2010. At December 31, 2008 and 2007, respectively, our backlog was approximately $3.1$1.4 million and $5.0 million of booked orders outstanding at December 31, 2007 and 2006, respectively.$3.1 million.
Revenue by class of product and service
20082009 compared to 20072008
Sales volumes of new products and services declined by $11.8 million in 2009, while the volume of legacy products sold declined by $2.5 million compared to 2008. Table 2 sets forth our change in revenue by class of product and service for 20082009 compared to 2007:2008:
Table 2
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| | | Systems and Other Products | | Materials | | Services | | Totals | | | Systems and Other Products | | Materials | | Services | | Totals | |
| | | (Dollars in thousands) | | | (Dollars in thousands) | |
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| 2007 Revenue | | $ | 58,178 | | | | 37.2 | % | | $ | 61,969 | | | | 39.6 | % | | $ | 36,369 | | | | 23.2 | % | | $ | 156,516 | | | | 100 | % | |
| 2008 Revenue | | | $ | 41,323 | | | | 29.8 | % | | $ | 62,290 | | | | 44.8 | % | | $ | 35,327 | | | | 25.4 | % | | $ | 138,940 | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Volume: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Core products and services | | | (2,090 | ) | | | (3.6 | ) | | | (559 | ) | | | (0.9 | ) | | | 333 | | | | 0.9 | | | | (2,316 | ) | | | (1.5 | ) | | | 164 | | | | 0.4 | | | | (2,499 | ) | | | (4.0 | ) | | | (159 | ) | | | (0.4 | ) | | | (2,494 | ) | | | (1.8 | ) |
| New products and services | | | (16,140 | ) | | | (27.7 | ) | | | (883 | ) | | | (1.4 | ) | | | (2,375 | ) | | | (6.5 | ) | | | (19,398 | ) | | | (12.4 | ) | | | (1,821 | ) | | | (4.4 | ) | | | (7,770 | ) | | | (12.5 | ) | | | (2,174 | ) | | | (6.2 | ) | | | (11,765 | ) | | | (8.5 | ) |
| Price/Mix | | | 433 | | | | 0.7 | | | | (159 | ) | | | (0.3 | ) | | | — | | | | — | | | | 274 | | | | 0.2 | | | | (7,308 | ) | | | (17.7 | ) | | | (592 | ) | | | (1.0 | ) | | | — | | | | — | | | | (7,900 | ) | | | (5.7 | ) |
| Foreign currency translation | | | 942 | | | | 1.6 | | | | 1,922 | | | | 3.1 | | | | 1,000 | | | | 2.7 | | | | 3,864 | | | | 2.5 | | | | (1,857 | ) | | | (4.5 | ) | | | (1,132 | ) | | | (1.8 | ) | | | (957 | ) | | | (2.7 | ) | | | (3,946 | ) | | | (2.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net change | | | (16,855 | ) | | | (29.0 | ) | | | 321 | | | | 0.5 | | | | (1,042 | ) | | | (2.9 | ) | | | (17,576 | ) | | | (11.2 | ) | | | (10,822 | ) | | | (26.2 | ) | | | (11,993 | ) | | | (19.3 | ) | | | (3,290 | ) | | | (9.3 | ) | | | (26,105 | ) | | | (18.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2008 Revenue | | $ | 41,323 | | | | 29.7 | % | | $ | 62,290 | | | | 44.8 | % | | $ | 35,327 | | | | 25.4 | % | | $ | 138,940 | | | | 100 | % | |
| 2009 Revenue | | | $ | 30,501 | | | | 27.0 | % | | $ | 50,297 | | | | 44.6 | % | | $ | 32,037 | | | | 28.4 | % | | $ | 112,835 | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
As discussed above, onWe earn revenue from the sales of systems and other products, materials and services. On a consolidated basis, revenue for 20082009 decreased by 11.2%18.8% to $112.8 million from $138.9 million from $156.5 million for 2007. The principal factor leading2008 as a result of lower volume and a shift in price/mix of systems and other products related to this $17.6 millionlower levels of large-frame system sales, all of which we believe is reflective of the continued weak global economic conditions during 2009.
The decline in consolidated revenue was lower revenue from systems and services. other products that is due to volume for 2009 compared to 2008 was primarily the result of lower sales of large-frame and mid-frame systems that were only partially offset by an increase in unit volume of3-D printers. Sales of systems consisted of:
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| • | Large-frame systems, which represented 32% of total systems revenue for 2009, compared to 36% in 2008; |
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| • | Mid-frame and small-frame systems, which accounted for 29% of total systems revenue for 2009, compared to 42% in 2008; and |
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| • | 3-D printers, which made up the remaining 39%, increasing from 22% in 2008. |
Due to the relatively high list price of certain systems, our customers’ purchasing decisions may have long lead times; combined with the overall low unit volume of systems sales in any particular period, the acceleration or delay of orders and shipments of a small number of systems from one period to another can
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significantly affect revenue reported for our systems sales for the period involved. Revenue reported for systems sales in any particular period is also affected by revenue recognition rules prescribed by generally accepted accounting principles.
Revenue from materials was essentially flatalso adversely impacted by lower large-frame systems sales, which are typically accompanied by significant initial materials purchases to charge up new systems and commence production, and decreased demand in the global marketplace due to the continued overall economic downturn. Sales of integrated materials represented 31% of total materials revenue in 2009, compared to 26% in 2008. After bottoming at $10.6 million in the first quarter of 2009, materials revenue increased sequentially each subsequent quarter of 2009 to end the fourth quarter at $14.8 million.
The decrease in services revenue reflects a reduction in maintenance revenue and the trailing12-month cumulative impact of the decline in large-frame systems sales on warranty revenue. The decrease was partially offset by an increase in sales of upgrades and sales from our 3Dpropartstm service, which we introduced in October 2009. Services revenue increased 12.1% sequentially during the fourth quarter of 2009.
In addition to changes in sales volumes, there are two other primary drivers of changes in revenue from one period to another: the combined effect of changes in product mix and average selling prices, sometimes referred to as price and mix effects, and the impact of fluctuations in foreign currencies.
As used in this Management’s Discussion and Analysis, the price and mix effects relate to changes in revenue that are not able to be specifically related to changes in unit volume. Among these changes are changes in the product mix of our materials and our systems as the trend toward smaller, more economical systems has continued and the influence of new systems and materials on our operating results has grown. Our reporting systems are not currently configured to produce more quantitative information regarding the effect of price and mix changes on revenue.
2008 compared to 2007
As shown in Table 3, the $17.6 million decrease in consolidated revenue in 2008 compared to 2007.
These changes in revenue primarily consisted of decreases in volume. The favorable effect of foreign currency translation partially offset the decrease in revenue in 2008 while, as shown on Table 3 below, it accounted for 25.6% of the increase in consolidated revenue in 2007. The effect of foreign currency translation in each year primarily2007 reflects the effect of changesa $16.9 million decrease in systems revenue and a $1.0 million decrease in services revenue in 2008. Sales of new products and services introduced within the valuelast three years decreased by $19.4 million in 2008. Unit sales volume of the U.S. dollar relative tolegacy products declined by $2.3 million in 2008. Favorable price/mix effects increased revenue by $0.3 million and favorable foreign currencies.currency translation effects increased by $3.9 million.
Table 3
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Systems and
| | | | | | | | | | |
| | | Other Products | | | Materials | | | Services | | | Totals | |
| | | (Dollars in thousands) | |
| |
| 2007 Revenue | | $ | 58,178 | | | | 37.2 | % | | $ | 61,969 | | | | 39.6 | % | | $ | 36,369 | | | | 23.2 | % | | $ | 156,516 | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Volume: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Core products and services | | | (2,090 | ) | | | (3.6 | ) | | | (559 | ) | | | (0.9 | ) | | | 333 | | | | 0.9 | | | | (2,316 | ) | | | (1.5 | ) |
| New products and services | | | (16,140 | ) | | | (27.7 | ) | | | (883 | ) | | | (1.4 | ) | | | (2,375 | ) | | | (6.5 | ) | | | (19,398 | ) | | | (12.4 | ) |
| Price/Mix | | | 433 | | | | 0.7 | | | | (159 | ) | | | (0.3 | ) | | | — | | | | — | | | | 274 | | | | 0.2 | |
| Foreign currency translation | | | 942 | | | | 1.6 | | | | 1,922 | | | | 3.1 | | | | 1,000 | | | | 2.7 | | | | 3,864 | | | | 2.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net change | | | (16,855 | ) | | | (29.0 | ) | | | 321 | | | | 0.5 | | | | (1,042 | ) | | | (2.9 | ) | | | (17,576 | ) | | | (11.2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2008 Revenue | | $ | 41,323 | | | | 29.8 | % | | $ | 62,290 | | | | 44.8 | % | | $ | 35,327 | | | | 25.4 | % | | $ | 138,940 | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2928
As set forth in Table 1 and Table 2:3:
| | |
| | • | Revenue from systems and other products decreased by $16.9 million or 29.0% to $41.3 million for 2008 from $58.2 million for 2007 and decreased to 29.7% of consolidated revenue in 2008 from 37.2% in 2007. |
This decrease was derived primarily from an $18.2 million decrease primarily in sales of large-frame systems, which we believe is due to overall weak economic conditions, partially offset by a $1.0 million positive impact from foreign currency translation.
| | |
| | • | Revenue from materials increased by $0.3 million or 0.5% to $62.3 million for 2008 from $62.0 million for 2007, as favorable foreign currency translation offset the lower sales resulting from the recessionary business conditions in 2008. Materials’Materials revenue increased to 44.8% of consolidated revenue in 2008 from 39.6% in 2007. In 2008, our integrated systems accounted for 26% of all materials’materials revenue. We believe our integrated material strategy is taking hold, evidenced by the sequential quarterly increase in integrated material sales (as a percentage of total sales) from 22% in the first quarter of 2008 and increasing to 28% in the fourth quarter of 2008. |
| |
| | • | Materials revenue volume from our legacy products and new products decreased $0.6 million and $0.9 million, respectively. The combined effect of product mix and average selling prices decreased by $0.2 million. Foreign currency translation had a $1.9 million positive impact on materials revenue. |
| |
| | • | Revenue from services declined by $1.0 million for 2008 compared to 2007 and increased to 25.4% of consolidated revenue in 2008 from 23.2% in 2007 reflecting the effect of the decline in revenue from systems in 2008. |
Declines in volume of new services in 2008 reflected the impact of lower systems revenue partially offset by a $0.3 million increase in legacy services and the $1.0 million favorable impact of foreign currency translation on service revenue.
2007Revenue by geographic region
2009 compared to 20062008
Each geographic region experienced lower levels of revenue in 2009 compared to 2008. This was principally caused by continued weak economic conditions in 2009 which we believe led to lower levels of large-frame system sales, and in the case of Europe, the impact of volatility in currencies on foreign currency translation. Table 4 sets forth the change in revenue by geographic area for 2009 compared to 2008:
Table 4
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. | | | Europe | | | Asia-Pacific | | | Total | |
| | | (Dollars in thousands) | |
| |
| 2008 Revenue | | $ | 54,766 | | | | 39.4 | % | | $ | 62,114 | | | | 44.7 | % | | $ | 22,060 | | | | 15.9 | % | | $ | 138,940 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Volume | | | (2,433 | ) | | | (4.4 | ) | | | (4,592 | ) | | | (7.4 | ) | | | (7,234 | ) | | | (32.8 | ) | | | (14,259 | ) | | | (10.3 | ) |
| Price/Mix | | | (3,416 | ) | | | (6.2 | ) | | | (4,039 | ) | | | (6.5 | ) | | | (445 | ) | | | (2.0 | ) | | | (7,900 | ) | | | (5.7 | ) |
| Foreign currency translation | | | — | | | | — | | | | (4,743 | ) | | | (7.6 | ) | | | 797 | | | | 3.6 | | | | (3,946 | ) | | | (2.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net change | | | (5,849 | ) | | | (10.6 | ) | | | (13,374 | ) | | | (21.5 | ) | | | (6,882 | ) | | | (31.2 | ) | | | (26,105 | ) | | | (18.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2009 Revenue | | $ | 48,917 | | | | 43.4 | % | | $ | 48,740 | | | | 43.2 | % | | $ | 15,178 | | | | 13.4 | % | | $ | 112,835 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As shown in Table 3, the $21.7 million increase in consolidated revenue in 2007 compared to 2006 reflects the effect of an $11.7 million increase in systems revenue and a $9.9 million increase in materials revenue in 2007. Sales of new products and services introduced since the latter part of 2003 increased by $19.2 million to $69.8 million in 2007. Unit sales volume of legacy products declined by $7.5 million in 2007, partially offsetting the favorable effect of higher sales of new products and services. Favorable price/mix effects increased revenue by $4.5 million and favorable foreign currency translation effects increased by $5.6 million.
Table 3
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Systems and Other Products | | | Materials | | | Services | | | Totals | |
| | | (Dollars in thousands) | |
| |
| 2006 Revenue | | $ | 46,463 | | | | 34.5 | % | | $ | 52,062 | | | | 38.6 | % | | $ | 36,295 | | | | 26.9 | % | | $ | 134,820 | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Volume: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Core products and services | | | (5,211 | ) | | | (11.2 | ) | | | 1,759 | | | | 3.4 | | | | (4,054 | ) | | | (11.2 | ) | | | (7,506 | ) | | | (5.5 | ) |
| New products and services | | | 10,609 | | | | 22.8 | | | | 5,727 | | | | 11.0 | | | | 2,838 | | | | 7.8 | | | | 19,174 | | | | 14.2 | |
| Price/Mix | | | 4,299 | | | | 9.3 | | | | 168 | | | | 0.3 | | | | — | | | | — | | | | 4,467 | | | | 3.3 | |
| Foreign currency translation | | | 2,018 | | | | 4.3 | | | | 2,253 | | | | 4.3 | | | | 1,290 | | | | 3.6 | | | | 5,561 | | | | 4.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net change | | | 11,715 | | | | 25.2 | | | | 9,907 | | | | 19.0 | | | | 74 | | | | 0.2 | | | | 21,696 | | | | 16.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2007 Revenue | | $ | 58,178 | | | | 37.2 | % | | $ | 61,969 | | | | 39.6 | % | | $ | 36,369 | | | | 23.2 | % | | $ | 156,516 | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
30
As set forth in Table 1 and Table 3:4:
| | |
| | • | Revenue from systems and other products increasedU.S. operations decreased by $11.7$5.8 million or 25.2%10.6% in 2009 to $58.2$48.9 million for 2007 from $46.5$54.8 million for 2006in 2008. This decrease was due primarily to lower volume and increased to 37.2%the unfavorable combined effect of consolidated revenue in 2007 from 34.5% in 2006.price and mix. |
29
This increase was derived primarily from a $10.6 million increase in sales of our newer systems, the $4.3 million favorable combined effect of changes in product mix and average selling prices and a $2.0 million positive impact from foreign currency translation. This was partially offset by a $5.2 million decline in legacy system sales.
| | |
| | • | Revenue from materials continued its double-digit rate of growth and increasednon-U.S. operations decreased by $9.9$20.3 million or 19.0%24.1% to $62.0$63.9 million for 2007in 2009 from $52.1$84.2 million for 2006. Materials’ revenue increased to 39.6%in 2008 and comprised 56.6% of consolidated revenue in 2007 from 38.6%2009 compared to 60.6% in 2006.2008. The decline innon-U.S. revenue, excluding the impact of foreign currency translation, was 19.4% in 2009. |
Materials revenue volume from our legacy products and new products increased $1.8 million and $5.7 million, respectively. The combined effect of product mix and average selling price increased by $0.2 million. Foreign currency translation had a $2.3 million positive impact on materials revenue.
| | |
| | • | Revenue from servicesEuropean operations decreased by $13.4 million or 21.5% to $48.7 million in 2009 from $62.1 million in 2008. This decrease was essentially flat for 2007 compareddue to 2006 and declined to 23.2% of consolidated revenuea $4.6 million decline in 2007 from 26.9% in 2006 reflectingvolume, the $4.7 million unfavorable effect of foreign currency translation as the growthU.S. dollar strengthened against the Euro and British Pound, and the $4.0 million combined unfavorable impact of price/mix. |
|
| • | Revenue from Asia-Pacific operations decreased by $6.9 million or 31.2% to $15.2 million in revenue2009 from systems$22.1 million in 2008. This decrease was caused primarily by a $7.7 million decline in volume, price and materialsmix as sales were adversely affected by the previously disclosed reorganization filing of our largest Japanese customer. The sales decline was partially offset by $0.8 million of favorable foreign currency translation in 2007.the Asia-Pacific region. |
Declines in volume of legacy services in 2007 almost completely offset a $2.8 million increase in new services and the $1.3 million favorable impact of foreign currency translation on service revenue.
Revenue by geographic region
2008 compared to 2007
The United States and Europe contributed to our lower level of revenue in 2008, while Asia-Pacific revenue declined by a relatively modest $0.1 million compared to 2007.
Table 45 sets forth the change in revenue by geographic area for 2008 compared to 2007:
Table 45
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. | | | Europe | | | Asia-Pacific | | | Total | |
| | | (Dollars in thousands) | |
| |
| 2007 Revenue | | $ | 65,502 | | | | 41.8 | % | | $ | 68,820 | | | | 44.0 | % | | $ | 22,194 | | | | 14.2 | % | | $ | 156,516 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Volume | | | (11,156 | ) | | | (17.0 | ) | | | (9,153 | ) | | | (13.3 | ) | | | (1,405 | ) | | | (6.3 | ) | | | (21,714 | ) | | | (13.9 | ) |
| Price/Mix | | | 420 | | | | 0.6 | | | | 536 | | | | 0.8 | | | | (682 | ) | | | (3.1 | ) | | | 274 | | | | 0.2 | |
| Foreign currency translation | | | — | | | | — | | | | 1,911 | | | | 2.8 | | | | 1,953 | | | | 8.8 | | | | 3,864 | | | | 2.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net change | | | (10,736 | ) | | | (16.4 | ) | | | (6,706 | ) | | | (9.7 | ) | | | (134 | ) | | | (0.6 | ) | | | (17,576 | ) | | | (11.2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2008 Revenue | | $ | 54,766 | | | | 39.4 | % | | $ | 62,114 | | | | 44.7 | % | | $ | 22,060 | | | | 15.9 | % | | $ | 138,940 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As shown in Table 4:5:
| | |
| | • | Revenue from U.S. operations decreased by $10.7 million or 16.4% in 2008 to $54.8 million from $65.5 million in 2007 as shown in Table 4.2007. |
This decrease was due primarily to lower volume of large-frame system sales, for reasons discussed above, compared to that which we experienced in 2007.
| | |
| | • | Revenue from operations outside the U.S. decreased by $6.8 million or 7.5% to $84.2 million in 2008 from $91.0 million in 2007 and comprised 60.6% of consolidated revenue in 2008 compared to 58.2% in 2007. |
31
Foreign currency translation partially offset our revenue decrease in 2008. Excluding the $3.9 million favorable effect of foreign currency translation, revenue from operations outside the U.S. would have decreased 11.8% for 2008 compared to 2007 and would have been 59.5% of consolidated revenue for 2008.
| | |
| | • | Revenue from European operations decreased by $6.7 million or 9.7% to $62.1 million in 2008 from $68.8 million in 2007. This decrease was due primarily to the $9.1 million of lower volume in 2008, partially offset by the favorable effect of foreign currency translation and positive price/mix variances. |
30
| | |
| | • | Revenue from Asia-Pacific operations decreased by $0.1 million or 0.6% to $22.1 million in 2008 from $22.2 million in 2007. This decrease was caused primarily by a $1.4 million decline in volume and a $0.7 million unfavorable effect of price and mix, which more than fully offset $2.0 million of favorable foreign currency translation in the Asia-Pacific region. |
2007 compared to 2006
The components of our $21.7 million increase in revenue by geographic region for 2007 are shown in Table 5, together with the corresponding percentage of that change compared to the level of revenue for the corresponding period of 2006 for that geographic area.
On a consolidated basis, this $21.7 million increase resulted from $12.8 million of higher unit volume contributed by the U.S. and Europe, partially offset by a $1.1 million decrease in unit volume in the Asia-Pacific region, $4.5 million of favorable price/mix effect and the $5.6 million favorable effect of foreign currency translation in Europe.
Table 5
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. | | | Europe | | | Asia-Pacific | | | Total | |
| | | (Dollars in thousands) | |
| |
| 2006 Revenue | | $ | 58,646 | | | | 43.5 | % | | $ | 53,884 | | | | 40.0 | % | | $ | 22,290 | | | | 16.5 | % | | $ | 134,820 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Volume | | | 4,048 | | | | 6.9 | | | | 8,731 | | | | 16.2 | | | | (1,111 | ) | | | (5.0 | ) | | | 11,668 | | | | 8.7 | |
| Price/Mix | | | 2,808 | | | | 4.8 | | | | 584 | | | | 1.1 | | | | 1,075 | | | | 4.8 | | | | 4,467 | | | | 3.3 | |
| Foreign currency translation | | | — | | | | — | | | | 5,621 | | | | 10.4 | | | | (60 | ) | | | (0.2 | ) | | | 5,561 | | | | 4.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net change | | | 6,856 | | | | 11.7 | | | | 14,936 | | | | 27.7 | | | | (96 | ) | | | (0.4 | ) | | | 21,696 | | | | 16.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2007 Revenue | | $ | 65,502 | | | | 41.8 | % | | $ | 68,820 | | | | 44.0 | % | | $ | 22,194 | | | | 14.2 | % | | $ | 156,516 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As set forth in Table 5:
| | |
| • | Revenue from U.S. operations increased by $6.9 million or 11.7% in 2007 to $65.5 million from $58.6 million in 2006. |
This increase was due primarily to higher volume and, to a lesser extent, the favorable combined effect of price and mix and reversed the decline in revenue from U.S. operations that we experienced in 2006 shown in Table 5.
| | |
| • | Revenue from operations outside the U.S. increased by $14.8 million or 19.4% to $91.0 million in 2007 from $76.2 million in 2006 and comprised 58.1% of consolidated revenue in 2007 compared to 56.5% in 2006. This increase reflected the effect of the $14.9 million increase in European revenue in 2007, partially offset by a $0.1 million decrease in Asia-Pacific revenue, continuing a trend that we also experienced in 2006. |
Foreign currency translation, particularly in our European operations, contributed significantly to our revenue increase in 2007. Excluding the $5.6 million favorable effect of foreign currency translation, revenue from operations outside the U.S. would have increased 12.2% for 2007 compared to 2006 and would have been 56.7% of consolidated revenue for 2007.
32
| | |
| • | Revenue from European operations increased by $14.9 million or 27.7% to $68.8 million in 2007 from $53.9 million in 2006. This increase was due to higher volume, positive price/mix variances and the $5.6 million favorable effect of foreign currency translation. Foreign currency translation accounted for 37.6% of the European revenue increase in 2007. |
|
| • | Revenue from Asia-Pacific operations decreased by $0.1 million or 0.4% to $22.2 million in 2007 from $22.3 million in 2006. This decrease was caused primarily by a $1.1 million decline in volume and $0.1 million of unfavorable foreign currency translation that more than offset the $1.1 million favorable effect of price and mix in the Asia-Pacific region and reflected a similar trend that we experienced in 2006. |
CostsGross profit and gross profit margins
OurAlthough gross profit declineddecreased in both 2008 after having increasedand 2009 as our revenue decreased, our gross profit margin improved in 2007 compared with 2006.
2009 as shown in Table 6 sets forthbelow. On a consolidated basis, gross profit both in dollarsfor 2009 decreased by $5.9 million to $49.7 million compared to $55.6 million and as a percentage of revenue,$63.4 million for 2008 compared toand 2007, and 2006:respectively:
Table 6
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | | Gross
| | %
| | Gross
| | %
| | Gross
| | %
| | | Gross
| | %
| | Gross
| | %
| | Gross
| | %
| |
| | | Profit | | Revenue | | Profit | | Revenue | | Profit | | Revenue | | | Profit | | Revenue | | Profit | | Revenue | | Profit | | Revenue | |
| | | (Dollars in thousands) | | | | | | | (Dollars in thousands) | | | | | |
| |
| Systems | | $ | 8,372 | | | | 20.3 | % | | $ | 16,038 | | | | 27.6 | % | | $ | 8,913 | | | | 19.2 | % | |
| Systems and other products | | | $ | 7,824 | | | | 25.7 | % | | $ | 7,971 | | | | 19.3 | % | | $ | 15,990 | | | | 27.5 | % |
| Materials | | | 39,266 | | | | 63.0 | | | | 38,476 | | | | 62.1 | | | | 30,383 | | | | 58.4 | | | | 29,673 | | | | 59.0 | | | | 39,267 | | | | 63.0 | | | | 38,476 | | | | 62.1 | |
| Services | | | 8,330 | | | | 23.6 | | | | 8,946 | | | | 24.6 | | | | 6,961 | | | | 19.2 | | | | 12,233 | | | | 38.2 | | | | 8,330 | | | | 23.6 | | | | 8,946 | | | | 24.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 55,968 | | | | 40.3 | % | | $ | 63,460 | | | | 40.5 | % | | $ | 46,257 | | | | 34.3 | % | | $ | 49,730 | | | | 44.1 | % | | $ | 55,568 | | | | 40.0 | % | | $ | 63,412 | | | | 40.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
To conform to our 2009 presentation, we reclassified $0.4 million of foreign exchange gain in 2008 and a nominal amount of foreign exchange gain in 2007, which had previously been included in product cost of sales, to interest and other expense, net in our consolidated statements of operations. This had the effect of decreasing our previously reported gross profit and interest and other expense, net by $0.4 million for 2008 and by a nominal amount in 2007. This also increased the operating loss for those years by the same amount.
On a consolidated basis, gross profit for 20082009 decreased by $7.5$5.9 million to $56.0$49.7 million from $63.5$55.6 million for 2007 primarily as a2008. This decrease is the result of lower systemvolume of material sales which resulted in absorption of overhead over less revenue and a shift inlower large-frame systems revenue, toward small-frame systems and3-D printers. Small-frame systems and3-D printers normally generate lower gross profit margins than large-frame systems.partially offset by operational efficiencies, as well as the previously disclosed negative impact on margin of sales of our V-Flash® Desktop Printer. This decline was partially offset by higher margins on material sales, which carry the highest gross profit margin of any of our classes of products or services. Gross profit was also negatively affected by certain supply chainservices from systems upgrades and third-party logistics inefficiencies which resulted in higher cost of goods sold and additional freight charges and by higher warranty costs.improved margins on maintenance contracts.
Consolidated gross profit margin in 2008 decreased modestly2009 increased by 0.24.1 percentage points to 40.3%44.1% of revenue from 40.5%40.0% of revenue for the 20072008 period. Foreign currency transactions had a $0.4 million positiveCountering the adverse impact onof our lower revenue, the increase in gross profit margin reflected the effect of various cost of salessavings initiatives that we pursued in 2008 and an immaterial effect2009, which included certain supply chain efficiencies, the movement of certain third-party logistics activities in-house, the sale of systems upgrades and a reduction in field service costs. The gross profit margin was adversely affected by the previously disclosed negative impact on costmargin of sales in 2007. We took steps in the later part of 2008 to mitigate this foreign exchange exposure, including moving production of certain materials sold in U.S. dollars to the United States, and continuing to hedge our currency exposure to items that we acquire or produce in other currencies. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk —Foreign exchange rates.
The combined effects of the lower system sales, duplicate supply chain costs and3-D printer inventory costs impaired our progress toward improving our gross profit margins.V-Flash® Desktop Printer.
Systems and other products gross profit declined by 47.8%1.8% to $8.4$7.8 million in 20082009 from $16.0$8.0 million in 2007,2008, while the gross profit margin fellimproved by 7.36.4 percentage points in 20082009 to 20.3%25.7% of revenue. The declineThis improvement in gross profit margin resulted from increased supply chain efficiencies and marginlower costs to refurbish system components. The improvement was partially offset by the result ofdecline in volume discussed above resulting in the absorption of fixed costs over lowerfewer units and the previously disclosed negative impact on margin of V-Flash® Desktop Printer sales.
Materials grossGross profit increasedmargin for materials declined by 2.1%24.4% to $39.3$29.7 million, with the gross profit margin increasing 0.9decreasing 4.0 percentage points to 63.0%59.0% of revenue from 62.1%63.0% in 2007.2008. This is primarily due to the decline in sales volume of materials, which was adversely affected by the cumulative effect of lower levels of large-frame system sales, resulting in overhead absorption over lower revenue.
Gross profit for services increased by 46.9% to $12.2 million compared to $8.3 million in 2008, while the gross margin improved by 14.6 percentage points to 38.2% of revenue. The improved gross profit is due to the
3331
Gross profit for services decreased by 6.9% to $8.3 million compared to $8.9 millioncombined effect of a decline in 2007, while the gross margin declined by 1.0 percentage point to 23.6% of revenue. The lower gross profit resulted from lower sales of services and higher warrantyfixed costs associated with our decision to cease servicing certain legacy products, resolution of the premature failure of certain system components which we believe was correctedand reductions in the latter half offield service costs initiated in 2008.
Cost of sales decreased by 10.8% to $83.0 million in 2008 from $93.1 million in 2007. As a percentage of consolidated revenue, cost of sales increased to 59.7% of revenue in 2008 from 59.5% in 2007 after decreasing from 65.7% in 2006.
The decrease in cost of sales in 2008 was due primarily to lower revenue. The increase in cost of sales in 2007 was due primarily to our higher volume and the absence in 2007 of business disruptions and challenges experienced in 2006.
The $6.4 million increase in cost of sales for products in 2007 was primarily the result of the increase in volume. The $1.9 million decrease in cost of sales for services in 2007 primarily resulted from the absence of disruptions and challenges that occurred in 2006.
Primarily reflecting the factors discussed above, the combined gross profit margin for systems and materials for 2007 increased to 45.4% of consolidated product revenue from 39.9% of revenue in 2006.
The improvement in service margins in 2007 was primarily due to the absence of the disruptions and challenges that occurred in 2006.
Operating expenses
As shown in Table 7, total operating expenses decreased by $7.5$14.4 million or 11.0%23.6% to $46.7 million for 2009 from $61.1 million for 2008 fromand $68.6 million for 2007 and $71.9 million in 2006. The decrease in 2008 was primarily due to lower SG&A expenses, partially offset by higher R&D expenses, both of which are discussed in greater detail below. SG&A expense in 2008 included $0.7 million of severance costs compared to $0.8 million in 2007.
We believe that ouras cost savings initiatives that we initiated have gained traction, astraction. This is evidenced by sequential declines in ourquarter-over-quarter operating expenses in each of the last fiveten quarters. This decrease consists of $10.4 million of lower selling, general and administrative expenses and $4.1 million in lower research and development expenses, both of which are discussed below. Accordingly, we expect our SG&A expenses in 20092010 to fall into the range of $38$36 million to $42$40 million, and our 20092010 R&D expenses to fall intoin a range of $10 million to $12 million without slowing down the rate of planned new product introductions.
Table 7
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | | | | %
| | | | %
| | | | %
| | | | | %
| | | | %
| | | | %
| |
| | | Amount | | Revenue | | Amount | | Revenue | | Amount | | Revenue | | | Amount | | Revenue | | Amount | | Revenue | | Amount | | Revenue | |
| | | (Dollars in thousands) | | | (Dollars in thousands) | |
| |
| SG&A | | $ | 45,859 | | | | 33.0 | % | | $ | 54,159 | | | | 34.6 | % | | $ | 51,204 | | | | 38.0 | % | | $ | 35,528 | | | | 31.5 | % | | $ | 45,859 | | | | 33.0 | % | | $ | 54,159 | | | | 34.6 | % |
| R&D | | | 15,199 | | | | 10.9 | | | | 14,430 | | | | 9.2 | | | | 14,098 | | | | 10.5 | | | | 11,129 | | | | 9.9 | | | | 15,199 | | | | 10.9 | | | | 14,430 | | | | 9.2 | |
| Restructuring and related costs | | | — | | | | — | | | | — | | | | — | | | | 6,646 | | | | 4.9 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 61,058 | | | | 43.9 | % | | $ | 68,589 | | | | 43.8 | % | | $ | 71,948 | | | | 53.4 | % | | $ | 46,657 | | | | 41.4 | % | | $ | 61,058 | | | | 43.9 | % | | $ | 68,589 | | | | 43.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Selling, general, and administrative costs
2009 compared to 2008
Selling, general and administrative expenses declined by $10.4 million or 22.5% to $35.5 million in 2009 from $45.9 million in 2008 after decreasing by $8.3 million in 2008 compared to $54.2 million in 2007. Selling, general and administrative expenses, as a percentage of revenue, were 31.5%, 33.0% and 34.6% in 2009, 2008 and 2007, respectively.
The $10.4 million decrease in selling, general and administrative expenses in 2009 was primarily due to:
| | |
| • | $4.8 million reduction in salary, benefits and contract labor costs; |
|
| • | $2.2 million decline in audit, tax and other accounting fees; |
|
| • | $0.9 million in reduced occupancy costs; and |
|
| • | $0.6 million of lower travel-related expenses, |
|
| • | partially offset by $1.3 million of increased litigation costs. |
2008 compared to 2007
Selling, general and administrative expenses declined by $8.3 million or 15.3% to $45.9 million in 2008 from $54.2 million in 2007 after increasing by $3.0 million in 2007 compared to $51.2 million in 2006.2007. As a percentage of revenue, selling, general and administrative expenses were 33.0%, and 34.6% and 38.0% of consolidated revenue in 2008 and 2007, and 2006, respectively.
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The $8.3 million decrease in selling, general and administrative expenses in 2008 was primarily due to:
| | |
| | • | $3.5 million of lower contract labor and consultant costs; |
| |
| | • | $2.3 million decline in incentive and stock-based compensation costs; |
| |
| | • | $1.2 million reduction in accounting fees; |
32
| | |
| | • | $1.0 million of lower sales bonuses and commissions; |
| |
| | • | $0.7 million of reduced occupancy costs; |
| |
| | • | $0.5 million decrease in printing and supply costs; and |
| |
| | • | $0.4 million reduction in travel-related expenses. |
Partially offsetting the decline was:were:
| | |
| | • | $0.7 million increase in bad debt expense, including the provision related to a large Japanese customer that filed for court protection in February 2009. |
| |
| | • | $0.6 million of expenses associated with the previously disclosed first quarter Audit Committee investigation of anonymous claims of wrongdoing by certain members of management, which claims were found to be baseless. |
Depreciation and amortization decreased to $6.7 million in 2008 from $7.0 million in 2007, which increased from $6.5 million in 2006. The decrease in depreciation and amortization in 2008 was primarily due to the absence of amortization for acquired technology, which was fully amortized during 2007. The increase in depreciation and amortization in 2007 was primarily due to the investments that we made in our facilities related to our relocation to Rock Hill, infrastructure, the opening of our rapid manufacturing center and product development capabilities in 2006.
2007 compared to 2006
The $3.0 million increase in selling, general and administrative expenses in 2007 was primarily due to:
| | |
| • | $2.8 million of higher expenses related to sales commissions and bonuses; |
|
| • | $1.4 million of higher audit fees; |
|
| • | $0.8 million of higher severance unrelated to our relocation; and |
|
| • | $0.9 million of higher depreciation expense related to the significant capital expenditures that we made in 2006 related to our relocation to Rock Hill. |
which was partially offset by:
| | |
| • | $1.5 million of lower bad debt expenses; |
|
| • | $1.2 million of lower travel expenses; |
|
| • | $1.0 million of lower contract labor expense; and |
|
| • | $0.5 million reduction in employee benefits related to a change in our vacation policy. |
Research and development expenseexpenses
Research and development expenses decreased by 26.8% to $11.1 million in 2009 and increased by 5.3% to $15.2 million in 2008 and by 2.4% tofrom $14.4 million in 2007 from $14.12007. The decrease in 2009 was principally due to a $2.4 million decrease in 2006. Inoutside consulting services in 2009 and the reduction in costs for 2009 following commercialization of certain new products in 2008 2007 and 2006, these expenses included,including, among other projects, costs associated with the development ofothers, our ProJettm3-D printers, iProtm SLA® systems, sProtm SLS® system andsystems, the V-Flash®3-D Desktop ModelerPrinter and other new product development activities, including the other new products that we introduced this year.
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Restructuring and related costs
We did not incur any restructuring and related costs in 2008 and 2007. In connection with our relocation to Rock Hill, South Carolina, we incurred $6.6 million of costs in 2006 primarily consisting of personnel, relocation and recruiting costs.2009.
Income (loss) from operations
OurIn 2009, we achieved operating loss remained unchanged at $5.1income of $3.1 million, compared to operating losses of $5.5 million in 2008 as compared toand $5.2 million in 2007, including the effect of the 2009 reclassification of foreign exchange gain (loss) discussed above, as our lower revenue and gross profit waswere more than offset by our lower level of total operating expenses in 2008, all as discussed 2009. SeeGross profit and gross profit marginsabove. We reported a $25.7 million operating loss for 2006. The 2008 operating loss included $6.6 million of operating losses incurred in the first three quarters of 2008 that were partially offset by $1.5 million of operating income in the fourth quarter of 2008 as our expense control initiatives began to have an impact.
The following table sets forth operating income (loss) from operations by geographic area for 2009, 2008 2007 and 2006:2007:
Table 8
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | | (Dollars in thousands) | | | (Dollars in thousands) | |
| |
| Income (loss) from operations: | | | | | | | | | | | | | | | | | | | | | | | | |
| United States | | $ | (10,656 | ) | | $ | (9,924 | ) | | $ | (28,888 | ) | | $ | (2,478 | ) | | $ | (10,947 | ) | | $ | (9,820 | ) |
| Germany | | | 1,080 | | | | 430 | | | | 1,608 | | | | 234 | | | | 1,350 | | | | 507 | |
| Other Europe | | | 2,373 | | | | 1,110 | | | | 1,621 | | | | 1,316 | | | | 2,793 | | | | 1,192 | |
| Asia-Pacific | | | 1,764 | | | | 2,127 | | | | 1,770 | | | | 3,486 | | | | 965 | | | | 1,816 | |
| | | | | | | | | | | | | | | |
| Subtotal | | | (5,439 | ) | | | (6,257 | ) | | | (23,889 | ) | | | 2,558 | | | | (5,839 | ) | | | (6,305 | ) |
| Inter-segment elimination | | | 349 | | | | 1,128 | | | | (1,802 | ) | | | 515 | | | | 349 | | | | 1,128 | |
| | | | | | | | | | | | | | | |
| Total | | $ | (5,090 | ) | | $ | (5,129 | ) | | $ | (25,691 | ) | | $ | 3,073 | | | $ | (5,490 | ) | | $ | (5,177 | ) |
| | | | | | | | | | | | | | | |
On a geographic basis:
| | |
| | • | Our U.S. operations generated an operating loss from our U.S. operations increased to $10.7of $2.5 million in 2008 from $9.92009, compared to $10.9 million in 2007.2008. We reported $28.9$9.8 million of operating losses in the U.S. in 2006.2007. |
| |
| | • | Our operating income from operations in Europe improveddecreased to $3.5$1.6 million in 20082009 from $1.5$4.1 million in 2007.2008. We reported $3.2$1.7 million of operating income in our European operations in 2006.2007. |
33
| | |
| | • | Operating income from our Asia-Pacific operations was $1.8$3.5 million in 20082009 compared with $2.1to $1.0 million in 2007. The decline is principally a result of the bad debt provision for our largest Japanese customer in 2008, as discussed above.2008. We reported $1.8 million of operating income in our Asia-Pacific operations in 2006.2007. |
With respect to the U.S., in 2009, 2008 and 2007, the changes in operating loss by geographic area reflected the same factors relating to our consolidated operating loss that are discussed above. As most of our operations outside of the U.S. are conducted through sales and marketing subsidiaries, the changes in operating income in our operations outside of the U.S. in each of 2009, 2008 2007 and 20062007 resulted primarily from changes in sales volume, transfer pricing and in foreign currency translation.
Interest and other expense,expenses, net
Interest and other expense,expenses, net, which consist primarily of interest income and interest expense, amounted to $0.8$1.2 million of net expense for 2009, $0.4 million of net expense for 2008 and $1.1 million of net expense for 2007 and $1.4 million2007. The 2009 increase resulted from lower interest income on investments in 2009 as we shifted our short-term investments into Treasury funds in September 2008, partially offset by reduced interest expense related to the redemption of net expense for 2006.the remaining outstanding industrial revenue bonds. The 2008 decrease resulted from interest income generated by higher average cash balances in 2008 and lower interest expense due to the absence in 2008 of bank borrowings and other outstanding debt that we discharged in 2007, partially offset by lower interest rates on investments that prevailed in 2008. The 2007
36
decrease included interest expense on our bank borrowings and 6% convertible subordinated debentures which were outstanding for only part of the year during 2007, partially offset by interest income during 2007.
As discussed above, inIn December 2008, we completed the sale of our Grand Junction facility for $5.5 million, which included $3.5 million of cash (before closing costs) and a $2.0 million non-interest bearing note receivable with a five-year maturity. The carrying value of the facility was $3.5 million, and after deducting certain closing costs, we realized an initial gain on the sale of $1.6 million.
We discounted this note receivable by approximately $1.0 million to reflect imputed interest, and offset this amount against the initial gain, reducing the net gain to $0.6 million. In accordance with SFAS No. 66, “Accounting forASC Section 360.20, “Real Estate Sales, of Real Estate,” we have recognized no gain on the sale of our Grand Junction facility.facility as of December 31, 2009. The carrying value of the long-term receivable, net of the discount and deferred gain, is recorded in “Other assets, net” on the balance sheet at December 31, 2009 and 2008. See Note 510 to the Consolidated Financial Statements.
We do not currently expect to incur additional borrowings during 2009,2010, and consequently expect that interest and other expense (income), net will not be a material factor in our operating results during 2009.2010.
Provisions for income taxes
We recorded $0.8 million, $0.3 million and $0.5 million and $2.2 millionof provisions for income taxes in 2009, 2008 2007 and 2006,2007, respectively. In each year, these provisions primarily reflect tax expense associated with income taxes in foreign jurisdictions.
Our $0.8 million provision for income taxes in 2009 increased from 2008 principally due to the absence in 2009 of the $1.2 million benefit in 2008 arising from the settlement of a foreign tax audit for the years 2000 through 2005. The impact of the absence of this benefit is offset by a $0.6 million decrease in tax expense due to the reduction in foreign income.
Our $0.3 million provision for income taxes in 2008 was reduced byincluded a $1.2 million benefit arising from the settlement of a foreign tax audit for the years 2000 to 2005. This settlement reduced 2008 income tax expense by $1.2 millionthrough 2005, as amounts owing under the settlement arewere less than the amounts we previously estimated by the Company.estimated. The settlement allowsallowed us to recognize tax loss carry-forwards, resulting in a $0.9 million increase in our foreign deferred tax asset. The benefit of the favorable tax settlement amounted to $0.05 per share in 2008.share. See Note 2021 to the Consolidated Financial Statements.
Our $0.5 million provision for income taxes in 2007 primarily reflects $0.9 million of tax expense associated with income taxes in foreign jurisdictions partially offset by a $0.4 million reduction at December 31, 2007 in the valuation allowance maintained with respect to our deferred tax assets for various foreign subsidiaries.
A substantial portion of our deferred income tax assets results from available net operating loss carry-forwards in the jurisdictions in which we operate. Certain of these net operating loss carry-forwards for U.S. state income tax purposes began to expire in 2006, and certain of them will begin to expire in later years for foreign and U.S. federal income tax purposes. See Note 2021 to the Consolidated Financial Statements. Our
34
level of U.S. losses for the years ended December 31, 2009, 2008 2007 and 20062007 may be viewed as evidence that we will not be able to utilize all of these net operating loss carry-forwards before they expire.
Net income (loss); net income (loss) available to 3D Systems common stockholders
OurIn 2009 we generated net loss declined by 8.7%income of $1.1 million, compared to net losses of $6.2 million in 2008 to $6.2 million fromand $6.7 million in 2007.
The principal reasons for 2007. We recorded $29.3 million ofour higher net lossincome in 2006.2009, which are discussed in more detail above, were:
| | |
| • | The $14.4 million reduction in operating expenses; partially offset by |
|
| • | The $5.9 million decrease in gross profit; |
|
| • | The $0.8 million increase in interest and other expense, net; and |
|
| • | The $0.5 million increase in the provision for income taxes. |
The principal reasons for our lower net loss in 2008, which are discussed in more detail above, were:
| | |
| | • | The $0.2 million reduction in our income tax provisions; and |
| |
| | • | The $0.3$0.7 million reduction of interest and other expense, net. |
37
The principal reasons for our $6.7 million net loss for 2007 compared to our $29.3 million net loss for 2006 were:
| | |
| • | The $20.6 million reduction in our operating loss; |
|
| • | The $1.7 million reduction in our income tax provisions discussed above, which included in 2006 a $1.8 million net increase in our valuation allowance arising from the reversal in 2006 of a $2.5 million deferred tax asset; and |
|
| • | The $0.3 million reduction of interest and other expense (income), net. |
Net lossincome (loss) available to common stockholders was $1.1 million for 2009, ($6.2) million for 2008 was $6.2and ($6.7) million and for 2007 was $6.7 million. There was no difference between2007. On a per share basis, our basic net loss and net lossincome per share available to the common stockholders was $0.05 in 20082009, and 2007 since we had no preferred stock outstanding and paid no preferred stock dividends during those years. On aour fully diluted net income per share basis,available to common stockholders was $0.05. This is an improvement over our net loss per share available to the common stockholders, declined to $0.28 per share in 2008, on both a basic and fully diluted basis, from a $0.33of $0.28 per share loss in 2007. See Note 17 to the Consolidated Financial Statements.
In 2007, net loss available to common stockholders was $6.7 million. There was no difference between net loss2008 and net loss available to the common stockholders in 2007 since we had no preferred stock outstanding and paid no preferred stock dividends during that period. On a per share basis, our net loss per share available to the common stockholders declined to $0.33 per share in 2007 on both a basic and fully diluted basis from a $1.77 loss per share in 2006.2007.
The dilutive effects of outstanding securities were excluded from the calculation of diluted income per share in 2008 2007 and 20062007 as they would have been anti-dilutive, that is, they would have increased net income per share or reduced net loss per share. See Note 1718 to the Consolidated Financial Statements.
Liquidity and Capital Resources
We used $7.5 million of net cash in 2008 and finished the year with $22.2 million of unrestricted cash compared to $29.7 million of unrestricted cash at December 31, 2007. This included $3.5 million of cash to fund operating activities, consisting of our $6.2 million net loss in 2008 and $6.2 million of cash consumed by net changes in operating accounts, partially offset by $8.9 million of non-cash charges that were included in our net loss. We also used $2.6 million of cash in investing activities, and $1.4 million of cash used in financing activities in 2008. See“Working Capital,” “Cash flow” and “Outstanding debt and capitalized lease obligations” below.
During 2009,2010, we intend to continue to rely upon our unrestricted cash and cash flow from operations to meet our liquidity needs. While we believe that the actions taken in 2008 and 2009 to reduce our operating costs, improve our gross profit margin and manage working capital should continue to benefit us in 2009,2010, there can be no assurance in these uncertain economic times that those actions will be sufficient.
We have not replaced the revolving credit facility which we repaid and allowed to expire in the third quarter of 2007. Following the redemption of our remaining outstanding industrial development bonds in January 2009, we had no outstanding debt for borrowed money, and our principal contractual commitments consistconsisted of the capital leases on our Rock Hill facility, which are discussed in greater detail below.
Working capital
Our net working capital decreasedincreased by $5.6$1.4 million to $36.7 million at December 31, 2009 from $35.3 million at December 31, 2008 from $40.9 million at December 31, 2007.2008. Table 9 provides a summary of the net changes in working capital items from December 31, 20072008 to December 31, 2008.2009.
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Table 9
| | | | | | | | | |
| | | Increase
| | | Increase
| |
| | | (Decrease) | | | (Decrease) | |
| | | (Dollars in
| | | (Dollars in
| |
| | | thousands) | | | thousands) | |
| |
| Working capital at December 31, 2007 | | $ | 40,906 | | |
| Working capital at December 31, 2008 | | | $ | 35,279 | |
| Changes in current assets: | | | | | | | | |
| Cash and cash equivalents | | | (7,525 | ) | | | 2,749 | |
| Accounts receivable, net of allowances | | | (5,949 | ) | | | (1,517 | ) |
| Inventories, net of reserves | | | 977 | | | | (2,640 | ) |
| Prepaid expenses and other current assets | | | (2,718 | ) | | | 814 | |
| Deferred income tax assets | | | 243 | | | | (301 | ) |
| Restricted cash | | | 2,109 | | | | (3,255 | ) |
| Assets held for sale | | | (3,455 | ) | |
| | | | | | | |
| Total current assets | | | (16,318 | ) | | | (4,150 | ) |
| Changes in current liabilities: | | | | | | | | |
| Current portion of long-term debt | | | (240 | ) | | | (3,085 | ) |
| Current portion of capitalized lease obligation | | | 14 | | | | 18 | |
| Accounts payable | | | (3,579 | ) | | | (4,139 | ) |
| Accrued liabilities | | | (4,191 | ) | | | 3,057 | |
| Customer deposits | �� | | (401 | ) | | | (509 | ) |
| Deferred revenue | | | (2,294 | ) | | | (931 | ) |
| | | | | | | |
| Total current liabilities | | | (10,691 | ) | | | (5,589 | ) |
| | | | | | | |
| Net change in working capital | | | (5,627 | ) | | | 1,439 | |
| | | | | | | |
| Working capital at December 31, 2008 | | $ | 35,279 | | |
| Working capital at December 31, 2009 | | | $ | 36,718 | |
| | | | | | | |
Our unrestricted cash and cash equivalents decreasedincreased by $7.5$2.7 million to $24.9 million at December 31, 2009 from $22.2 million at December 31, 2008 from $29.7 million at December 31, 2007.2008. This decreaseincrease resulted from $3.5the net of $7.7 million of cash used inprovided by operating activities, $2.6$5.2 million of cash used in investing activities and $1.4$0.3 million of cash used inprovided by financing activities.
Accounts receivable, net decreased by $5.9$1.5 million to $25.2$23.8 million at December 31, 20082009 from $31.1$25.3 million at December 31, 2007.2008. This decline was primarily attributable to lower sales partially offset by an increaseand a decrease in days’days sales outstanding to 60 days at December 31, 2009 from 66 days at December 31, 2008 from 64 days at December 31, 2007.2008. Accounts receivable more than 90 days past due increased towas 5.9% of gross receivables at December 31, 2008 compared to 5.5% of gross receivables at2009 and December 31, 2007, due to an increase in accounts over 90 days past due in Europe, partially offset by a reduction in accounts over 90 days past due in the U.S. and Asia-Pacific regions.2008.
Bad debt expense was $0.9 million for 2009 compared to $0.8 million for 2008; thisin 2008. This amount included taking into accountincludes a provision for the large Japanese customer who filed for reorganization in February 2009. All amounts due from this customer, who emerged from reorganization in late 2009, have been fully reserved as of December 31, 2009. The overall bad debt expense was positively affected by our focus on improving collections. This compares to badBad debt expense oftotaled $0.1 million for 2007 and $1.6 million for 2006.in 2007. Our allowance for doubtful accounts declined to $1.8 million at December 31, 2009 from $2.0 million at December 31, 2008 from $2.1 million at December 31, 2007.2008. This decline resulted primarily from the write downwrite-down of uncollectible receivables and a reduction in receivables over 90 days past due.
3936
Components of inventories were as follows:
Table 10
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| | | (Dollars in thousands) | | | (Dollars in thousands) | |
| |
| Raw materials | | $ | 1,635 | | | $ | 835 | | | $ | 2,294 | | | $ | 1,635 | |
| Inventory held by assemblers | | | 34 | | | | 197 | | | | — | | | | 34 | |
| Work in process | | | 146 | | | | 126 | | | | 253 | | | | 146 | |
| Finished goods and parts inventory | | | 22,359 | | | | 21,189 | | | | 18,524 | | | | 22,359 | |
| | | | | | | | | | | |
| Total cost | | | 24,174 | | | | 22,347 | | | | 21,071 | | | | 24,174 | |
| Less: reserves | | | (3,156 | ) | | | (2,306 | ) | | | (2,693 | ) | | | (3,156 | ) |
| | | | | | | | | | | |
| Inventories, net | | $ | 21,018 | | | $ | 20,041 | | | $ | 18,378 | | | $ | 21,018 | |
| | | | | | | | | | | |
Inventories increaseddecreased by $1.0$2.6 million to $18.4 million at December 31, 2009 from $21.0 million at December 31, 20082008. This decrease resulted primarily from $20.0a $3.8 million at December 31, 2007. Thisreduction in finished goods inventory as a result of our inventory reduction initiatives, partially offset by an increase in inventory resulted from short-term materials’ and systems’ inventory purchases thatas we undertook to support future revenue, including purchasesmoved production of V-Flashour ProJet®tm Desktop Modelers and certain key components to support future productionline of3-D printers. In the second half of 2008 inventory reduction plans were put in place, and although we ended 2008 with inventory levels $1.0 million higher than at the end of 2007, we reduced our inventory by $5.1 million since June 2008.printers in-house.
As shown in Table 10 above, with the outsourcing of substantially all of our large-frame and mid-frame equipment assembly and refurbishment activities, the majority of our inventory now consists of finished goods, including primarily systems, materials and service parts, as our third-party assemblers have taken over supply-chain responsibility for the assembly and refurbishment of large-frame and mid-frame systems. As a result, we generally no longer hold in inventory most parts for systems’large-frame and mid-frame systems production or refurbishment.
In calculating inventory reserves, which weredeclined to $2.7 million at December 31, 2009 from $3.2 million at December 31, 2008, and $2.3 million at December 31, 2007, we make an assessment of spare parts that we hold in inventory and that we expect to use over the expected life cycles of the related systems, of inventory related to the blending of our engineered materials and composites and of our ability to sell items that are recorded in finished goods inventory.
The components of prepaid expenses and other current assets were:
Table 11
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| | | (Dollars in thousands) | | | (Dollars in thousands) | |
| |
| Value added tax (“VAT”) and sales tax refunds | | $ | 325 | | | $ | 670 | | | $ | 468 | | | $ | 325 | |
| Progress payments to assemblers | | | — | | | | 866 | | |
| Non-trade receivables | | | 35 | | | | 1,076 | | | | 111 | | | | 35 | |
| Other | | | 1,351 | | | | 1,817 | | | | 1,836 | | | | 1,241 | |
| | | | | | | | | | | |
| Total | | $ | 1,711 | | | $ | 4,429 | | | $ | 2,415 | | | $ | 1,601 | |
| | | | | | | | | | | |
Our prepaid expenses and other current assets declinedincreased by $2.7$0.8 million to $1.7$2.4 million at December 31, 20082009 from $4.4$1.6 million at December 31, 2007.2008. The non-trade receivables shown in Table 11, the inventory held by assemblers shown in Table 10 and a related accrued liability in an amount that corresponds to the book value of inventory held by assemblers included in accrued liabilities on our Consolidated Balance Sheet relate to the accounting for our outsourcing arrangements pursuant to SFAS No. 49. The non-trade receivables shown in Table 11 declined by $1.0 million from December 31, 2007 to less than $0.1 million at December 31, 2008 as a result of a reduction in semi-finished systems and parts that our third-party assemblers purchased from us to complete the assembly of systems for which we had not received payment from them at period end. Progress payments to assemblers decreased by $0.9 million, reflecting a continuing downward trend.
40
As discussed elsewhere in thisForm 10-K, we sold the Grand Junction facility in late December 2008. At December 31, 2007 we had $3.5 million of net assets related to that facility recorded on our Consolidated Balance Sheet as assets held for sale. At December 31, 2008 and December 31, 2007 we had $3.1 million and $3.3 million, respectively, as a current liability consisting of the outstanding principal amount of the industrial development bonds that financed that facility, in anticipation of the sale of the facility. These bonds were redeemed in January 2009. See Notes 5 and 12 to the Consolidated Financial Statements.ASC 470.40, “Product Financing Arrangements.”
Accounts payable declined by $3.6$4.1 million to $13.0 million at December 31, 2009 from $17.1 million at December 31, 2008 from $20.7 million at December 31, 2007.2008. The decline was primarily due to lower payables that corresponded to lower cost of sales in 20082009 compared to 20072008 and the impact of our continuing cost reduction initiatives initiated in the second quarter of 2008.initiatives.
Customer deposits decreased by $0.4$0.5 million from $1.5$1.1 million at December 31, 20072008 to $1.1$0.6 million at December 31, 2009 as a result of the reductionlower sales of systems and other products in backlog from December 31, 2007 to December 31, 2008.
2009. Deferred revenue decreased by $2.3$0.9 million to $8.5 million at December 31, 2009 from $9.4 million at December 31, 2008 from $11.7 million at December 31, 2007 primarily due to a net decrease in maintenance contracts, installation, training and warranty revenue in 2008.2009.
37
Accrued liabilities increased by $3.0 million to $11.1 million at December 31, 2009 from $8.1 million at December 31, 2008; this increase is primarily due to higher accruals for employee bonuses and taxes.
The changes in 20082009 that comprise the other components of working capital not discussed above arose in the ordinary course of business.
Differences between the amounts of working capital item changes in the cash flow statement and the amounts of balance sheet changes for those items are primarily the result of foreign currency translation adjustments.
Cash flow
Table 12 summarizes the cash provided by or used in operating activities, investing activities and financing activities, as well as the effect of changes in foreign currency exchange rates on cash, for the years ended December 31, 2009, 2008 2007, and 2006 .2007.
Table 12
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | | (Dollars in thousands) | | | (Dollars in thousands) | |
| |
| Cash provided by (used in) operating activities | | $ | (3,479 | ) | | $ | 2,625 | | | $ | (8,551 | ) | | $ | 7,734 | | | $ | (3,479 | ) | | $ | 2,625 | |
| Cash used in investing activities | | | (2,654 | ) | | | (2,205 | ) | | | (11,016 | ) | | | (5,243 | ) | | | (2,654 | ) | | | (2,205 | ) |
| Cash provided by (used in) financing activities | | | (1,434 | ) | | | 14,669 | | | | 9,964 | | | | 273 | | | | (1,434 | ) | | | 14,669 | |
| Effect of exchange rate changes on cash | | | 42 | | | | 269 | | | | (394 | ) | | | (15 | ) | | | 42 | | | | 269 | |
| | | | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | $ | (7,525 | ) | | $ | 15,358 | | | $ | (9,997 | ) | | $ | 2,749 | | | $ | (7,525 | ) | | $ | 15,358 | |
| | | | | | | | | | | | | | | |
We generated $2.7 million of net cash in 2009 and finished the year with $24.9 million of unrestricted cash, compared to $22.2 million of unrestricted cash at December 31, 2008. This included $7.7 million of cash generated from operating activities, consisting of our $1.1 million net income in 2009 and $8.5 million of non-cash charges that were included in our net income, partially offset by $1.9 million of cash consumed by net changes in operating accounts. We also used $5.2 million of cash in investing activities, and $0.3 million of cash was provided by financing activities in 2009. SeeWorking capital, Cash flowandOutstanding debt and capitalized lease obligations.
Cash flow from operations
2009 compared to 2008
For the year ended December 31, 2009, we generated $7.7 million of net cash from operating activities. This change in cash primarily consisted of our $1.1 million net income and $8.5 million of non-cash charges that were included in our net income, partially offset by $1.9 million of cash consumed by net changes in operating accounts.
The principal changes in non-cash items that favorably affected operating cash flow included $5.9 million of depreciation and amortization expense, $1.2 million of stock-based compensation expense and $0.9 million of bad debt expense.
Depreciation and amortization decreased to $5.9 million in 2009 from $6.7 million in 2008, which decreased from $7.0 million in 2007. The decrease in depreciation and amortization in 2009 was primarily due to lower levels of capital expenditures. The decrease in depreciation and amortization in 2008 was primarily due to the absence of amortization for acquired technology, which was fully amortized during 2007.
Changes in working capital that resulted in a source of cash included the following:
| | |
| • | a $2.4 million decrease in inventory; and |
|
| • | a $1.4 million decrease in accounts receivable. |
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Changes in working capital that resulted in a use of cash included the following:
| | |
| • | a $4.4 million decrease in accounts payable; and |
|
| • | a $1.1 million decrease in deferred revenue. |
See “Working capital” above for a discussion of the reasons for these changes in working capital items.
2008 compared to 2007
For the year ended December 31, 2008, we used $3.5 million of net cash in operating activities. This change in cash primarily consisted of our $6.2 million net loss and $6.2 million of cash consumed by net changes in operating accounts, which was partially offset by $8.9 million of non-cash items included in our net loss.
The principal changes in non-cash items that favorably affected operating cash flow included $6.7 million of depreciation and amortization expense, $1.4 million of stock-based compensation expense and $0.8 million of bad debt expense.
Changes in working capital that resulted in a source of cash included the following:
| | |
| | • | A $3.5a $3.6 million decrease in accounts receivable; and |
| |
| | • | A $2.6 million decrease in prepaid expenses and other current assets. |
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Changes in working capital that resulted in a use of cash included the following:
| | |
| • | A $2.5 million increase in inventories and inventory included in fixed assets; |
|
| • | A $2.8 million decrease in accounts payable; |
|
| • | A $3.2 million decrease in accrued liabilities; and |
|
| • | A $2.0 million decrease in deferred revenue. |
See “Working capital” above for a discussion of the reasons for these changes in working capital items.
2007 compared to 2006
We generated $2.6 million of net cash from operating activities for the year ended December 31, 2007. This cash flow from operations consisted of $9.5 million of non-cash items included in our net loss that was partially offset by our $6.7 million net loss and $0.3 million of cash used by net changes in operating accounts.
The principal changes in non-cash items that favorably affected operating cash flow included $7.0 million of depreciation and amortization expense and $2.7 million of stock-based compensation expense.
Changes in working capital that resulted in a source of cash included the following:
| | |
| • | A $5.0 million decrease in accounts receivable; |
|
| • | A $6.1 million decrease in inventories; and |
|
| • | A $2.0 million decrease in prepaid expenses and other current assets. |
Changes in working capital that resulted in a use of cash included the following:
| | |
| | • | A $7.1a $2.5 million reductionincrease in inventories and inventory included in fixed assets; |
|
| • | a $2.8 million decrease in accounts payable; |
|
| • | a $3.2 million decrease in accrued liabilities; and |
| |
| | • | A $5.0a $2.0 million reductiondecrease in customer deposits.deferred revenue. |
Cash flow from investing activities
Net cash used in investing activities in 2009 increased to $5.2 million from $2.7 million in 2008. In 2009 this consisted of $4.1 million related to acquisitions and $1.2 million of net purchases of property and equipment and additions to license and patent costs. See Notes 3, 5 and 6 to the Consolidated Financial Statements.
Net cash used in investing activities in 2008 increased to $2.7 million from $2.2 million in 2007. In 2008 this consisted of $6.1 million related to purchases of property and equipment and additions to license and patent costs, partially offset by $3.5 million of asset dispositions, principally the sale of the Grand Junction facility. See NoteNotes 5 and 6 to the Consolidated Financial Statements.
We used $2.2 million of net cash for investing activities in 2007 compared to $11.0Capital expenditures were $1.0 million in 2006. This decrease was primarily due to our lower level of capital expenditures in 2007, reflecting the completion in 2006 of the capital projects associated with our Rock Hill facility and our lower level of capital expenditures in 2007.
Capital expenditures were2009, $5.8 million in 2008 and $0.9 million in 2007 and $10.1 million in 2006.2007. Capital expenditures in 20082009 primarily consisted of expenditures withfor tooling and systems associated with our newly introduced products,new product development efforts and leasehold improvements associated withand equipment to support our advanced research facility in Valencia, and evaluation and demonstration equipment which should be sold in future periods.
We expect our capital expenditures for 2009 to range between $1 million and $2 million.3Dpropartstm service.
Cash flow from financing activities
Net cash used inprovided by financing activities wasimproved to $0.3 million in 2009 from a net use of $1.4 million in 2008 as opposed to $14.7 million and $10.0 million of2008. Net cash provided by financing activities was $14.7 million in 20072007. This change in 2009 resulted primarily from the release of restricted cash, partially offset by debt repayments and 2006, respectively. Thislower stock option exercise activity.
The decrease in 2008 resulted primarily from the absence of any significant financing activities and the $2.0$2.1 million increase in restricted cash used to collateralize the redemption of the remaining outstanding industrial development bonds following the sale of the Grand Junction facility. Net proceeds from stock option exercises and equity
42
compensation awards declined to $1.1 million in the 2008 period from $2.9 million in 2007, primarily reflecting the smaller number of outstanding stock options and lower option exercise activity since we discontinued granting stock options in 2004.activity.
39
For the year ended December 31, 2007, net cash provided by financing activities increased by $4.7 million to $14.7 million from $10.0 million in 2006. This 2007 increase resulted primarily from $20.4 million of net proceeds, after deducting issuance costs, of our private placement of common stock in June 2007 and $2.9 million of net proceeds from stock option exercises and equity compensation awards, and it was partially offset by our payment of $8.2 million of Silicon Valley Bank revolving credit borrowings in July 2007 and $0.4 million of repayments of industrial development bonds related to our Grand Junction facility during the year.
Outstanding debt and capitalized lease obligations
At December 31, 2008,2009, total debt and capitalized lease obligations decreased to $11.7$8.5 million from $12.2$11.7 million at December 31, 20072008 due to scheduled paymentsthe redemption of principal on ourthe outstanding industrial development bonds discussed below and principal payments on capitalized lease obligations. Our capitalized lease obligations were $8.5 million at December 31, 2009 and $8.7 million at December 31, 2008 and $8.8 million at December 31, 2007. Our only floating-rate debt obligation at December 31, 2008 was the outstanding industrial development bonds related to our Grand Junction facility.2008.
Our outstanding debt and capitalized lease obligations at December 31, 20082009 and December 31, 20072008 were as follows:
Table 13
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| | | (Dollars in thousands) | | | (Dollars in thousands) | |
| |
| Debt: | | | | | | | | | | | | | | | | |
| Industrial development revenue bonds | | $ | 3,085 | | | $ | 3,325 | | | $ | — | | | $ | 3,085 | |
| | | | | | | | | | | |
| Total | | $ | 3,085 | | | $ | 3,325 | | | $ | — | | | $ | 3,085 | |
| | | | | | | | | | | |
| Capitalized lease obligations: | | | | | | | | | | | | | | | | |
| Current portion of capitalized lease obligation | | | 195 | | | | 181 | | | | 213 | | | | 195 | |
| Capitalized lease obligation, less current portion | | | 8,467 | | | | 8,663 | | | | 8,254 | | | | 8,467 | |
| | | | | | | | | | | |
| Total | | | 8,662 | | | | 8,844 | | | | 8,467 | | | | 8,662 | |
| Total current portion | | | 3,280 | | | | 3,506 | | | | 213 | | | | 3,280 | |
| | | | | | | | | | | |
| Total long-term portion | | | 8,467 | | | | 8,663 | | | | 8,254 | | | | 8,467 | |
| | | | | | | | | | | |
| Total debt and capitalized lease obligations | | $ | 11,747 | | | $ | 12,169 | | | $ | 8,467 | | | $ | 11,747 | |
| | | | | | | | | | | |
Industrial development bonds
Our Grand Junction, Colorado facility was financed by industrial development bonds in the original aggregate principal amount of $4.9 million. At December 31, 2008 and December 31, 2007, the outstanding principal amount of these bonds was $3.1 million and $3.3 million, respectively.million. Interest on the bonds accrued at a variable rate of interest and was payable monthly. The interest rate at December 31, 2008 and December 31, 2007 was 1.28% and 3.52%, respectively. Principal payments were due in semi-annual installments through August 2016..
In December 2008, we completedFollowing the sale of our Grand Junction facility for $5.5 million. The sale price exceeded both the $3.5 million of net assets at which the facility was carried on our balance sheet as well as the $3.1 million of industrial development bonds then outstanding. Following the sale,in December 2008, we fully collateralized the repayment of the industrial development bonds, including interest and other amounts due through the redemption date, with a portion of the cash proceeds of the sale and the $1.2 million of restricted cash previously held by the trustee. On December 24, 2008, we provided the required35-day notice of our intent to
43
redeem the outstanding bonds, in accordance with their terms, on January 28, 2009. In January 2009, the remaining outstanding bonds of $3.1 million, plus accrued and unpaid interest, were redeemed utilizing the restricted cash. Following the redemption of the industrial development bonds, we have no debt for borrowed money outstanding.
Capitalized lease obligations
Following the redemption of the industrial development bonds discussed above in January 2009, we have no debt for borrowed money outstanding. Our principal contractual commitments consist of capitalized lease obligations of $8.7$8.5 million and $8.8$8.7 million at December 31, 20082009 and 2007,2008, respectively.
Our outstanding capitalized lease obligations relate to two lease agreements that we entered into during 2006 with respect to our Rock Hill facility, one of which covers the facility itself and the other of which covers certain furniture and fixtures that we acquired for use in the facility. The carrying values of the headquarters facility lease and the furniture and fixture lease at December 31, 20082009 and 2007,2008, respectively, were $8.7$8.5 million and $8.8$8.7 million. See Note 2212 to the Consolidated Financial Statements.
ContingenciesStockholders’ equity
Stockholders’ equity increased by $2.5 million to $104.7 million at December 31, 2009 from $102.2 million at December 31, 2008. This increase was primarily attributable to the $1.1 million of net income in 2009,
40
partially offset by the $0.1 million of other comprehensive income and a $1.5 million increase in additionalpaid-in-capital consisting of:
| | |
| • | $0.3 million of net proceeds from stock option exercises and other equity compensation awards during 2009; and |
|
| • | $1.2 million of stock compensation expense recorded in stockholders’ equity during 2009. See Note 14 to the Consolidated Financial Statements. |
Commitments
On February 8, 2006, we entered into a lease agreement with KDC-Carolina Investments 3, LP pursuant to which KDC constructed and leased to us an approximately 80,000 square foot building in Rock Hill, South Carolina. Under the terms of this lease, KDC agreed to lease the building to us for an initial15-year term following completion. See Note 22 to the Consolidated Financial Statements. We took occupancy of the building in November 2006.
After its initial term, the lease provides us with the option to renew the lease for two additional five-year terms as well as the right to cause KDC, subject to certain terms and conditions, to expand the leased premises during the term of the lease, in which case the term of the lease would be extended. The lease is a triple net lease and provides for the payment of base rent of approximately $0.1 million in 2006, $0.7 million annually from 20072010 through 2020, including rent escalations in 2011 and 2016, and $0.5 million in 2021. Under the terms of the lease, we will beare obligated to pay all taxes, insurance, utilities and other operating costs with respect to the leased premises.
The lease also grants us the right to purchase the leased premises and undeveloped land surrounding the leased premises on terms and conditions described more particularly in the lease.
In accordance with SFAS No. 13, “Accounting for Leases,ASC 840, “Leases,” we are considered an owner of the property. Therefore, as required by SFAS No. 13, as of December 31, 2006, we recorded $8.5 million as building in our consolidated balance sheet with a corresponding capitalized lease obligation in the liabilities section of the consolidated balance sheet. We also entered into several amendments to the lease in 2006 pursuant to which, among other things, we agreed to pay $3.4 million of the costs incurred and capitalized related to certain additional tenant improvements and change orders.Consolidated Balance Sheet. See Note 2212 to the Consolidated Financial Statements.
We lease certain other facilities under non-cancelable operating leases expiring through 2011.2013. The leases are generally on a net-rent basis, under which we pay taxes, maintenance and insurance. We expect leases that expire to be renewed or replaced by leases on other properties. Rental expense for the years ended December 31, 2009, 2008 and 2007 and 2006 was $1.9$1.7 million, $2.7$1.8 million and $2.4$2.7 million, respectively.
For a discussion of debt commitments at December 31, 2008, see our discussion above under the heading“Industrial development bonds.”
44
Future contractual payments at December 31, 20082009 are set forth in Table 14 below.
Table 14
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ending December 31, | | | Year Ending December 31, | |
| | | 2009 | | 2010-2011 | | 2012-2013 | | Later Years | | Total | | | 2010 | | 2011-2012 | | 2013-2014 | | Later Years | | Total | |
| | | (Dollars in thousands) | | | (Dollars in thousands) | |
| |
| Capitalized lease obligations | | $ | 795 | | | $ | 1,581 | | | $ | 1,402 | | | $ | 13,701 | | | $ | 17,479 | | | $ | 795 | | | $ | 1,487 | | | $ | 1,402 | | | $ | 13,000 | | | $ | 16,684 | |
| Non-cancelable operating leases | | | 1,309 | | | | 1,532 | | | | 609 | | | | — | | | | 3,450 | | | | 1,257 | | | | 1,121 | | | | 188 | | | | — | | | | 2,566 | |
| Industrial development bonds(1) | | | 3,085 | | | | — | | | | — | | | | — | | | | 3,085 | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 5,189 | | | $ | 3,113 | | | $ | 2,011 | | | $ | 13,701 | | | $ | 24,014 | | | $ | 2,052 | | | $ | 2,608 | | | $ | 1,590 | | | $ | 13,000 | | | $ | 19,250 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Includes accrued interest at the 1.28% rate in effect at December 31, 2008, and reflects the January 28, 2009 prepayment of the remaining outstanding bonds. |
Financial instruments
We conduct business in various countries using both the functional currencies of those countries and other currencies to effect cross border transactions. As a result, we are 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, we endeavor to match assets and liabilities in the same currency on our balance sheet and those of our subsidiaries in order to reduce these risks. We also, when we consider it to be appropriate, enter into foreign currency contracts to hedge exposures arising from those transactions. We have not adopted hedge accounting under SFAS No. 133, “Accounting for DerivativesASC 815, “Derivatives and Hedging, Activities,” as amended by SFAS No. 137 and SFAS No. 138, and we
41
recognize all gains and losses (realized or unrealized) in cost of salesinterest and other expenses, net in our Consolidated Statements of Operations.
The dollar equivalent of our foreign currency contracts and their related fair values as of December 31, 20082009 and December 31, 20072008 were as follows:
Table 15
| | | | | | | | | | | | | | | | | |
| | | Foreign Currency
| | | Foreign Currency
| |
| | | Purchase Contracts | | | Purchase Contracts | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| | | (Dollars in thousands) | | | (Dollars in thousands) | |
| |
| Notional amount | | $ | 1,680 | | | $ | 2,905 | | | $ | 1,587 | | | $ | 1,680 | |
| Fair value | | | 1,699 | | | | 2,891 | | | | 1,563 | | | | 1,699 | |
| | | | | | | | | | | |
| Net unrealized gain (loss) | | $ | 19 | | | $ | (14 | ) | |
| Net unrealized (loss) gain | | | $ | (24 | ) | | $ | 19 | |
| | | | | | | | | | | |
At December 31, 20082009 and 2007,2008, the notional amount of these contracts at their respective settlement dates amounted to $1.7$1.6 million and $2.9$1.7 million, respectively. These contracts related to purchases of inventory from third parties. The notional amount of the purchase contracts aggregated CHF 1.81.6 million and CHF 3.31.8 million, respectively (equivalent to $1.7$1.6 million and $2.9$1.7 million, respectively, at settlement date).
The net fair value of all foreign exchange contracts at December 31, 2009 and 2008 reflected nominal unrealized losses at December 31, 2009 and 2007 reflected nominal unrealized gains at December 31, 2008 and nominal unrealized losses at December 31, 2007.2008. The foreign currency contracts outstanding at December 31, 20082009 expired at various times between January 5, 20096, 2010 and February 11, 2009.3, 2010.
Changes in the fair value of derivatives are recorded in cost of salesinterest and other expenses, net in our Consolidated Statementsconsolidated statements of Operations.operations. Depending on their fair value at the end of the reporting period, derivatives are recorded either in prepaid and other current assets or in accrued liabilities in our Consolidated Balance Sheets.
The total impact of foreign currency related items on our Consolidated Statements of Operations was a $0.1 million loss for 2009, a $0.4 million gain for 2008 and a nominal gain for 2007 and a $0.1 million loss for 2006.2007.
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Stockholders’ equity
Stockholders’ equity decreased by $2.6 million to $102.2 million at December 31, 2008 from $104.8 million at December 31, 2007. This decrease was primarily attributable to the $6.2 million net loss in 2008, partially offset by a $1.0 million foreign currency translation adjustment and a $2.5 million increase in additionalpaid-in-capital consisting of:
| | |
| • | $1.1 million of net proceeds from stock option exercises and other equity compensation awards during 2008; and |
|
| • | $1.4 million of stock compensation expense recorded in stockholders’ equity in accordance with SFAS No. 123(R) during 2008. |
Critical Accounting Policies and Significant Estimates
The discussion and analysis of our results of operations and financial condition set forth in this Annual Report onForm 10-K is based on our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make critical accounting estimates that directly impact our Consolidated Financial Statements and related disclosures.
Critical accounting estimates are estimates that meet two criteria:
| | |
| | • | The estimates require that we make assumptions about matters that are highly uncertain at the time the estimates are made; and |
| |
| | • | There exist different estimates that could reasonably be used in the current period, or changes in the estimates used are reasonably likely to occur from period to period, both of which would have a material impact on our results of operations or financial condition. |
On an ongoing basis, we evaluate our estimates, including those related to stock-based compensation, revenue recognition, the allowance for doubtful accounts, income taxes, inventories, goodwill and other intangible and long-lived assets and contingencies. We base our estimates and assumptions on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
42
The following paragraphs discuss the items that we believe are the critical accounting policies most affected by significant management estimates and judgments. Management has discussed and periodically reviews these critical accounting policies, the basis for their underlying assumptions and estimates and the nature of our related disclosures herein with the Audit Committee of the Board of Directors.
Revenue recognition
Revenue from the sale of systems and related products and materials is recognized upon shipment or when services are performed, provided that persuasive evidence of a sales arrangement exists, both title and risk of loss have passed to the customer and collection is reasonably assured. Persuasive evidence of a sales arrangement exists upon execution of a written sales agreement or a signed purchase order that constitutes a fixed and legally binding commitment between us and the buyer. In instances where sales are made to an authorized reseller, the same criterion cited above is applied to determine the recognition of revenue. The reseller’s creditworthiness is evaluated prior to such sale. The reseller takes ownership of the related systems, products or materials and payment is not dependent upon the reseller’s sale to an end user.end-user.
Sales of our systems generally include equipment, a software license, a warranty on the equipment, training and installation. For revenuearrangements with multiple deliverables, we allocaterevenues are recognized based on an allocation of the total amount of the customer will payarrangement to the separate units of accounting based on fair value of vendor-specific objective evidence (“VSOE”), as determined by the price charged for the undelivered items when sold separately. We also evaluate the impact
46
of undelivered items on the functionality of delivered items for each sales transaction and, where appropriate, defer revenue on delivered items when that functionality has been affected. Functionality is determined to be met if the delivered products or services represent a separate earnings process.
Revenue from services is recognized at the time of performance. Training revenue is recognized after training is complete, and installation revenue is recognized after the installation is accepted. We provide end-users with maintenance under a warranty agreement for up to one year and defer a portion of the revenue from the related systems sale at the time of sale based on the relative fair value of those services.services as determined by VSOE, as determined by the renewal rate of the maintenance contract. After the initial warranty period, we offer these customers optional maintenance contracts. Deferred maintenance revenue is recognized ratably, on a straight-line basis, over the period of the contract.
Our systems are sold with licensed software products that are integral to the operation of the systems. We sell equipment with embedded software to our customers. The embedded software is not sold separately, it is not a significant focus of the marketing effort and we do not provide post-contract customer support specific to the software or incur significant costs that are within the scope of SFAS No. 86.ASC 985, “Software”. Additionally, the functionality that the software provides is marketed as part of the overall product. The software embedded in the equipment is incidental to the equipment as a whole such thatSOP No. 97-2,Software Revenue Recognition, ASC 985 is not applicable. Sales of these products are recognized in accordance with SEC Staff Accounting Bulletin (SAB) No. 104,Revenue RecognitionandEITF 00-21,Revenue Arrangements with Multiple Deliverables.ASC 605.25, “Multiple-Element Arrangements.”
Shipping and handling costs billed to customers for equipment sales are included in product revenue in the Consolidated Statement of Operations. Costs we incur that are associated with shipping and handling are included in product cost of sales in the Consolidated Statement of Operations.
Credit is extended, and creditworthiness is determined, based on an evaluation of each customer’s financial condition. New customers are generally required to complete a credit application and provide references and bank information to facilitate an analysis of creditworthiness. Customers with a favorable profile may receive credit terms based on that profile that differ from our general credit terms. Creditworthiness is considered, among other things, in evaluating our relationship with customers with past due balances.
Our terms of sale generally require payment within 30 to 60 days after shipment of a product although we also recognize that longer payment periods are customary in some countries in which we transact business. To reduce credit risk in connection with systems sales, we may, depending upon the circumstances, require significant deposits prior to shipment and may retain a security interest in a system sold until fully paid. In some circumstances, we may require payment in full for our products prior to shipment and may require international
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customers to furnish letters of credit. For services, we either bill customers on atime-and-materials basis or sell customers service agreements that are recorded as deferred revenue and provide for payment in advance on either an annual or other periodic basis.
Allowance for doubtful accounts
Our estimate for the allowance for doubtful accounts related to trade receivables is based on two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved.
First, we evaluate specific accounts where we have information that the customer may have an inability to meet our financial obligations (for example, aging over 90 days past due or bankruptcy). In these cases, we use our judgment, based on available facts and circumstances, and record a specific reserve for that customer against amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are reevaluatedre-evaluated and adjusted as additional information is received that impacts the amount reserved.
Second, a reserve is established for all customers based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change (for example, we experiencehigher-than-expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to us), the estimate of the recoverability of amounts due to us could be reduced by a material amount. Similarly, if we experiencelower-than-expected defaults or improved customer financial condition, estimates of recoverability of amounts due could increase.
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The CompanyWe also providesprovide an allowance account for returns and discounts. This allowance is evaluated on a specific account basis. In addition, the Company provideswe provide a general reserve for all customers that have not been specifically identified based on historical experience.
Our allowance for doubtful accounts declined to $1.8 million at December 31, 2009 from $2.0 million at December 31, 2008 from $2.1 million at December 31, 2007.2008. This change resulted primarily from the write down of uncollectible receivables and a reduction in receivables over 90 days past due. We believe that our allowance for doubtful accounts is a critical accounting estimate because it is susceptible to change and dependent upon events that may or may not occur and because the impact of recognizing additional allowances for doubtful accounts may be material to the assets reported on our balance sheet and in our results of operations.
Income taxes
We and our domestic subsidiaries file a consolidated U.S. federal income tax return. Ournon-U.S. subsidiaries file income tax returns in their respective local jurisdictions. We provide for income taxes on those portions of our foreign subsidiaries’ accumulated earnings that we believe are not reinvested indefinitely in their business.businesses.
We account for income taxes under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax benefit carry-forwards. Deferred income tax liabilities and assets at the end of each period are determined using enacted tax rates.
We record deferred income tax assets arising from temporary timing differences between recorded net income and taxable net income when and if we believe that future earnings will be sufficient to realize the tax benefit. We provide a valuation allowance for those jurisdictions where the expiration date of tax benefit carry-forwards or the projected taxable earnings indicate that realization is not likely.
Under the provisions of SFAS No. 109, “Accounting for IncomeASC 740, “Income Taxes,” a valuation allowance is required to be established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of a deferred income tax asset will not be realized. SFAS No. 109ASC 740 provides that an important factor in determining whether a deferred income tax asset will be realized is whether there has been sufficient income in recent years and whether sufficient income is expected in future years in order to utilize the deferred income tax asset. Based upon our accumulated losses, and our then continuing operating losses for years prior to 2003, we established and maintain a valuation allowance against our deferred income tax assets.
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We believe that our estimate of deferred income tax assets and our maintenance of a valuation allowance against such assets are critical accounting estimates because they are subject to, among other things, an estimate of future taxable income in the U.S. and in othernon-U.S. tax jurisdictions, which are susceptible to change and dependent upon events that may or may not occur, and because the impact of our valuation allowance may be material to the assets reported on our balance sheet and in our results of operations. We intend to continue to assess our valuation allowance in accordance with the requirements of SFAS No. 109.ASC 740.
The determination of our income tax provision is complex because we have operations in numerous tax jurisdictions outside the U.S. that are subject to certain risks that ordinarily would not be expected in the U.S. Tax regimes in certain jurisdictions are subject to significant changes, which may be applied on a retroactive basis. If this were to occur, our tax expense could be materially different than the amounts reported.
We periodically estimate the probable tax obligations using historical experience in tax jurisdictions and our informed judgment. There are inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which we transact business. The judgments and estimates made at a point in time may change based on the outcome of tax audits, as well as changes to, or further interpretations of, regulations. Income tax expense is adjusted in the period in which these events occur, and these adjustments are included in our
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consolidated statements of operations. If such changes take place, there is a risk that our effective tax rate may increase or decrease in any period.
Inventories
Inventories are stated at the lower of cost or net realizable value, cost being determined predominatelypredominantly on thefirst-in, first-out method. Reserves for inventories are provided based on historical experience and current product demand. Our inventory reserve was $2.7 million at December 31, 2009 compared with $3.2 million at December 31, 2008 compared with $2.3 million at December 31, 2007.2008. We evaluate the adequacy of these reserves quarterly. Our determination of the allowance for inventory reserves is subject to change because it is based on management’s current estimates of required reserves and potential adjustments.
We believe that the allowance for inventory obsolescence is a critical accounting estimate because it is susceptible to change and dependent upon events that may or may not occur and because the impact of recognizing additional obsolescence reserves may be material to the assets reported on our balance sheet and in our results of operations.
Goodwill and other intangible and long-lived assets
We evaluate long-lived assets other than goodwill for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.
The annual impairment testing required by SFAS No. 142, “GoodwillASC 350, “Intangibles — Goodwill and Other, Intangible Assets,” requires us to use our judgment and could require us to write down the carrying value of our goodwill and other intangible assets in future periods. As required by SFAS No. 142,ASC 350, we have allocated goodwill to identifiable geographic reporting units, which are tested for impairment using a two-step process detailed in that statement. See Notes 26 and 7 to the Consolidated Financial Statements. The first step requires comparing the fair value of each reporting unit with our carrying amount, including goodwill. If that fair value exceeds the carrying amount, the second step of the process is not required to be performed, and no impairment charge is required to be recorded. If that fair value does not exceed that carrying amount, we must perform the second step, which requires an allocation of the fair value of the reporting unit to all assets and liabilities of that unit as if the reporting unit had been acquired in a purchase business combination and the fair value of the reporting unit was the purchase price. The goodwill resulting from that purchase price allocation is then compared to the carrying amount with any excess recorded as an impairment charge.
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Goodwill set forth on the Consolidated Balance Sheet as of December 31, 20082009 arose from acquisitions carried out in 2009 and in years prior to December 31, 2003.2007. Goodwill arising from the acquisition of DTM Corporation in 2001prior years acquisitions was allocated to geographic reporting units based on the percentage of SLS® systems then installed by geographic area. Goodwill arising from other acquisitions was allocated to geographic reporting units based on geographic dispersion of the acquired companies’ sales at the time of their acquisition.
Pursuant to the requirements of SFAS No. 142,ASC 350, we are required to perform a valuation of each of our three geographic reporting units annually, or upon significant changes in our business environment. We conducted our annual impairment analysis in the fourth quarter of 2008.2009. To determine the fair value of each reporting unit we utilized discounted cash flows, using five years of projected unleveraged free cash flows and terminal EBITDA earnings multiples. The discount rates used for the analysis reflected a weighted average cost of capital based on industry and capital structure adjusted for equity risk premiums and size risk premiums based on market capitalization. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions and may differ from actual future cash flows. We also considered the current trading multiples of comparable publicly-traded companies and the historical pricing multiples for comparable merger and acquisition transactions that have occurred in the industry. Under each fair value measurement methodology considered, the fair value of each reporting unit exceeded its carrying value; accordingly, no goodwill impairment adjustments were recorded for on our Consolidated Balance Sheet.
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The control premium that a third party would be willing to pay to obtain a controlling interest in 3D Systems Corporation was considered when determining fair value. In addition, factors such as the performance of competitors were also considered. Management concluded that there was a reasonable basis for the excess of the estimated fair value of the geographic reporting units over its market capitalization.
The estimated fair value of the three geographic reporting units incorporated judgment and the use of estimates by management. Potential factors requiring assessment include a further or sustained decline in our stock price, variance in results of operations from projections, and additional acquisition transactions in the industry that reflect a lower control premium. Any of these factors may cause us to re-evaluate goodwill during any quarter throughout the year. If an impairment charge were to be taken for goodwill it would be a non-cash charge and would not impact our cash position or cash flows, however such a charge could have a material impact to equity and the statement of operations.
There was no goodwill impairment for the fiscal years ended December 31, 2009, 2008 2007 or 2006.2007.
We performed an analysis of the fair value of long-lived assets in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.ASC 360, “Property, Plant and Equipment.” No impairment loss was recorded for the periods presented.
Determining the fair value of a reporting unit, intangible asset or a long-lived asset is judgmental and involves the use of significant estimates and assumptions. Management bases its fair value estimates on assumptions that it believes are reasonable but are uncertain and subject to changes in market conditions.
Stock-based compensation
Effective January 1, 2006, we adopted SFAS No. 123(R), “Share-Based Payment,ASC 718, “Compensation — Stock Compensation,” which requires the recognition of the fair value of share-basedstock-based compensation. Under the fair value recognition provisions of SFAS No. 123(R), share-basedASC 718, stock-based compensation is estimated at the grant date based on the fair value of the awards expected to vest and recognized as expense ratably over the requisite service period of the award. See Note 14 to the Consolidated Financial Statements.
Contingencies
We account for contingencies in accordance with SFAS No. 5, “Accounting for Contingencies.ASC 450, “Contingencies.” SFAS No. 5ASC 450 requires that we record an estimated loss from a loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies such as legal matters requires us to use our judgment.
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Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 introduces a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. For financial assets and liabilities, SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We adopted the standard for those assets and liabilities as of January 1, 2008, and the impact of adoption was not significant. See Note 192 to the Consolidated Financial Statements.
FASB Staff PositionNo. 157-2 delayed the effective date of SFAS No. 157 until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for all nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We are assessing the impact of SFAS No. 157 on our consolidated financial statements with respect to these nonfinancial assets and liabilities.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115,” which became effective January 1, 2008. SFAS No. 159 permits companies to choose to measure certain financial assets and financial liabilities
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at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. The implementation of this standard did not have a material impact on our consolidated financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R provides revised guidance on how acquirers recognize and measure the consideration transferred, identifiable assets acquired, liabilities assumed, non-controlling interests, and goodwill acquired in a business combination. SFAS No. 141R also expands required disclosures surrounding the nature and financial effects of business combinations. SFAS No. 141R is effective, on a prospective basis, for fiscal years beginning after December 15, 2008. We are currently assessing the impact of SFAS No. 141R on its financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendmentincluded in this report for recently issued accounting standards, including the expected dates of ARB No. 51.” SFAS No. 160 establishes accountingadoption and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008. We are currently assessing the potential impact of SFAS No. 160 on its financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” SFAS No. 161 expands disclosures but does not change accounting for derivative instruments and hedging activities. The statement will become effective for us starting in the first quarter of fiscal year 2009. Because SFAS No. 161 only requires additional disclosure, the adoption will not impact our consolidated financial position, results of operations or cash flows.
In April, 2008 the FASB issued FSPNo. FAS 142-3, “Determination of the Useful Life of Intangible Assets.”FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” The objective ofFSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007).FSP 142-3 applies to all intangible assets, whether acquired in a business combination or otherwise, and is effective, on a prospective basis, for fiscal years beginning after December 15, 2008. Early adoption is prohibited. Since this guidance will be applied prospectively, on adoption, there will be no impact to our current consolidated financial statementsConsolidated Financial Statements upon adoption.
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| Item 7A. | Quantitative and Qualitative Disclosures about Market RiskRisk. |
We are exposed to market risk from fluctuations in interest rates, foreign currency exchange rates, and commodity prices, which may adversely affect our results of operations and financial condition. We seek to minimize these risks through regular operating and financing activities and, when we consider it to be appropriate, through the use of derivative financial instruments. We do not purchase, hold or sell derivative financial instruments for trading or speculative purposes.
Interest rates
Our exposure to market risk for changes in interest rates relates primarily to our cash and cash investments and our outstanding industrial development bonds.investments. We seek to minimize the risk to our cash and cash investments by investing cash in excess of our operating needs in short-term, high-quality instruments issued by highly creditworthy financial institutions, corporations or governments. With the amount of cash and cash equivalents and floating-rate borrowings that we maintained at December 31, 2008,2009, a hypothetical 1% or 100 basis point change in interest rates would have a $0.2 million effect on our financial position and results of operations.
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From time to time, we may use derivative financial instruments, including interest rate swaps, collars or options, to manage our exposure to fluctuations in interest rates. At December 31, 2008,2009, we had no such financial instruments outstanding.
The fair value of fixed-rate debtfinancial instruments varies with changes in interest rates. Generally, the fair value of these fixed-rate instruments will increase as interest rates fall and decrease as interest rates rise. The carrying amounts and estimated fair values of our financial instruments at December 31, 20082009 were as follows:
Table 16
| | | | | | | | | |
| | | 2008 | |
| | | Carrying
| | | Fair
| |
| | | Amount | | | Value | |
| | | (Dollars in thousands) | |
| |
| Financial assets: | | | | | | | | |
| Grand Junction note receivable | | $ | 983 | | | $ | 983 | |
| | | | | | | | | |
| Financial liabilities: | | | | | | | | |
| Industrial development bonds | | $ | 3,085 | | | $ | 3,085 | |
| Capitalized lease obligations | | | 8,662 | | | | 8,859 | |
| | | | | | | | | |
| Total debt | | $ | 11,747 | | | $ | 11,944 | |
| | | | | | | | | |
| | | | | | | | | |
| | | 2009 |
| | | Carrying
| | Fair
|
| | | Amount | | Value |
| | | (Dollars in thousands) |
| |
| Financial assets: | | | | | | | | |
| Grand Junction note receivable | | $ | 1,126 | | | $ | 1,134 | |
| | | | | | | | | |
No additional adjustment was necessary to reflect theThe fair value of the Grand Junction note receivable as the sale closed in late December, 2008 at which time the value of the note was discounted. No adjustment was necessary to reflect fair value of the industrial development bonds in 2008 due to the floating-rate nature of those bonds, interest on which varies weekly. The fair value of the amounts outstanding under the capitalized lease obligations at December 31, 20082009 was determined by evaluating the nature and terms of the instrument and considering prevailing economic and market conditions. The interest rate used to discount the contractual payments associated with the capitalized lease obligationsGrand Junction note receivable was 6.76%15.67%. This rate was derived by taking the risk-free interest rate for 2008.similar maturities and adding an estimated risk premium intended to reflect the credit risk. See Note 1110 to the Consolidated Financial Statements. Such estimates are subjective and involve uncertainties and matters of significant judgment. Changes in assumptions could significantly affect our estimates.
Foreign exchange rates
We transact business globally and are subject to risks associated with fluctuating foreign exchange rates. More than 50% of our consolidated revenue is derived from sales outside of the U.S. See “Business — Global Operations” above. This revenue is generated primarily from the operations of our foreign sales subsidiaries in their respective countries and surrounding geographic areas and is denominated in each subsidiary’s local functional currency although certain sales are denominated in other currencies, including U.S. dollars or Euros, rather than the local functional currency. These subsidiaries incur most of their expenses (other than
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intercompany expenses) in their local functional currency. These currencies include the Euro, British Pound, Sterling, Swiss Franc and Japanese Yen.
The geographic areas outside the U.S. in which we operate are generally not considered to be highly inflationary. Nonetheless, these foreign operations are sensitive to fluctuations in currency exchange rates arising from, among other things, certain intercompany transactions that are generally denominated in U.S. dollars rather than their respective functional currencies. Our operating results as well as our assets and liabilities are also subject to the effect of foreign currency translation when the operating results, assets and liabilities of our foreign subsidiaries are translated into U.S. dollars in our consolidated financial statements.Consolidated Financial Statements.
The total impact of foreign currency related items on our Consolidated Statementsconsolidated statements of Operationsoperations was a $0.1 million loss for 2009, a $0.4 million gain for 2008 and a nominal gain for 2007 and a $0.1 million loss for 2006.2007. The unrealized effect of foreign currency translation was nominal in 2009, and in 2008 resulted in a $1.0 million gain that was recorded in stockholders’ equity as other comprehensive income, compared to a $0.4 million gain in 2007 and a $1.6 million gain in 2006.2007. At December 31, 20082009,a hypothetical change of 10% in foreign currency exchange rates would cause an
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$8.4a $6.4 million change in revenue in our consolidated statementConsolidated Statement of operationsOperations assuming all other variables were held constant.
We and our subsidiaries conduct business in various countries using both the functional currencies of those countries and other currencies to effect cross border transactions. As a result, we and our subsidiaries are 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, we endeavor to match assets and liabilities in the same currency on our U.S. balance sheet and those of our subsidiaries in order to reduce these risks. We also, when we consider it to be appropriate, enter into foreign currency contracts to hedge exposures arising from those transactions. We apply SFAS No. 133, “Accounting for DerivativesASC 815, “Derivatives and Hedging, Activities,” as amended by SFAS No. 137 and SFAS No. 138, to report all derivative instruments on the balance sheet at fair value. We have not adopted hedge accounting, and all gains and losses (realized or unrealized) are recognized in cost of salesinterest and other expenses, net in the Consolidated Statements of Operations.
The dollar equivalent of our foreign currency contracts and their related fair values as of December 31, 2009 and 2008 and 2007 waswere as follows:
Table 17
| | | | | | | | | | | | | | | | | |
| | | Foreign Currency
| | | Foreign Currency
| |
| | | Purchase Contracts | | | Purchase Contracts | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| | | (Dollars in thousands) | | | (Dollars in thousands) | |
| |
| Notional amount | | $ | 1,680 | | | $ | 2,905 | | | $ | 1,587 | | | $ | 1,680 | |
| Fair value | | | 1,699 | | | | 2,891 | | | | 1,563 | | | | 1,699 | |
| | | | | | | | | | | |
| Net unrealized gain (loss) | | $ | 19 | | | $ | (14 | ) | |
| Net unrealized (loss) gain | | | $ | (24 | ) | | $ | 19 | |
| | | | | | | | | | | |
At December 31, 20082009 and 2007,2008, the notional amount of these contracts at their respective settlement dates amounted to $1.7$1.6 million and $2.9$1.7 million, respectively. These contracts relaterelated to purchases of inventory from third parties. The notional amount of the purchase contracts related to purchases aggregated CHF 1.81.6 million and CHF 3.31.8 million, respectively (equivalent to $1.7$1.6 million and $2.9$1.7 million, respectively, at settlement date.)
The net fair value of all foreign exchange contracts at December 31, 20082009 reflected nominal unrealized losses at December 31, 2009 and nominal unrealized gains at December 31, 2008 and nominal unrealized losses at December 31, 2007.2008. The foreign currency contracts outstanding at December 31, 20082009 expired at various times between January 5, 20096, 2010 and February 11, 2009.3, 2010.
Changes in the fair value of derivatives are recorded in cost of salesinterest and other expenses, net in our Consolidated Statements of Operations. Depending on their fair value at the end of the reporting period, derivatives are recorded either in prepaid and other current assets or in accrued liabilities in our Consolidated Balance Sheets.
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We are exposed to credit risk if the counterparties to such transactions are unable to perform their obligations. However, we seek to minimize such risk by entering into transactions with counterparties that are believed to be creditworthy financial institutions.
As noted above, we may use derivative financial instruments, including foreign exchange forward contracts and foreign currency options, to fix or limit our exposure to currency fluctuations. We do not enter into derivative financial instruments for speculative or trading purposes. The terms of such instruments are generally twelve months or less. We do not hedge our foreign currency exposures in a manner that would entirely eliminate the effects of changes in foreign exchange rates on our consolidated net income or loss.
Commodity prices
We use various commodity raw materials and energy products in conjunction with our manufacturing processes. Generally, we acquire such components at market prices and do not use financial instruments to
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hedge commodity prices. As a result, we are exposed to market risks related to changes in commodity prices of these components. At December 31, 2008,2009, a hypothetical 10% change in commodity prices for raw materials would cause approximately a $1.0$0.5 million change to cost of sales in our consolidated statementConsolidated Statement of operations.Operations.
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| Item 8. | Financial Statements and Supplementary Data. |
Our consolidated financial statementsConsolidated Financial Statements set forth below on pages F-1 through F-38 are incorporated herein by reference.
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| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
Not applicable.
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| Item 9A. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Securities Exchange Act) are controls and other procedures that are designed to provide reasonable assurance that the information that we are required to disclose in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
In connection with the preparation of this Annual Report,10-K, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2008. In making this evaluation, our management considered the material weaknesses in our internal control over financial reporting that we disclosed in prior filings of our periodic reports under Section 13(a) of the Securities Exchange Act and the status of their remediation as discussed below.2009. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 20082009 to provide reasonable assurance that our Consolidated Financial Statements included in this Annual Report10-K were prepared in accordance with generally accepted accounting principles (“GAAP”) and present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inRules 13a-15(f) and15d-15(f) under the Securities Exchange Act. Internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
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Our internal control over financial reporting is supported by written policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with GAAP and that our receipts and expenditures are being made and recorded only in accordance with authorizations of our management and provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
In connection with the preparation of this Annual Report,10-K, with the participation of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 20082009 based on the criteria established in Internal Control —
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Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. That evaluation also included an evaluation of the material weaknesses that we previously disclosed in our Annual Report onForm 10-K for the year ended December 31, 2007 as well as in filings during 2008 of ourForms 10-Q under Section 13(a) of the Securities Exchange Act, the actions taken to remediate those material weaknesses which were completed by September 30. 2008, and the testing of the effectiveness of those actions which was completed during the quarter ended December 31, 2008.
As we have previously disclosed, at December 31, 2007 material weaknesses existed relating to our internal controls over financial reporting with respect to the oversight and review of our inventory costing system and the design and operation of certain inventory shipments and recognition of the related revenue. We completed a number of remedial actions in the first quarter of 2008 to correct these weaknesses, and we believe that no additional remedial efforts are required with respect to these weaknesses.
Based on this evaluation, our management has concluded that the material weaknesses that we previously disclosed in our 2007Form 10-K and in other filings during 2008 of ourForms 10-Q under Section 13(a) of the Securities Exchange Act have been fully remedied as of December 31, 2008, and that our internal control over financial reporting was effective as of December 31, 2008.2009.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.
BDO Seidman, LLP, the independent registered public accounting firm who audited our consolidated financial statementsConsolidated Financial Statements included in thisForm 10-K, has issued a report on our internal control over financial reporting, which is included in Item 8 of thisForm 10-K.
Changes in Internal Controls over Financial Reporting.
There were no changes in our internal control over financial reporting (as defined inRuleRules 13a-15(f) and15d-15(f) under the Securities Exchange Act) during the quarter ended December 31, 20082009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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| Item 9A(T). | Controls and Procedures. |
Not applicable.
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| Item 9B. | Other Information. |
None.
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PART III
| |
| Item 10. | Directors, Executive Officers and Corporate Governance. |
The balance of the information required in response to this Item will be set forth in our Proxy Statement for our 20092010 Annual Meeting of Stockholders under the captions “Election of Directors, — Information Concerning Nominees,” “Corporate Governance Matters,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Matters — Code of Conduct and Code of Ethics,” “Corporate Governance Matters — Corporate Governance and Nominating Committee,” and “Corporate Governance Matters — Audit Committee.” Such information is incorporated herein by reference.
| |
| Item 11. | Executive Compensation. |
The information in response to this Item will be set forth in our Proxy Statement for our 20092010 Annual Meeting of Stockholders under the captions “Director Compensation,” “Executive Compensation,” “Corporate Governance Matters — Compensation Committee,” and “Executive Compensation — Compensation Committee Report.” Such information is incorporated herein by reference.
| |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersMatters. |
Except as set forth below, the information required in response to this Item will be set forth in our Proxy Statement for our 20092010 Annual Meeting of Stockholders under the caption “Security Ownership of Certain Beneficial Owners and Management.” Such information is incorporated herein by reference.
Equity Compensation Plans
The following table summarizes information about the equity securities authorized for issuance under our compensation plans as of December 31, 2008.2009. For a description of these plans, please see Note 14 to the Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Number of Securities
| | | | | | | Number of Securities
| |
| | | Number of Securities
| | Weighted Average
| | Remaining
| | | Number of Securities
| | Weighted Average
| | Remaining
| |
| | | to be Issued Upon
| | Exercise Price of
| | Available for
| | | to be Issued Upon
| | Exercise Price of
| | Available for
| |
| | | Exercise of
| | Outstanding
| | Future Issuance
| | | Exercise of
| | Outstanding
| | Future Issuance
| |
| | | Outstanding Options,
| | Options,
| | Under Equity
| | | Outstanding Options,
| | Options,
| | Under Equity
| |
Plan Category | | Warrants and Rights | | Warrants and Rights | | Compensation Plans | | | Warrants and Rights | | Warrants and Rights | | Compensation Plans | |
| | | (Number of securities in thousands) | | | (Number of securities in thousands) | |
| |
| Equity compensation plans approved by stockholders | | | 542 | | | $ | 10.33 | | | | 769 | | | | 520 | | | $ | 10.52 | | | | 1,454 | |
| Equity compensation plans not approved by stockholders | | | 344 | | | | 7.22 | | | | — | | | | 344 | | | | 7.22 | | | | — | |
| | | | | | | | | | | | | | | |
| Total | | | 886 | | | $ | 9.12 | | | | 769 | | | | 864 | | | $ | 9.20 | | | | 1,454 | |
| | | | | | | | | | | | | | | |
| |
| Item 13. | Certain Relationships and Related Transactions and Director Independence. |
The information required in response to this Item will be set forth in our Proxy Statement for our 20092010 Annual Meeting of Stockholders under the caption “Corporate Governance Matters — Director Independence.Independence” and “Corporate Governance Matters — Related Party Transaction Policies and Procedures.” Such information is incorporated herein by reference.
| |
| Item 14. | Principal Accounting Fees and Services. |
The information in response to this Item will be set forth in our Proxy Statement for our 20092010 Annual Meeting of Stockholders under the caption “Fees of Independent Registered Public Accounting Firm.” Such information is incorporated herein by reference.
5651
PART IV
| |
| Item 15. | Exhibits, Financial Statement Schedules. |
| | | | | |
(a)(3) | | Exhibits |
| |
| | | | | The following exhibits are included as part of this filing and incorporated herein by this reference: |
| | 3 | .1 | | Certificate of Incorporation of Registrant. (Incorporated by reference to Exhibit 3.1 to Form 8-B filed on August 16, 1993, and the amendment thereto, filed on Form 8-B/A on February 4, 1994.) |
| | 3 | .2 | | Amendment to Certificate of Incorporation filed on May 23, 1995. (Incorporated by reference to Exhibit 3.2 to Registrant’s Registration Statement on Form S-2/A, filed on May 25, 1995.) |
| | 3 | .3 | | Certificate of Designation of Rights, Preferences and Privileges of Preferred Stock. (Incorporated by reference to Exhibit 2 to Registrant’s Registration Statement on Form 8-A filed on January 8, 1996.) |
| | 3 | .4 | | Certificate of Designation of the Series B Convertible Preferred Stock, filed with the Secretary of State of Delaware on May 2, 2003. (Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K, filed on May 7, 2003.) |
| | 3 | .5 | | Certificate of Elimination of Series A Preferred Stock filed with the Secretary of State of Delaware on March 4, 2004. (Incorporated by reference to Exhibit 3.6 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 15, 2004.) |
| | 3 | .6 | | Certificate of Elimination of Series B Preferred Stock filed with the Secretary of State of Delaware on June 9, 2006. (Incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K, filed on June 9, 2006.) |
| | 3 | .7 | | Certificate of Amendment of Certificate of Incorporation filed with Secretary of State of Delaware on May 19, 2004. (Incorporated by reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, filed on August 5, 2004.) |
| | 3 | .8 | | Certificate of Amendment of Certificate of Incorporation filed with Secretary of State of Delaware on May 17, 2005. (Incorporated by reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005, filed on August 1, 2005.) |
| | 3 | .9 | | Certificate of Designations, Preferences and Rights of Series A Preferred Stock, filed with the Secretary of State of Delaware on December 9, 2008. (Incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K, filed on December 9, 2008.) |
| | 3 | .10 | | Amended and Restated By-Laws. (Incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K, filed on December 1, 2006.) |
| | 4 | .1* | | 3D Systems Corporation 1996 Stock Incentive Plan. (Incorporated by reference to Appendix A to Registrant’s Definitive Proxy Statement filed on March 30, 2001.) |
| | 4 | .2* | | Form of Incentive Stock Option Contract for Executives pursuant to the 1996 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.6 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, filed on March 16, 2001.) |
| | 4 | .3* | | Form of Non-Statutory Stock Option Contract for Executives pursuant to the 1996 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.7 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, filed on March 16, 2001.) |
| | 4 | .4* | | Form of Employee Incentive Stock Option Contract pursuant to the 1996 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.8 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, filed on March 30, 2000.) |
| | 4 | .5* | | Form of Employee Non-Statutory Stock Option Contract pursuant to the 1996 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.9 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, filed on March 30, 2000.) |
| | 4 | .6* | | 3D Systems Corporation 1996 Non-Employee Directors’ Stock Option Plan. (Incorporated by reference to Appendix B to Registrant’s Definitive Proxy Statement filed on March 30, 2001.) |
| | 4 | .7* | | Form of Director Option Contract pursuant to the 1996 Non-Employee Director Stock Option Plan. (Incorporated by reference to Exhibit 4.5 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, filed on March 30, 2000.) |
| | | | | |
(a)(3) | | Exhibits |
| |
| | | | | The following exhibits are included as part of this filing and incorporated herein by this reference: |
| | 3 | .1 | | Certificate of Incorporation of Registrant. (Incorporated by reference to Exhibit 3.1 to Form 8-B filed on August 16, 1993, and the amendment thereto, filed on Form 8-B/A on February 4, 1994.) |
| | 3 | .2 | | Amendment to Certificate of Incorporation filed on May 23, 1995. (Incorporated by reference to Exhibit 3.2 to Registrant’s Registration Statement on Form S-2/A, filed on May 25, 1995.) |
| | 3 | .3 | | Certificate of Designation of Rights, Preferences and Privileges of Preferred Stock. (Incorporated by reference to Exhibit 2 to Registrant’s Registration Statement on Form 8-A filed on January 8, 1996.) |
| | 3 | .4 | | Certificate of Designation of the Series B Convertible Preferred Stock, filed with the Secretary of State of Delaware on May 2, 2003. (Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K, filed on May 7, 2003.) |
| | 3 | .5 | | Certificate of Elimination of Series A Preferred Stock filed with the Secretary of State of Delaware on March 4, 2004. (Incorporated by reference to Exhibit 3.6 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 15, 2004.) |
| | 3 | .6 | | Certificate of Elimination of Series B Preferred Stock filed with the Secretary of State of Delaware on June 9, 2006. (Incorporated by reference to Exhibit 3.1 of Registrant’s Current Report onForm 8-K, filed on June 9, 2006.) |
| | 3 | .7 | | Certificate of Amendment of Certificate of Incorporation filed with Secretary of State of Delaware on May 19, 2004. (Incorporated by reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, filed on August 5, 2004.) |
| | 3 | .8 | | Certificate of Amendment of Certificate of Incorporation filed with Secretary of State of Delaware on May 17, 2005. (Incorporated by reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005, filed on August 1, 2005.) |
| | 3 | .9 | | Certificate of Designations, Preferences and Rights of Series A Preferred Stock, filed with the Secretary of State of Delaware on December 9, 2008. (Incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K, filed on December 9, 2008.) |
| | 3 | .10 | | Amended and Restated By-Laws. (Incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K, filed on December 1, 2006.) |
| | 4 | .1* | | 3D Systems Corporation 1996 Stock Incentive Plan. (Incorporated by reference to Appendix A to Registrant’s Definitive Proxy Statement filed on March 30, 2001.) |
| | 4 | .2* | | Form of Incentive Stock Option Contract for Executives pursuant to the 1996 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.6 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, filed on March 16, 2001.) |
| | 4 | .3* | | Form of Non-Statutory Stock Option Contract for Executives pursuant to the 1996 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.7 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, filed on March 16, 2001.) |
| | 4 | .4* | | Form of Employee Incentive Stock Option Contract pursuant to the 1996 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.8 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, filed on March 30, 2000.) |
| | 4 | .5* | | Form of Employee Non-Statutory Stock Option Contract pursuant to the 1996 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.9 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, filed on March 30, 2000.) |
| | 4 | .6* | | 3D Systems Corporation 1996 Non-Employee Directors’ Stock Option Plan. (Incorporated by reference to Appendix B to Registrant’s Definitive Proxy Statement filed on March 30, 2001.) |
| | 4 | .7* | | Form of Director Option Contract pursuant to the 1996 Non-Employee Director Stock Option Plan. (Incorporated by reference to Exhibit 4.5 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, filed on March 30, 2000.) |
| | 4 | .8* | | 3D Systems Corporation 2001 Stock Option Plan. (Incorporated by reference to Exhibit 10.1 to Registrant’s Registration Statement on Form S-8 filed on June 11, 2001.) |
5752
| | | | | |
(a)(3) | | Exhibits |
| |
| | 4 | .8* | | 3D Systems Corporation 2001 Stock Option Plan. (Incorporated by reference to Exhibit 10.1 to Registrant’s Registration Statement on Form S-8 filed on June 11, 2001.) |
| | 4 | .9* | | 2004 Incentive Stock Plan of 3D Systems Corporation. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8, filed on May 19, 2004.) |
| | 4 | .10* | | Form of Restricted Stock Purchase Agreement for Employees. (Incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-8, filed on May 19, 2004.) |
| | 4 | .11* | | Form of Restricted Stock Purchase Agreement for Officers. (Incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-8, filed on May 19, 2004.) |
| | 4 | .12* | | Restricted Stock Plan for Non-Employee Directors of 3D Systems Corporation. (Incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8, filed on May 19, 2004.) |
| | 4 | .13* | | Amendment No. 1 to Restricted Stock Plan for Non-Employee Directors. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005, filed on August 1, 2005.) |
| | 4 | .14* | | Form of Restricted Stock Purchase Agreement for Non-Employee Directors. (Incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form S-8, filed on May 19, 2004.) |
| | 4 | .15 | | Rights Agreement dated as of December 9, 2008 between the Registrant and Computershare Trust Company, N.A., as Rights Agent. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on December 9, 2008.) |
| | 10 | .1* | | Form of Indemnification Agreement between Registrant and certain of its executive officers and directors. (Incorporated by reference to Exhibit 10.18 to Form 8-B filed on August 16, 1993, and the amendment thereto, filed on Form 8-B/A on February 4, 1994.) |
| | 10 | .2 | | Patent License Agreement dated December 16, 1998 by and between 3D Systems, Inc., NTT Data CMET, Inc. and NTT Data Corporation. (Incorporated by reference to Exhibit 10.56 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1998, filed on March 31, 1999.) |
| | 10 | .3 | | Lease Agreement dated February 8, 2006 between the Registrant and KDC-Carolina Investments 3, LP. (Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K, filed on February 10, 2006.) |
| | 10 | .4 | | First Amendment to Lease Agreement dated August 7, 2006 between the Registrant and KDC-Carolina Investments 3, LP. (Incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K, filed on August 14, 2006.) |
| | 10 | .5 | | Second Amendment to Lease Agreement effective as of October 6, 2006 to Lease Agreement dated February 8, 2006 between 3D Systems Corporation and KDC-Carolina Investments 3, LP. (Incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K, filed on October 10, 2006.) |
| | 10 | .6 | | Third Amendment to Lease Agreement effective as of December 18, 2006 to Lease Agreement dated February 8, 2006 between 3D Systems Corporation and KDC-Carolina Investments 3, LP. (Incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K, filed on December 20, 2006.) |
| | 10 | .7 | | Fourth Amendment to Lease Agreement effective as of February 26, 2007 to Lease Agreement dated February 8, 2006 between 3D Systems Corporation and KDC-Carolina Investments 3, LP. (Incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K, filed on March 1, 2007.) |
| | 10 | .8* | | Employment Letter Agreement, effective September 19, 2003, by and between Registrant and Abraham N. Reichental. (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed on September 22, 2003.) |
| | 10 | .9* | | Agreement, dated December 17, 2003, by and between Registrant and Abraham N. Reichental. (Incorporated by reference to Exhibit 10.43 to Registrant’s Amendment No. 1 to Registration Statement on Form S-1, filed on January 21, 2004.) |
| | | | | |
(a)(3) | | Exhibits |
| |
| | 4 | .9* | | Amended and Restated 2004 Incentive Stock Plan of 3D Systems Corporation (Incorporated by reference to Exhibit 4.1 to the Registrant’s Amendment No. 1 to Registration Statement on Form S-8, filed May 20, 2009.) |
| | 4 | .10* | | Form of Restricted Stock Purchase Agreement for Employees. (Incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-8, filed on May 19, 2004.) |
| | 4 | .11* | | Form of Restricted Stock Purchase Agreement for Officers. (Incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-8, filed on May 19, 2004.) |
| | 4 | .12* | | Restricted Stock Plan for Non-Employee Directors of 3D Systems Corporation. (Incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8, filed on May 19, 2004.) |
| | 4 | .13* | | Amendment No. 1 to Restricted Stock Plan for Non-Employee Directors. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005, filed on August 1, 2005.) |
| | 4 | .14* | | Form of Restricted Stock Purchase Agreement for Non-Employee Directors. (Incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form S-8, filed on May 19, 2004.) |
| | 4 | .15 | | Rights Agreement dated as of December 9, 2008 between the Registrant and Computershare Trust Company, N.A., as Rights Agent. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on December 9, 2008.) |
| | 10 | .1* | | Form of Indemnification Agreement between Registrant and certain of its executive officers and directors. (Incorporated by reference to Exhibit 10.18 to Form 8-B filed on August 16, 1993, and the amendment thereto, filed on Form 8-B/A on February 4, 1994.) |
| | 10 | .2 | | Patent License Agreement dated December 16, 1998 by and between 3D Systems, Inc., NTT Data CMET, Inc. and NTT Data Corporation. (Incorporated by reference to Exhibit 10.56 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1998, filed on March 31, 1999.) |
| | 10 | .3 | | Lease Agreement dated February 8, 2006 between the Registrant and KDC-Carolina Investments 3, LP. (Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K, filed on February 10, 2006.) |
| | 10 | .4 | | First Amendment to Lease Agreement dated August 7, 2006 between the Registrant and KDC-Carolina Investments 3, LP. (Incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K, filed on August 14, 2006.) |
| | 10 | .5 | | Second Amendment to Lease Agreement effective as of October 6, 2006 to Lease Agreement dated February 8, 2006 between 3D Systems Corporation and KDC-Carolina Investments 3, LP. (Incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K, filed on October 10, 2006.) |
| | 10 | .6 | | Third Amendment to Lease Agreement effective as of December 18, 2006 to Lease Agreement dated February 8, 2006 between 3D Systems Corporation and KDC-Carolina Investments 3, LP. (Incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K, filed on December 20, 2006.) |
| | 10 | .7 | | Fourth Amendment to Lease Agreement effective as of February 26, 2007 to Lease Agreement dated February 8, 2006 between 3D Systems Corporation and KDC-Carolina Investments 3, LP. (Incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K, filed on March 1, 2007.) |
| | 10 | .8* | | Employment Letter Agreement, effective September 19, 2003, by and between Registrant and Abraham N. Reichental. (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed on September 22, 2003.) |
| | 10 | .9* | | Agreement, dated December 17, 2003, by and between Registrant and Abraham N. Reichental. (Incorporated by reference to Exhibit 10.43 to Registrant’s Amendment No. 1 to Registration Statement on Form S-1, filed on January 21, 2004.) |
| | 10 | .10* | | First Amendment to Employment Agreement, dated July 24, 2007, by and between Registrant and Abraham N. Reichental. (Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007, filed on August 6, 2007.) |
5853
| | | | | |
(a)(3) | | Exhibits |
| |
| | 10 | .10* | | First Amendment to Employment Agreement, dated July 24, 2007, by and between Registrant and Abraham N. Reichental. (Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007, filed on August 6, 2007.) |
| | 14 | .1 | | Code of Conduct, as amended effective as of November 30, 2006 (Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K, filed on December 1, 2006.) |
| | 14 | .2 | | 3D Systems Corporation Code of Ethics for Senior Financial Executives and Directors. (Incorporated by reference to Exhibit 14.2 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 15, 2004.) |
| | 21 | .1 | | Subsidiaries of Registrant. |
| | 23 | .1 | | Consent of Independent Registered Public Accounting Firm dated March 3, 2009. |
| | 31 | .1 | | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated March 4, 2009. |
| | 31 | .2 | | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated March 4, 2009. |
| | 32 | .1 | | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated March 4, 2009. |
| | 32 | .2 | | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated March 4, 2009. |
| | | | | |
(a)(3) | | Exhibits |
| |
| | 14 | .1 | | Code of Conduct, as amended effective as of November 30, 2006 (Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K, filed on December 1, 2006.) |
| | 14 | .2 | | 3D Systems Corporation Code of Ethics for Senior Financial Executives and Directors. (Incorporated by reference to Exhibit 14.2 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 15, 2004.) |
| | 21 | .1 | | Subsidiaries of Registrant. |
| | 23 | .1 | | Consent of Independent Registered Public Accounting Firm dated February 24, 2010. |
| | 31 | .1 | | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated February 24, 2010. |
| | 31 | .2 | | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated February 24, 2010. |
| | 32 | .1 | | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated February 24, 2010. |
| | 32 | .2 | | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated February 24, 2010. |
| | |
| * | | Management contract or compensatory plan or arrangement. |
5954
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized.
3D Systems Corporation
| | |
| | By: | /s/ Abraham N. Reichental |
Abraham N. Reichental
President and Chief Executive Officer
Date: March 4, 2009February 24, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of registrant and in the capacities and on the dates indicated.
| | | | | | | |
Signature | | Title | | Date |
| |
| | | | | |
/s/ Abraham N. Reichental
Abraham N. Reichental | | Chief Executive Officer, President and Director (Principal Executive Officer) | | March 4, 2009February 24, 2010 |
| | | | | |
/s/ Damon J. Gregoire
Damon J. Gregoire | | Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | | March 4, 2009February 24, 2010 |
| | | | | |
/s/ Charles W. Hull
Charles W. Hull | | Executive Vice President, Chief Technology Officer and Director | | March 4, 2009February 24, 2010 |
| | | | | |
/s/ G. Walter Loewenbaum, II
G. Walter Loewenbaum, II | | Chairman of the Board of Directors | | March 4, 2009February 24, 2010 |
| | | | | |
/s/ Miriam V. Gold
Miriam V. Gold | | Director | | March 4, 2009February 24, 2010 |
| | | | | |
/s/ Jim D. Kever
Jim D. Kever | | Director | | March 4, 2009February 24, 2010 |
| | | | | |
/s/ Kevin S. Moore
Kevin S. Moore | | Director | | March 4, 2009February 24, 2010 |
| | | | | |
/s/ Daniel S. Van Riper
Daniel S. Van Riper | | Director | | March 4, 2009February 24, 2010 |
| | | | | |
/s/ William E. Curran
William E. Curran | | Director | | March 4, 2009February 24, 2010 |
| | | | | |
/s/ Karen E. Welke
Karen E. Welke | | Director | | March 4, 2009February 24, 2010 |
6055
3D Systems Corporation
Index to Consolidated Financial Statements
and Consolidated Financial Statement Schedule
| | | | | |
Consolidated Financial Statements | | | | |
| | | F-2 | |
| | | F-3 | |
| | | F-4 | |
| | | F-5 | |
| | | F-6 | |
| | | F-7 | |
| | | F-8 | |
| | | F-9 | |
Consolidated Financial Statement Schedule | | | | |
| | | F-38F-39 | |
| | | F-39F-40 | |
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
3D Systems Corporation
Rock Hill, South Carolina
We have audited 3D Systems Corporation and its subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2008,2009, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). 3D Systems Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control over Financial Reporting”.Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, 3D Systems Corporation did maintain, in all material respects, effective internal control over financial reporting as of December 31, 2008,2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of 3D Systems Corporation and its subsidiaries as of December 31, 20082009 and 2007,2008, and the related consolidated statements of operations, stockholders’ equity, comprehensive lossincome (loss) and cash flows for each of the three years in the period ended December 31, 20082009 and our report dated March 3, 2009February 24, 2010 expressed an unqualified opinion thereon.
BDO Seidman, LLP
Charlotte, North Carolina
March 3, 2009February 24, 2010
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
3D Systems Corporation
Rock Hill, South Carolina
We have audited the accompanying consolidated balance sheets of 3D Systems Corporation and its subsidiaries (the “Company”) as of December 31, 20082009 and 20072008 and the related consolidated statements of operations, stockholders’ equity, comprehensive lossincome (loss) and cash flows for each of the three years in the period ended December 31, 2008.2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of 3D Systems Corporation and its subsidiaries as of December 31, 20082009 and 20072008 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20082009 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2021 to the consolidated financial statements, effective January 1, 2007 the Company adopted FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes — an Interpretation of FASB No. 109.109,which is now incorporated into the Accounting Standards Codification in Section 740.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008,2009, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Criteria) and our report dated March 3, 2009February 24, 2010 expressed an unqualified opinion thereon.
BDO Seidman, LLP
Charlotte, North Carolina
March 3, 2009February 24, 2010
F-3
3D Systems Corporation
As of December 31, 20082009 and 20072008
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| | | (In thousands,
| | | (In thousands,
| |
| | | except par value) | | | except par value) | |
| |
ASSETS | ASSETS | ASSETS |
| Current assets: | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 22,164 | | | $ | 29,689 | | | $ | 24,913 | | | $ | 22,164 | |
| Accounts receivable, net of allowance for doubtful accounts of $2,015 (2008) and $2,072 (2007) | | | 25,166 | | | | 31,115 | | |
| Inventories, net of reserves of $3,156 (2008) and $2,306 (2007) | | | 21,018 | | | | 20,041 | | |
| Accounts receivable, net of allowance for doubtful accounts of $1,790 (2009) and $2,015 (2008) | | | | 23,759 | | | | 25,276 | |
| Inventories, net of reserves of $2,693 (2009) and $3,156 (2008) | | | | 18,378 | | | | 21,018 | |
| Prepaid expenses and other current assets | | | 1,711 | | | | 4,429 | | | | 2,415 | | | | 1,601 | |
| Deferred income tax assets | | | 935 | | | | 693 | | | | 634 | | | | 935 | |
| Restricted cash | | | 3,309 | | | | 1,200 | | | | 54 | | | | 3,309 | |
| Assets held for sale | | | — | | | | 3,454 | | |
| | | | | | | | | | | |
| Total current assets | | | 74,303 | | | | 90,621 | | | | 70,153 | | | | 74,303 | |
| Property and equipment, net | | | 24,072 | | | | 21,331 | | | | 24,789 | | | | 24,072 | |
| Intangible assets, net | | | 3,663 | | | | 5,170 | | | | 3,634 | | | | 3,663 | |
| Goodwill | | | 48,010 | | | | 47,682 | | | | 48,730 | | | | 48,010 | |
| Other assets, net | | | 2,954 | | | | 2,581 | | | | 3,097 | | | | 2,954 | |
| | | | | | | | | | | |
| Total assets | | | $ | 150,403 | | | $ | 153,002 | |
| | | $ | 153,002 | | | $ | 167,385 | | | | | | |
| | | | | | | |
| | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| LIABILITIES AND EQUITY | | LIABILITIES AND EQUITY |
| Current liabilities: | | | | | | | | | | | | | | | | |
| Industrial development bonds | | $ | 3,085 | | | $ | 3,325 | | | $ | — | | | $ | 3,085 | |
| Current portion of capitalized lease obligation | | | 195 | | | | 181 | | | | 213 | | | | 195 | |
| Accounts payable | | | 17,133 | | | | 20,712 | | | | 12,994 | | | | 17,133 | |
| Accrued liabilities | | | 8,057 | | | | 12,248 | | | | 11,114 | | | | 8,057 | |
| Customer deposits | | | 1,136 | | | | 1,537 | | | | 627 | | | | 1,136 | |
| Deferred revenue | | | 9,418 | | | | 11,712 | | | | 8,487 | | | | 9,418 | |
| | | | | | | | | | | |
| Total current liabilities | | | 39,024 | | | | 49,715 | | | | 33,435 | | | | 39,024 | |
| Long-term portion of capitalized lease obligation | | | 8,467 | | | | 8,663 | | | | 8,254 | | | | 8,467 | |
| Other liabilities | | | 3,277 | | | | 4,238 | | | | 3,944 | | | | 3,277 | |
| | | | | | | | | | | |
| Total liabilities | | | 50,768 | | | | 62,616 | | | | 45,633 | | | | 50,768 | |
| | | | | | | |
| Commitments and contingencies | | | — | | | | — | | | | — | | | | — | |
| Stockholders’ equity: | | | | | | | | | |
| 3D Systems stockholders’ equity: | | | | | | | | | |
| Preferred Stock, authorized 5,000 shares, none issued | | | — | | | | — | | | | — | | | | — | |
| Common stock, $0.001 par value, authorized 60,000 shares; 22,424 (2008) and 22,224 (2007) issued | | | 22 | | | | 22 | | |
| Common stock, $0.001 par value, authorized 60,000 shares; 22,774 (2009) and 22,424 (2008) issued | | | | 23 | | | | 22 | |
| Additional paid-in capital | | | 176,180 | | | | 173,645 | | | | 177,682 | | | | 176,180 | |
| Treasury stock, at cost; 59 shares (2008) and 50 shares (2007) | | | (120 | ) | | | (111 | ) | |
| Treasury stock, at cost: 74 shares (2009) and 59 shares (2008) | | | | (134 | ) | | | (120 | ) |
| Accumulated deficit in earnings | | | (78,557 | ) | | | (72,403 | ) | | | (77,491 | ) | | | (78,557 | ) |
| Accumulated other comprehensive income | | | 4,709 | | | | 3,616 | | | | 4,617 | | | | 4,709 | |
| | | | | | | | | | | |
| Total stockholders’ equity | | | 102,234 | | | | 104,769 | | |
| Total 3D Systems stockholders’ equity | | | | 104,697 | | | | 102,234 | |
| | | | | | | | | | | |
| Noncontrolling interest | | | | 73 | | | | — | |
| | | $ | 153,002 | | | $ | 167,385 | | | | | | |
| Total equity | | | | 104,770 | | | | 102,234 | |
| | | | | | | | | | | |
| Total liabilities and equity | | | $ | 150,403 | | | $ | 153,002 | |
| | | | | | | |
See accompanying notes to consolidated financial statements.
F-4
3D Systems Corporation
Years Ended December 31, 2009, 2008 2007 and 20062007
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | | (In thousands, except per share amounts) | | | (In thousands, except per share amounts) | |
| |
| Revenue: | | | | | | | | | | | | | | | | | | | | | | | | |
| Products | | $ | 103,613 | | | $ | 120,147 | | | $ | 98,525 | | | $ | 80,798 | | | $ | 103,613 | | | $ | 120,147 | |
| Services | | | 35,327 | | | | 36,369 | | | | 36,295 | | | | 32,037 | | | | 35,327 | | | | 36,369 | |
| | | | | | | | | | | | | | | |
| Total revenue | | | 138,940 | | | | 156,516 | | | | 134,820 | | | | 112,835 | | | | 138,940 | | | | 156,516 | |
| | | | | | | | | | | | | | | |
| Cost of sales: | | | | | | | | | | | | | | | | | | | | | | | | |
| Products | | | 55,975 | | | | 65,633 | | | | 59,229 | | | | 43,301 | | | | 56,375 | | | | 65,681 | |
| Services | | | 26,997 | | | | 27,423 | | | | 29,334 | | | | 19,804 | | | | 26,997 | | | | 27,423 | |
| | | | | | | | | | | | | | | |
| Total cost of sales | | | 82,972 | | | | 93,056 | | | | 88,563 | | | | 63,105 | | | | 83,372 | | | | 93,104 | |
| | | | | | | | | | | | | | | |
| Gross profit | | | 55,968 | | | | 63,460 | | | | 46,257 | | | | 49,730 | | | | 55,568 | | | | 63,412 | |
| | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 45,859 | | | | 54,159 | | | | 51,204 | | | | 35,528 | | | | 45,859 | | | | 54,159 | |
| Research and development | | | 15,199 | | | | 14,430 | | | | 14,098 | | | | 11,129 | | | | 15,199 | | | | 14,430 | |
| Restructuring and related costs | | | — | | | | — | | | | 6,646 | | |
| | | | | | | | | | | | | | | |
| Total operating expenses | | | 61,058 | | | | 68,589 | | | | 71,948 | | | | 46,657 | | | | 61,058 | | | | 68,589 | |
| | | | | | | | | | | | | | | |
| Loss from operations | | | (5,090 | ) | | | (5,129 | ) | | | (25,691 | ) | |
| Income (loss) from operations | | | | 3,073 | | | | (5,490 | ) | | | (5,177 | ) |
| Interest and other expenses, net | | | 770 | | | | 1,120 | | | | 1,410 | | | | 1,160 | | | | 370 | | | | 1,072 | |
| | | | | | | | | | | | | | | |
| Loss before income taxes | | | (5,860 | ) | | | (6,249 | ) | | | (27,101 | ) | |
| Income (loss) before income taxes | | | | 1,913 | | | | (5,860 | ) | | | (6,249 | ) |
| Provision for income taxes | | | 294 | | | | 491 | | | | 2,179 | | | | 774 | | | | 294 | | | | 491 | |
| | | | | | | | | | | | | | | |
| Net loss | | | (6,154 | ) | | | (6,740 | ) | | | (29,280 | ) | |
| Preferred stock dividends and accretion of unamortized issuance costs | | | — | | | | — | | | | 1,414 | | |
| Net income (loss) | | | | 1,139 | | | | (6,154 | ) | | | (6,740 | ) |
| Less: net income attributable to noncontrolling interest | | | | 73 | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Net loss available to common stockholders | | $ | (6,154 | ) | | $ | (6,740 | ) | | $ | (30,694 | ) | |
| Net income (loss) available to 3D Systems common stockholders | | | $ | 1,066 | | | $ | (6,154 | ) | | $ | (6,740 | ) |
| | | | | | | | | | | | | | | |
| Net loss available to common stockholders per share — basic and diluted | | $ | (0.28 | ) | | $ | (0.33 | ) | | $ | (1.77 | ) | |
| Net income (loss) available to 3D Systems common stockholders per share — basic and diluted | | | $ | 0.05 | | | $ | (0.28 | ) | | $ | (0.33 | ) |
| | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
F-5
3D Systems Corporation
Years Ended December 31, 2009, 2008 2007 and 20062007
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | | | | | | | | | | | | | | | Equity Attributable to 3D Systems’ Stockholders | | | | | |
| | | | | Par
| | Additional
| | | | | | | | | | | | Other
| | Total
| | | Common Stock | | | | | | | | Accumulated
| | Total
| | Equity
| | | |
| | | | | Value
| | Paid in
| | Preferred
| | Deferred
| | Treasury Stock | | Accumulated
| | Comprehensive
| | Stockholders’
| | | | | Par
| | Additional
| | | | | | | | Other
| | 3D Systems
| | Attributable to
| | | |
| | | Shares | | $0.001 | | Capital | | Stock | | Compensation | | Shares | | Amount | | Deficit | | Income (Loss) | | Equity | | | | | Value
| | Paid-in
| | Treasury Stock | | Accumulated
| | Comprehensive
| | Stockholders’
| | Noncontrolling
| | Total
| |
| | | (In thousands, except par value) | | | Shares | | $0.001 | | Capital | | Shares | | Amount | | Deficit | | Income | | Equity | | Interest | | Equity | |
| | | (In thousands, except par value) | |
Balance at December 31, 2005 | | | 15,314 | | | $ | 15 | | | $ | 110,670 | | | $ | (4,079 | ) | | $ | (1,461 | ) | | | 12 | | | $ | (73 | ) | | $ | (35,175 | ) | | $ | 315 | | | $ | 70,212 | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Exercise of stock options | | | 288 | | | | — | (a) | | | 2,607 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,607 | | |
| Employee stock purchase plan | | | 2 | | | | — | (a) | | | 33 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 33 | | |
| Stock compensation expense | | | — | | | | — | | | | 2,677 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,677 | | |
| Issuance (repurchase) of restricted stock | | | 156 | | | | — | (a) | | | 145 | | | | — | | | | — | | | | 16 | | | | (16 | ) | | | — | | | | — | | | | 129 | | |
| Adoption of FASB 123R | | | — | | | | — | | | | (1,461 | ) | | | — | | | | 1,461 | | | | — | | | | — | | | | — | | | | — | | | | — | | |
| Conversion of preferred stock | | | 2,617 | | | | 3 | | | | 15,699 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 15,702 | | |
| Conversion of subordinated debentures | | | 713 | | | | 1 | | | | 7,249 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 7,250 | | |
| Common stock issued for preferred stock dividends | | | 23 | | | | — | (a) | | | 440 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 440 | | |
| Preferred stock dividends | | | — | | | | — | (a) | | | (5,493 | ) | | | 4,526 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (967 | ) | |
| Accretion of preferred stock issuance costs | | | — | | | | — | | | | — | | | | (447 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (447 | ) | |
| Loss on pension plan — unrealized | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | (267 | ) | | | (267 | ) | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (29,280 | ) | | | — | | | | (29,280 | ) | |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,580 | | | | 1,580 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2006 | | | 19,113 | | | | 19 | | | | 132,566 | | | | — | | | | — | | | | 28 | | | | (89 | ) | | | (64,455 | ) | | | 1,628 | | | | 69,669 | | | | 19,113 | | | $ | 19 | | | $ | 132,566 | | | | 28 | | | $ | (89 | ) | | $ | (64,455 | ) | | $ | 1,628 | | | $ | 69,669 | | | $ | — | | | $ | 69,669 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Exercise of stock options | | | 269 | | | | 1 | | | | 2,843 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,844 | | | | 269 | | | | 1 | | | | 2,843 | | | | — | | | | — | | | | — | | | | — | | | | 2,844 | | | | — | | | | 2,844 | |
| Conversion of subordinated debentures | | | 1,508 | | | | 1 | | | | 15,131 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 15,132 | | | | 1,508 | | | | 1 | | | | 15,131 | | | | — | | | | — | | | | — | | | | — | | | | 15,132 | | | | — | | | | 15,132 | |
| Issuance (repurchase) of restricted stock | | | 84 | | | | — | (a) | | | 70 | | | | — | | | | — | | | | 22 | | | | (22 | ) | | | — | | | | — | | | | 48 | | |
| Stock compensation expense | | | — | | | | — | (a) | | | 2,668 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,668 | | |
| Issuance (repurchase) of restricted stock, net | | | | 84 | | | | — | (a) | | | 70 | | | | 22 | | | | (22 | ) | | | — | | | | — | | | | 48 | | | | — | | | | 48 | |
| Stock-based compensation expense | | | | — | | | | — | (a) | | | 2,668 | | | | — | | | | — | | | | — | | | | — | | | | 2,668 | | | | — | | | | 2,668 | |
| Private placement | | | 1,250 | | | | 1 | | | | 20,367 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,368 | | | | 1,250 | | | | 1 | | | | 20,367 | | | | — | | | | — | | | | — | | | | — | | | | 20,368 | | | | — | | | | 20,368 | |
| Cumulative effect of adoption of accounting for uncertainty of income taxes | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | (1,208 | ) | | | — | | | | (1,208 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,208 | ) | | | — | | | | (1,208 | ) | | | — | | | | (1,208 | ) |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (6,740 | ) | | | — | | | | (6,740 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (6,740 | ) | | | — | | | | (6,740 | ) | | | — | | | | (6,740 | ) |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,606 | | | | 1,606 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,606 | | | | 1,606 | | | | — | | | | 1,606 | |
| Gain on pension plan — unrealized | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | 382 | | | | 382 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 382 | | | | 382 | | | | — | | | | 382 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2007 | | | 22,224 | | | | 22 | | | | 173,645 | | | | — | | | | — | | | | 50 | | | | (111 | ) | | | (72,403 | ) | | | 3,616 | | | | 104,769 | | | | 22,224 | | | | 22 | | | | 173,645 | | | | 50 | | | | (111 | ) | | | (72,403 | ) | | | 3,616 | | | | 104,769 | | | | — | | | | 104,769 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Exercise of stock options | | | 161 | | | | — | (a) | | | 1,083 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,083 | | | | 161 | | | | — | (a) | | | 1,083 | | | | — | | | | — | | | | — | | | | — | | | | 1,083 | | | | — | | | | 1,083 | |
| Issuance (repurchase) of restricted stock | | | 39 | | | | — | (a) | | | 15 | | | | — | | | | — | | | | 9 | | | | (9 | ) | | | — | | | | — | | | | 6 | | |
| Issuance (repurchase) of restricted stock, net | | | | 39 | | | | — | (a) | | | 15 | | | | 9 | | | | (9 | ) | | | — | | | | — | | | | 6 | | | | — | | | | 6 | |
| Stock compensation expense | | | — | | | | — | (a) | | | 1,437 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,437 | | | | — | | | | — | (a) | | | 1,437 | | | | — | | | | — | | | | — | | | | — | | | | 1,437 | | | | — | | | | 1,437 | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (6,154 | ) | | | — | | | | (6,154 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (6,154 | ) | | | — | | | | (6,154 | ) | | | — | | | | (6,154 | ) |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,013 | | | | 1,013 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,013 | | | | 1,013 | | | | — | | | | 1,013 | |
| Gain on pension plan — unrealized | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 80 | | | | 80 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 80 | | | | 80 | | | | — | | | | 80 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2008 | | | 22,424 | | | $ | 22 | | | $ | 176,180 | | | $ | — | | | $ | — | | | | 59 | | | $ | (120 | ) | | $ | (78,557 | ) | | $ | 4,709 | | | $ | 102,234 | | | | 22,424 | | | | 22 | | | | 176,180 | | | | 59 | | | | (120 | ) | | | (78,557 | ) | | | 4,709 | | | | 102,234 | | | | — | | | | 102,234 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Exercise of stock options | | | | 15 | | | | — | (a) | | | 84 | | | | — | | | | — | | | | — | | | | — | | | | 84 | | | | — | | | | 84 | |
| Issuance (repurchase) of restricted stock, net | | | | 335 | | | | 1 | | | | 228 | | | | 15 | | | | (14 | ) | | | — | | | | — | | | | 215 | | | | — | | | | 215 | |
| Stock compensation expense | | | | — | | | | — | (a) | | | 1,190 | | | | — | | | | — | | | | — | | | | — | | | | 1,190 | | | | — | | | | 1,190 | |
| Net income | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,066 | | | | — | | | | 1,066 | | | | 73 | | | | 1,139 | |
| Foreign currency translation adjustment | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (35 | ) | | | (35 | ) | | | — | | | | (35 | ) |
| Gain/(loss) on pension plan — unrealized | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (57 | ) | | | (57 | ) | | | — | | | | (57 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2009 | | | | 22,774 | | | $ | 23 | | | $ | 177,682 | | | | 74 | | | $ | (134 | ) | | $ | (77,491 | ) | | $ | 4,617 | | | $ | 104,697 | | | $ | 73 | | | $ | 104,770 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | |
| (a) | | Amounts not shown due to rounding. |
Accumulated other comprehensive income of $4,709$4,617 consists of a cumulative unrealized gain on pension plan of $195$138 and foreign currency translation of $4,514.$4,479.
See accompanying notes to consolidated financial statements.
F-6
3D Systems Corporation
Income (Loss)
Years ended December 31, 2009, 2008 2007 and 20062007
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | | (In thousands) | | | (In thousands) | |
| |
| Net loss | | $ | (6,154 | ) | | $ | (6,740 | ) | | $ | (29,280 | ) | |
| Net income (loss) attributable to 3D Systems | | | $ | 1,066 | | | $ | (6,154 | ) | | $ | (6,740 | ) |
| Net income attributable to noncontrolling interest | | | | 73 | | | | — | | | | — | |
| | | | | | | | | |
| Net income (loss) | | | | 1,139 | | | | (6,154 | ) | | | (6,740 | ) |
| Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | |
| Unrealized gain (loss) on pension obligation | | | 80 | | | | 382 | | | | (267 | ) | | | (57 | ) | | | 80 | | | | 382 | |
| Foreign currency translation adjustments | | | 1,013 | | | | 1,606 | | | | 1,580 | | | | (35 | ) | | | 1,013 | | | | 1,606 | |
| | | | | | | | | | | | | | | |
| Comprehensive loss, net | | $ | (5,061 | ) | | $ | (4,752 | ) | | $ | (27,967 | ) | |
| Comprehensive income (loss), net | | | $ | 1,047 | | | $ | (5,061 | ) | | $ | (4,752 | ) |
| | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
F-7
3D Systems Corporation
Years Ended December 31, 2009, 2008 2007 and 20062007
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | | (In thousands) | | | (In thousands) | |
| |
| Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | $ | (6,154 | ) | | $ | (6,740 | ) | | $ | (29,280 | ) | |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | | | | | | | |
| Net income (loss) | | | $ | 1,139 | | | $ | (6,154 | ) | | $ | (6,740 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | | | | |
| Provision for (benefit of) deferred income taxes | | | (243 | ) | | | (268 | ) | | | 1,752 | | | | 309 | | | | (243 | ) | | | (268 | ) |
| Depreciation and amortization | | | 6,676 | | | | 6,970 | | | | 6,529 | | | | 5,886 | | | | 6,676 | | | | 6,970 | |
| Provisions for bad debts | | | 849 | | | | 109 | | | | 1,612 | | | | 909 | | | | 849 | | | | 109 | |
| Stock-based compensation | | | 1,437 | | | | 2,668 | | | | 2,677 | | | | 1,190 | | | | 1,437 | | | | 2,668 | |
| Loss on disposition of property and equipment | | | 167 | | | | 6 | | | | 7 | | | | 194 | | | | 167 | | | | 6 | |
| Changes in operating accounts: | | | | | | | | | | | | | | | | | | | | | | | | |
| Accounts receivable | | | 3,484 | | | | 4,988 | | | | (1,937 | ) | | | 1,430 | | | | 3,592 | | | | 5,067 | |
| Lease receivables | | | — | | | | — | | | | 177 | | |
| Inventories | | | (2,461 | ) | | | 6,055 | | | | (10,274 | ) | | | 2,436 | | | | (2,461 | ) | | | 6,055 | |
| Prepaid expenses and other current assets | | | 2,592 | | | | 2,000 | | | | 2,979 | | | | (371 | ) | | | 2,484 | | | | 1,921 | |
| Accounts payable | | | (2,802 | ) | | | (7,141 | ) | | | 14,957 | | | | (4,395 | ) | | | (2,802 | ) | | | (7,141 | ) |
| Accrued liabilities | | | (3,228 | ) | | | (683 | ) | | | (104 | ) | | | 617 | | | | (3,228 | ) | | | (683 | ) |
| Customer deposits | | | (383 | ) | | | (4,977 | ) | | | 4,527 | | | | (529 | ) | | | (383 | ) | | | (4,977 | ) |
| Deferred revenue | | | (2,023 | ) | | | (160 | ) | | | (2,735 | ) | | | (1,106 | ) | | | (2,023 | ) | | | (160 | ) |
| Other operating assets and liabilities | | | (1,390 | ) | | | (202 | ) | | | 562 | | | | 25 | | | | (1,390 | ) | | | (202 | ) |
| | | | | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | | | (3,479 | ) | | | 2,625 | | | | (8,551 | ) | | | 7,734 | | | | (3,479 | ) | | | 2,625 | |
| | | | | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchases of property and equipment | | | (5,811 | ) | | | (946 | ) | | | (10,100 | ) | | | (974 | ) | | | (5,811 | ) | | | (946 | ) |
| Proceeds from disposition of property and equipment and other assets | | | 3,454 | | | | 21 | | | | 248 | | | | 52 | | | | 3,454 | | | | 21 | |
| Acquisition of businesses | | | | (4,098 | ) | | | — | | | | — | |
| Additions to license and patent costs | | | (297 | ) | | | (683 | ) | | | (506 | ) | | | (223 | ) | | | (297 | ) | | | (683 | ) |
| Software development costs | | | — | | | | (597 | ) | | | (658 | ) | | | — | | | | — | | | | (597 | ) |
| | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | (2,654 | ) | | | (2,205 | ) | | | (11,016 | ) | | | (5,243 | ) | | | (2,654 | ) | | | (2,205 | ) |
| | | | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Bank borrowings | | | — | | | | (8,200 | ) | | | 8,200 | | | | — | | | | — | | | | (8,200 | ) |
| Proceeds from issuance of common stock | | | — | | | | 20,367 | | | | — | | | | — | | | | — | | | | 20,367 | |
| Stock options and restricted stock proceeds | | | 1,098 | | | | 2,890 | | | | 2,775 | | |
| Proceeds from exercise of stock options and restricted stock | | | | 298 | | | | 1,098 | | | | 2,890 | |
| Repayment of long-term debt | | | (423 | ) | | | (388 | ) | | | (226 | ) | | | (195 | ) | | | (423 | ) | | | (388 | ) |
| Repayment of short-term borrowings | | | | (3,085 | ) | | | — | | | | — | |
| Restricted cash | | | (2,109 | ) | | | — | | | | — | | | | 3,255 | | | | (2,109 | ) | | | — | |
| Payment of preferred stock dividends | | | — | | | | — | | | | (785 | ) | |
| | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | (1,434 | ) | | | 14,669 | | | | 9,964 | | | | 273 | | | | (1,434 | ) | | | 14,669 | |
| | | | | | | | | | | | | | | |
| Effect of exchange rate changes on cash | | | 42 | | | | 269 | | | | (394 | ) | | | (15 | ) | | | 42 | | | | 269 | |
| | | | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | (7,525 | ) | | | 15,358 | | | | (9,997 | ) | | | 2,749 | | | | (7,525 | ) | | | 15,358 | |
| Cash and cash equivalents at the beginning of the period | | | 29,689 | | | | 14,331 | | | | 24,328 | | | | 22,164 | | | | 29,689 | | | | 14,331 | |
| | | | | | | | | | | | | | | |
| Cash and cash equivalents at the end of the period | | $ | 22,164 | | | $ | 29,689 | | | $ | 14,331 | | | $ | 24,913 | | | $ | 22,164 | | | $ | 29,689 | |
| | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
F-8
3D Systems Corporation
| |
| Note 1 | Basis of Presentation |
The consolidated financial statements include the accounts of 3D Systems Corporation and all majority-ownedmajority owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. The Company’s annual reporting period is the calendar year.
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. Certain prior period amounts have been reclassified to conform to the current year presentation. These reclassifications include $401 and $48 of foreign exchange gain for the years ended December 31, 2008 and 2007, respectively, that had previously been included in product cost of sales, to interest and other expense, net in the Company’s consolidated statements of operations. This had the effect of decreasing the Company’s previously reported gross profit and interest and other expense, net for 2008 and 2007 by $401 and $48, respectively, and of increasing operating loss for those periods by the same amounts. It did not affect any of the other line items on the Company’s consolidated statements of operations for 2008 or 2007.
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 these estimates and assumptions.
All amounts presented in the accompanying footnotes are presented in thousands, except for per share information.
The Company has evaluated subsequent events from the date of the condensed consolidated balance sheet through February 24, 2010, the date of the filing of thisForm 10-K. During this period, no material recognizable subsequent events were identified. See Note 25 for a description of subsequent events that are not significant to the Company’s financial statements.
| |
| Note 2 | Significant Accounting Policies |
Use of Estimates
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including, among others, those related to the allowance for doubtful accounts, income taxes, inventories, goodwill, other intangible assets, contingencies and revenue recognition. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which formsform the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Revenue Recognition
Revenue from the sale of systems and related products and materials is recognized upon shipment or when services are performed, provided that persuasive evidence of a sales arrangement exists, both title and risk of loss have passed to the customer and collection is reasonably assured. Persuasive evidence of a sales arrangement exists upon execution of a written sales agreement or signed purchase order that constitutes a fixed and legally binding commitment between the Company and the buyer. In instances where sales are made to an authorized reseller, the same criterion cited above is applied to determine the recognition of revenue. The reseller’s creditworthiness is evaluated prior to such sale. The reseller takes ownership of the related systems, products or materials and payment is not dependent upon the reseller’s sale to an end user.
F-9
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
Sales of the Company’s systems generally include equipment, a software license, a warranty on the equipment, training and installation. For revenuearrangements with multiple deliverables, the Company allocatesrevenues are recognized based on an allocation of the total amount of the customer will payarrangement to the separate units of accounting based on fair value of vendor-specific objective evidence (“VSOE”), as determined by the price charged for the undelivered items when sold separately. The Company also evaluates the impact of undelivered items on the functionality of delivered items for each sales transaction and, where appropriate, defers revenue on delivered items when that functionality has been affected. Functionality is determined to be met if the delivered products or services represent a separate earnings process.
Revenue from services is recognized at the time of performance. Training revenue is recognized after training is complete, and installation revenue is recognized after the installation is accepted. The Company provides end-users with maintenance under a warranty agreement for up to one year and defers a portion of the revenue from the related systems sale at the time of sale based on the relative fair value of those services.services as determined by VSOE, as determined by the renewal rate of the maintenance contract. After the initial warranty period, the Company offers these customers optional maintenance contracts. Deferred maintenance revenue is recognized ratably, on a straight-line basis, over the period of the contract.
The software products licensed with the Company’s systems are integral to the operation of the systems. We sellCompany sells equipment with embedded software to ourits customers. The embedded software is not sold separately, it
F-9
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
is not a significant focus of the marketing effort and we dothe Company does not provide post-contract customer support specific to the software or incur significant costs that are within the scope of Statement of Financialthe FASB Accounting Standards (“SFAS”) No. 86.Codification ASC 985, “Software”. Additionally, the functionality that the software provides is marketed as part of the overall product. The software embedded in the equipment is incidental to the equipment as a whole such thatSOP No. 97-2,Software Revenue Recognition, ASC 985 is not applicable. Sales of these products are recognized in accordance with SEC Staff Accounting Bulletin (SAB) No. 104,Revenue RecognitionandEITF 00-21,Revenue Arrangements with Multiple Deliverables.ASC 605.25, “Multiple-Element Arrangements.”
Shipping and handling costs billed to customers for equipment sales and sales of materials are included in product revenue in the consolidated statements of operations. Costs incurred by the Company associated with shipping and handling isare included in product cost of sales in the consolidated statements of operations.
Credit is extended, and creditworthiness is determined, based on an evaluation of each customer’s financial condition. New customers are generally required to complete a credit application and provide references and bank information to facilitate an analysis of creditworthiness. Customers with a favorable profile may receive credit terms that differ from the Company’s general credit terms. Creditworthiness is considered, among other things, in evaluating the Company’s relationship with customers with past due balances.
The Company’s terms of sale generally require payment within 30 to 60 days after shipment of a product, although the Company also recognizes that longer payment periods are customary in some countries where it transacts business. To reduce credit risk in connection with systems sales, the Company may, depending upon the circumstances, require significant deposits prior to shipment and may retain a security interest in a system sold until fully paid. In some circumstances, the Company may require payment in full for its products prior to shipment and may require international customers to furnish letters of credit. For services, the Company either bills customers on atime-and-materials basis or sells customers service agreements that are recorded as deferred revenue and provide for payment in advance on either an annual or other periodic basis.
Cash and Cash Equivalents
Investments with original maturities of three months or less at the date of purchase are considered to be cash equivalents. The Company’s policy is to invest cash in excess of short-term operating and debt-service requirements in such cash equivalents. These instruments are stated at cost, which approximates market value because of the short maturity of the instruments. The Company places its cash with high quality financial
F-10
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
institutions and believes its risk of loss is limited; however, at times, account balances may exceed international and U.S. federally insured limits.
The Company is required as a condition of the industrial development bonds to maintain cash collateral with Wells Fargo Bank that is restricted from use by the Company. In connection with the sale of the Grand Junction facility in December 2008, the repayment of the industrial development bonds was fully collateralized by increasing the cash collateral from $1,200 to $3,161 using a portion of the sale proceeds. Such restricted cash is reported separately on the consolidated balance sheets at December 31, 2008 and 2007 as a current asset, and it iswas not available for the Company’s operations. On January 28, 2009 the Company redeemed the remaining $3,085 of outstanding bonds, plus accrued interest, in accordance with their terms using the restricted cash. The remaining restricted cash was released to the Company on January 28, 2009. See Note 1211 to the Consolidated Financial Statements.consolidated financial statements.
Allowance for Doubtful Accounts
The Company’s estimate of the allowance for doubtful accounts related to trade receivables is based on two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved.
F-10
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
First, the Company evaluates specific accounts for which it has information that the customer may be unable to meet its financial obligations (for example, bankruptcy). In these cases, the Company uses its judgment, based on the available facts and circumstances, and records a specific reserve for that customer against amounts due to reduce the outstanding receivable balance to the amount that is expected to be collected. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved.
Second, a reserve is established for all customers based on percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change (for example, the Company experienceshigher-than-expected defaults or an unexpected adverse change in a customer’s financial condition), estimates of the recoverability of amounts due to the Company could be reduced. Similarly, if the Company experienceslower-than-expected defaults or improved customer financial condition, estimates of the recoverability of amounts due the Company could be increased.
The Company also provides an allowance account for returns and discounts. This allowance is evaluated on a specific account basis. In addition, the Company provides a general reserve for returns from customers that have not been specifically identified based on historical experience.
Inventories
Inventories are stated at the lower of cost or net realizable market value, cost being determined using thefirst-in, first-out method. Reserves for slow-moving and obsolete inventories are provided based on historical experience and current product demand. The Company evaluates the adequacy of these reserves quarterly.
Property and Equipment
Property and equipment are carried at cost and depreciated on a straight-line basis over the estimated useful lives of the related assets, generally three to thirty years. Leasehold improvements are amortized on a straight-line basis over the shorter of (i) their estimated useful lives and (ii) the estimated or contractual lives of the leases. Realized gains and losses are recognized upon disposal or retirement of the related assets and are reflected in results of operations. Charges for repairs and maintenance are expensed as incurred.
Goodwill and Intangible Assets
The annual impairment testing required by SFAS No. 142, “GoodwillASC Section 350, “Intangibles — Goodwill and Other Intangible Assets,”Other” requires the Company to use judgment and could require the Company to write down the carrying value of our its
F-11
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
goodwill and other intangible assets in future periods. As required by SFAS No. 142, theThe Company allocated goodwill to identifiable geographic reporting units, which are tested for impairment using a two-step process detailed in that statement. See Note 7 to the Consolidated Financial Statements.consolidated financial statements. The first step requires comparing the fair value of each reporting unit with the carrying amount, including goodwill. If that fair value exceeds the carrying amount, the second step of the process is not required to be performed, and no impairment charge is required to be recorded. If that fair value does not exceed that carrying amount, the Company must perform the second step, which requires an allocation of the fair value of the reporting unit to all assets and liabilities of that unit as if the reporting unit had been acquired in a purchase business combination and the fair value of the reporting unit was the purchase price. The goodwill resulting from that purchase price allocation is then compared to the carrying amount with any excess recorded as an impairment charge.
Goodwill set forth on the Consolidated Balance Sheet as of December 31, 20082009 arose from acquisitions carried out in 2009 and in years prior to December 31, 2003.2007. Goodwill arising from the acquisition of DTM Corporation in 2001prior year acquisitions was allocated to geographic reporting units based on the percentage of SLS® systems then installed by geographic area. Goodwill arising from other acquisitions was allocated to geographic reporting units based on geographic dispersion of the acquired companies’ sales at the time of their acquisition.
F-11
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
Pursuant to the requirements of SFAS No. 142, theThe Company is required to perform a valuation of each of ourits three geographic reporting units annually, or upon significant changes in the Company’s business environment. The Company conducted its annual impairment analysis in the fourth quarter of 2008.2009. To determine the fair value of each reporting unit the Company utilized discounted cash flows, using five years of projected unleveraged free cash flows and terminal EBITDA earnings multiples. The discount rates used for the analysis reflected a weighted average cost of capital based on industry and capital structure adjusted for equity risk premiums and size risk premiums based on market capitalization. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions and may differ from actual future cash flows. The Company also considered the current trading multiples of comparable publicly-traded companies and the historical pricing multiples for comparable merger and acquisition transactions that have occurred in the industry. The control premium that a third party would be willing to pay to obtain a controlling interest in the Company was considered when determining fair value. Under each fair value measurement methodology considered, the fair value of each reporting unit exceeded its carrying value; accordingly, no goodwill impairment adjustments were recorded. In addition, factors such as the performance of competitors were also considered. The Company concluded that there was a reasonable basis for the excess of the estimated fair value of the geographic reporting units over its market capitalization.
The estimated fair value of the three geographic reporting units incorporated judgment and the use of estimates by management. Potential factors requiring assessment include a further or sustained decline in our stock price, variance in results of operations from projections, and additional acquisition transactions in the industry that reflect a lower control premium. Any of these factors may cause usmanagement to re-evaluate goodwill during any quarter throughout the year. If an impairment charge were to be taken for goodwill it would be a non-cash charge and would not impact ourthe Company’s cash position or cash flows,flows; however, such a charge could have a material impact to equity and the statement of operations.
There was no goodwill impairment for the fiscal years ended December 31, 2009, 2008 2007 or 2006.2007.
Determining the fair value of a reporting unit, intangible asset or a long-lived asset is judgmental and involves the use of significant estimates and assumptions. The Company bases its fair value estimates on assumptions that it believes are reasonable but are uncertain and subject to changes in market conditions.
Licenses, Patent Costs and Other Long-Lived Assets
Licenses, patent costs and other long-lived assets include costs incurred to perfect license or patent rights under applicable domestic and foreign laws and the amount incurred to acquire existing licenses and patents.
F-12
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
Licenses and patent costs are amortized on a straight-line basis over their estimated useful lives, which are approximately seven to twenty years. Amortization expense is included in cost of sales, research and development expenses and selling, general and administrative expenses, depending upon the nature and use of the technology.
The Company evaluates long-lived assets other than goodwill for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of the asset are less than its carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.
The Company performed an analysis of the fair value of long-lived assets in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.”ASC Section 360. No impairment loss was recorded for the periods presented.
Capitalized Software Costs
The Company’s policy prior to 2008 was that certainCertain software development and production costs were capitalized when the related product reached technological feasibility. No costs were capitalized in 2009 or 2008. Costs capitalized in 2008, 2007 and 2006 were $0, $599 and $658, respectively.$599. Amortization of software development costs begins when the
F-12
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
related products are available for use in related systems. Amortization expense, included in cost of sales, amounted to $141, $1,017 and $199 for 2009, 2008 and $349 for 2008, 2007, and 2006, respectively, based on the straight-line method using an estimated useful life of one year. Net capitalized software costs aggregated $0, $141 $1,158 and $757$1,158 at December 31, 2009, 2008 2007 and 2006,2007, respectively, and are included in intangible assets in the accompanying consolidated balance sheets. The Company capitalized $0, $400, and $142 of software development costs in 2008, 2007 and 2006, respectively, related to development of its V-Flashtm Desktop Modeler.
Contingencies
The Company follows the provisions of SFAS No. 5, “Accounting for Contingencies.ASC Section 450, “Contingencies,” SFAS No. 5which requires that an estimated loss from a loss contingency be accrued by a charge to income if it is both probable that an asset has been impaired or that a liability has been incurred and that the amount of the loss can be reasonably estimated.
Foreign Currency Translation
The Company transacts business globally and is subject to risks associated with fluctuating foreign exchange rates. More than 50% of the Company’s consolidated revenue is derived from sales outside of the U.S. This revenue is generated primarily from the operations of a foreign research and production subsidiary in Switzerland and foreignfromnon-U.S. sales subsidiaries in their respective countries and surrounding geographic areas. This revenue is primarily denominated in each subsidiary’s local functional currency although certain sales are denominated in other currencies, including U.S. dollars or the Euro. These subsidiaries incur most of their expenses (other than intercompany expenses) in their local functional currency. These currencies include Euros, British Pounds, Sterling, Swiss Francs and Japanese Yen.
The geographic areas outside the U.S. in which the Company operates are generally not considered to be highly inflationary. Nonetheless, these foreign operations are sensitive to fluctuations in currency exchange rates arising from, among other things, certain intercompany transactions that are generally denominated in U.S. dollars rather than their respective functional currencies. The Company’s operating results, assets and liabilities are subject to the effect of foreign currency translation when the operating resultsrevenue, expenses and the assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars in the Company’s consolidated financial statements. The assets and liabilities of the Company’s foreign subsidiaries are translated from their respective functional currencies into U.S. dollars based on the translation rate in effect at the end of the related reporting period. The operating resultsrevenue and expenses of the Company’s foreign subsidiaries are translated to U.S. dollars based on the average conversion rate for the related period. Gains and losses
F-13
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
resulting from these conversions are recorded in other comprehensive income (loss) in the consolidated balance sheets.
Gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the functional currency of the Company or a subsidiary) are included in the consolidated statements of operations, except for inter-company receivables and payables for which settlement is not planned or anticipated in the foreseeable future, which are included as a component of accumulated other comprehensive income (loss) in the consolidated balance sheets.
Derivative Financial Instruments
The Company is exposed to market risk from changes in interest rates and foreign currency exchange rates and commodity prices, which may adversely affect its results of operations and financial condition. The Company seeks to minimize these risks through regular operating and financing activities and, when the Company considers it to be appropriate, through the use of derivative financial instruments. The Company does not purchase, hold or sell derivative financial instruments for trading or speculative purposes.
The Company applies SFAS No. 133, “Accounting for Derivative InstrumentsASC Section 815, “Derivatives and Hedging, Activities,” as amended by SFAS No. 137 and SFAS No. 138 (“SFAS No. 133”), to report all derivative instruments on the
F-13
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
balance sheet at fair value. The Company has not qualified for hedge accounting; therefore, all gains and losses (realized or unrealized) related to foreign currency derivative instruments are recognized in cost of sales and all gains and losses (realized or unrealized) related to interest rate derivative instruments are recognized in interest and other expense, net in the consolidated statements of operations.
The Company and its subsidiaries conduct business in various countries using both their functional currencies and other currencies to effect cross-bordercross border transactions. As a result, they are 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 U.S. balance sheet and those of its subsidiaries in order to reduce these risks. The Company, when it considers it to be appropriate, enters into foreign currency contracts to hedge the exposures arising from those transactions. At December 31, 20082009 and 20072008, these contracts included contracts for the purchase of currencies other than the U.S. dollar. The purchase contracts related primarily to the procurement of inventory from a third party denominated in Swiss francs.
The dollar equivalent of the foreign currency contracts and their related fair values as of December 31, 20082009 and 20072008 were as follows:
| | | | | | | | | | | | | | | | | |
| | | Foreign Currency
| | | Foreign Currency
| |
| | | Purchase Contracts | | | Purchase Contracts | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
| Notional amount | | $ | 1,680 | | | $ | 2,905 | | | $ | 1,587 | | | $ | 1,680 | |
| Fair value | | | 1,699 | | | | 2,891 | | | | 1,563 | | | | 1,699 | |
| | | | | | | | | | | |
| Net unrealized gain (loss) | | $ | 19 | | | $ | (14 | ) | |
| Net unrealized (loss) gain | | | $ | (24 | ) | | $ | 19 | |
| | | | | | | | | | | |
The net fair value of all foreign exchange contracts at December 31, 20082009 and 20072008 reflected a net unrealized (loss) gain (loss) of $19$(24) and $(14),$19, respectively. These foreign currency contracts outstanding at December 31, 20082009 expired at various times between January 5, 20096, 2010 and February 11, 2009.3, 2010. See Note 1920 to the Consolidated Financial Statements.consolidated financial statements.
The total impact of foreign currency related items on the consolidated statements of operations was a net gain (loss)loss of $104 for 2009 and net gains of $401 $46 and $(58)$48 for 2008 and 2007, and 2006, respectively.
F-14
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The Company is exposed to credit risk if the counterparties to such transactions are unable to perform their obligations. However, the Company seeks to minimize such risk by entering into transactions with counterparties that are believed to be creditworthy financial institutions.
Research and Development Costs
Research and development costs are expensed as incurred.
Earnings per Share
Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss), as adjusted for the assumed issuance of all dilutive shares, by the weighted average number of shares of common stock outstanding plus the number of additional common shares that would have been outstanding if all dilutive common shares issuable upon exercise of outstanding stock options or conversion of convertible securities had been issued. Common shares related to convertible securities and stock options are excluded from the computation when their effect is anti-dilutive, that is, when their inclusion would increase the Company’s net income per share or reduce its net loss per share.
F-14
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses were $523, $1,250 $1,450 and $1,397$1,450 for the years ended December 31, 2009, 2008 2007 and 2006,2007, respectively.
Pension costs
The Company sponsors a retirement benefit for one of itsnon-U.S. subsidiaries in the form of a defined benefit pension plan. Accounting standards require the cost of providing this pension benefit be measured on an actuarial basis. Actuarial gains and losses resulting from both normalyear-to-year changes in valuation assumptions and differences from actual experience are deferred and amortized. The application of these accounting standards requires management to make assumptions and judgments that can significantly affect these measurements. Critical assumptions made by management in performing these actuarial valuations include the selection of the discount rate to determine the present value of the pension obligations that affects the amount of pension expense recorded in any given period. Changes in the discount rate could have a material effect on the Company’s reported pension obligations and related pension expense. See Note 1516 to the Consolidated Financial Statements.consolidated financial statements.
Equity Compensation Plans
The Company maintains stock-based compensation plans that are described more fully in Note 14. The Company adopted SFAS No. 123(R) effective January 1, 2006 which requires the recognition of the fair value of share-based compensation. Under the fair value recognition provisions of SFAS No. 123(R), share-basedASC Section 718, “Compensation — Stock Compensation,” stock-based compensation is estimated at the grant date based on the fair value of the awards expected to vest and recognized as expense ratably over the requisite service period of the award. The remainder of the Company’s unvested stock options vested during 2007.
Income Taxes
The Company and its domestic subsidiaries file a consolidated U.S. federal income tax return. The Company’snon-U.S. subsidiaries file income tax returns in their respective jurisdictions. The Company provides for income taxes on those portions of its foreign subsidiaries’ accumulated earnings that the Company believes are not reinvested permanently in their business.
F-15
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax benefit carry-forwards. Deferred income tax liabilities and assets at the end of each period are determined using enacted tax rates.
The Company provides a valuation allowance for those jurisdictions in which the expiration date of tax benefit carry-forwards or projected taxable earnings leads the Company to conclude that it is not likely that it will be able to realize the tax benefit of those carry-forwards.
The Company adoptedapplies ASC 740 (formerly FIN 48 as of January 1, 2007. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109. Under FIN 48,48) to determine the impact of an uncertain income tax position on the income tax returnsreturns. In accordance with ASC 740, this impact must be recognized at the largest amount that is more-likely-than-notmore likely than not to be required to be recognized upon audit by the relevant taxing authority. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting for interim periods, disclosure and transition issues with respectSee Note 21 to tax positions.the consolidated financial statements.
The Company includes interest and penalties accrued in accordance with FIN 48 in the consolidated financial statements as a component of income tax expense.
Prior to 2007, the Company determined its tax contingencies in accordance with SFAS No. 5, “Accounting for Contingencies.” The Company recorded estimated tax liabilities to the extent the contingencies were probable and could be reasonably estimated.
F-15
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
Recent Accounting Pronouncements
In September 2006,June 2009, the Financial Accounting Standards Board (“FASB”)FASB issued SFAS No. 157, “Fair Value Measurements.168, “The FASB Accounting Standard Codificationtm (“Codification” or “ASC”) and the Hierarchy of Generally Accepted Accounting Principles,” effective for interim and annual reporting periods ending after September 15, 2009. This statement replaces SFAS No. 157 introduces a framework162, “The Hierarchy of Generally Accepted Accounting Principles” and establishes the Codification (“ASC”) as the source of authoritative U.S. accounting principles used in the preparation of financial statements in conformity with GAAP. All guidance contained in the Codification carries an equal level of authority. The Codification does not replace or affect guidance issued by the SEC or its staff. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right; rather, ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for measuring fair valueconclusions on the change(s) in the Codification. This statement became effective in the third quarter of 2009, and expands required disclosure about fair value measurements of assets and liabilities. For financial assets and liabilities, SFAS No. 157 is effectivereferences made to FASB guidance throughout this document have been updated for fiscal years beginning after November 15, 2007. the Codification.
The Company has adopted the standard for thoseASC 820 as it relates to financial assets and liabilities as of January 1, 2008 and as it relates to nonfinancial assets and liabilities as of January 1, 2009, and the impact of the adoption was not significant. See Note 19Notes 10 and 20 to the Consolidated Financial Statements.
FASB Staff PositionNo. 157-2 delayed the effective date of SFAS No. 157 until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for all nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We are assessing the impact of SFAS No. 157 on the Company’scondensed consolidated financial statements with respect to these nonfinancial assets and liabilities.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115,” which became effective January 1, 2008. SFAS No. 159 permits companies to choose to measure certain financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. The implementation of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141RCombinations,” which is now incorporated into ASC 805, “Business Combinations.” ASC 805 provides revised guidance on how acquirers recognize and measure the consideration transferred, identifiable assets acquired, liabilities assumed, non-controlling interests, and goodwill acquired in a business combination. SFAS No. 141RIt also expands required disclosures surrounding the nature and financial effects of business combinations. SFAS No. 141Rcombinations and is effective, on a prospective basis, for fiscal years beginning after December 15, 2008. The Company is currently assessingadopted the potentialstandard as of January 1, 2009 and the impact of SFAS No. 141R on itsadoption was not significant. See Note 3 to the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51.” SFAS No. 160This guidance is now incorporated into ASC 810, “Consolidation.” It establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160ASC 810 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008. The Company is currently assessing the potential impact of SFAS No. 160 on its financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” SFAS No. 161 expands disclosures but does not change accounting for derivative instruments and hedging activities. The statement will become effective for the Company starting in January 2009. The Company is currently assessing the potential impact of SFAS No. 161 on its financial statements.
In April, 2008 the FASB issued FSPNo. FAS 142-3, “Determination of the Useful Life of Intangible Assets.”FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The objective ofFSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007).FSP 142-3 applies to all intangible assets, whether acquired in a business combination or otherwise, and is effective, on a prospective basis, for fiscal
F-16
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
years beginningidentify and distinguish between the interests of the parent and the interests of the noncontrolling owners. The Company adopted the standard as of January 1, 2009 and the impact of adoption was not significant.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133,” which is now incorporated into ASC 815, “Derivatives and Hedging.” ASC 815 requires entities to provide enhanced disclosure about how and why the entity uses derivative instruments, how the instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and how the instruments and related hedged items affect the financial position, results of operations, and cash flows of the entity. The statement became effective for the Company starting in January 2009, and the impact of the adoption was not significant.
In April 2009, the FASB issued FSPFAS 107-1 and APB28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This guidance is now incorporated into ASC 825, “Financial Instruments.” This guidance requires disclosures about fair values of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. It also requires those disclosures in summarized financial information at interim reporting periods. The guidance became effective for interim and annual reporting periods ending after DecemberJune 15, 2008. Early2009. The Company adopted ASC 825 for the period ended June 30, 2009, and the impact of the adoption is prohibited. Since this guidance will be applied prospectively, on adoption, there will be no impactwas not significant; see Notes 10 and 20 to our currentthe consolidated financial statements.
| |
Note 3 | Outsourcing of Assembly and Refurbishment Activities |
The Company has outsourced its equipment assemblyIn May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” which is now incorporated into ASC 855, “Subsequent Events.” ASC 855 establishes general standards of accounting for and refurbishment activities as well asdisclosure of events that occur after the assembly of field service kits for sale bybalance sheet date but before the Companyfinancial statements are issued or are available to its customers to several selected design and engineering companies and suppliers. These suppliers also carry out quality control procedures onbe issued. It requires the Company’s systems prior to their shipment to customers. As part of these activities, these suppliers have responsibility for procuring the components andsub-assemblies that are used in the Company’s systems. The Company purchases finished systems from these suppliers pursuant to forecasts and customer orders that the Company supplies to them. While the outsource suppliersdisclosure of the Company’s systems have responsibility for the supply chain of the components for the systems they assemble, the components, parts andsub-assemblies that are used in the Company’s systems are generally available from several potential suppliers.
The activities that the Company outsourced include assembly of its3-D printing equipment, its SLA® systems, its SLS® systems and certain other equipment items, the refurbishment of certain used equipment systemsdate through which an entity has evaluated subsequent events and the assemblybasis for that date. The guidance sets forth the period after the balance sheet date during which management of field service kitsa reporting entity should evaluate events or transactions that may occur for sale by the Company to its customers.
The Company sells components of its raw materials inventory related to those systems to those third-party suppliers from time to time. Those sales have been recordedpotential recognition or disclosure in the financial statements, as a product financing arrangementthe circumstances under SFAS No. 49, “Accountingwhich an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 became effective for Product Financing Arrangements.” Pursuant to SFAS No. 49, as of December 31, 2008 and December 31, 2007, the Company recordedfor the period ended June 30, 2009 and is to be applied prospectively. The impact of adoption was not significant. See Note 25 to the consolidated financial statements.
In October 2009, the FASB issued ASU2009-13, “Multiple-Deliverable Revenue Arrangements — a non-trade receivableconsensus of $35the FASB Emerging Issues Task Force,” to provide amendments to the criteria in Subtopic609-24 of the Codification for separating consideration into multiple-deliverable revenue arrangements. ASU2009-13 establishes a selling price hierarchy for determining the selling price of each specific deliverable, which includes vendor-specific objective evidence (“VSOE”) if available, third party evidence if VSOE is not available or estimated selling price if neither VSOE nor third party evidence is available. ASU2009-13 also eliminates the residual method for allocating revenue between the elements of an arrangement and $1,076, respectively, classifiedrequires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in prepaid expenses and other current assetsthe arrangement proportionally to each deliverable on the basis of each deliverable’s selling price. This update expands the disclosure requirements regarding a vendor’s multiple-deliverable revenue arrangements. ASU2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating the impact of ASU2009-13 on its consolidated balance sheets, reflectingfinancial statements.
In October 2009, the book valueFASB issued ASU2009-14, “Certain Revenue Arrangements That Include Software Elements — a consensus of the inventory soldFASB Emerging Issues Task Force.” This Update removes tangible products containing software components and nonsoftware components that function together to deliver the assemblers for which the Company had not received payment. At December 31, 2008 and 2007, $34 and $197, respectively, remained in inventory with a corresponding amount included in accrued liabilities, representing the Company’s non-contractual obligation to repurchase assembled systems and refurbished parts produced from such inventory.
Under these arrangements, the Company generally purchases assembled systemstangible product’s essential functionality from the assemblers following its receiptscope of an order fromthe software revenue guidance in Subtopic985-605 of the Codification. Additionally, ASU2009-14 provides guidance on how a customer or as needed from the assembler to repair a component or to service equipment. Under certain circumstances, the Company anticipates that it may purchase assembled systems from the assemblers prior to the receipt of an order from a customer. At December 31, 2008 and December 31, 2007, the Company had advanced $0 and $866, respectively, of progress payments to assemblers for systems forecasted to be required for resale to customers. These progress payments were recorded in prepaid expenses and other current assets in the consolidated balance sheets.
Components of inventories, net at December 31, 2008 and 2007 are as follows:
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Raw materials | | $ | 1,635 | | | $ | 835 | |
| Inventory held by assemblers | | | 34 | | | | 197 | |
| Work in process | | | 146 | | | | 126 | |
| Finished goods and parts | | | 22,359 | | | | 21,189 | |
| | | | | | | | | |
| Total cost | | | 24,174 | | | | 22,347 | |
| Less: reserves | | | (3,156 | ) | | | (2,306 | ) |
| | | | | | | | | |
| Inventories, net | | $ | 21,018 | | | $ | 20,041 | |
| | | | | | | | | |
The balance of parts at December 31, 2008 and 2007 was $11,473 and $8,894, respectively.vendor should allocate arrangement
F-17
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
consideration to deliverables in an arrangement that includes both tangible products and software that is not essential to the product’s functionality. ASU2009-14 requires the same expanded disclosures that are included within ASU2009-13. ASU2009-14 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. A company is required to adopt the amendments in both ASU2009-13 and ASU2009-14 in the same period using the same transition method. The Company is currently evaluating the impact of ASU2009-14 on its consolidated financial statements.
On October 1, 2009, the Company acquired the assets of Acu-Cast Technologies in Lawrenceburg, Tennessee, a service bureau that provides various prototypes and end-use parts built using the Company’s SLA® systems. Acu-Cast Technologies also operates a plaster casting foundry and offers a broad variety of finishing options on the parts it produces. The Company acquired Acu-Cast Technologies for its breadth of product and finishing offerings. Acu-Cast Technologies has been integrated into the Company’s 3Dpropartstm service.
On November 24, 2009, the Company acquired the assets of AdvaTech Manufacturing in Goodland, Indiana, a provider of rapid prototyping and manufacturing services to the aerospace and defense industries. It creates prototypes and end-use parts built using the Company’s SLS® systems. The Company acquired AdvaTech Manufacturing for its expertise providing parts to the aerospace industry. AdvaTech Manufacturing has been integrated into the Company’s 3Dpropartstm service.
The fair value of the consideration paid for these two acquisitions totaled $4,098 and was allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the acquisition dates, with the excess recorded as goodwill, as shown in the table below. These amounts are included in the Company’s consolidated balance sheets at December 31, 2009.
| | | | | |
| | | 2009 | |
| |
| Fixed assets | | $ | 4,324 | |
| Intangible assets | | | 760 | |
| Goodwill | | | 408 | |
| Net liabilities assumed | | | (1,394 | ) |
| | | | | |
| Net assets acquired | | $ | 4,098 | |
| | | | | |
On February 16, 2010, the Company acquired the assets of Moeller Design in Seattle, Washington, a leader in premium precision investment casting services and prototyping for aerospace and medical device applications. Its parts and prototypes are built using the Company’s SLA® systems. The Company acquired Moeller Design for its expertise in producing premium parts and to expand the geographic footprint of its 3Dpropartstm service to the west coast. The Company is in the process of integrating Moeller Design into its 3Dpropartstm service. Due to the timing of this acquisition, at the time of this filing the Company is in the process of allocating the fair value of assets purchased and other intangibles identified as of the acquisition date, with any excess to be recorded as goodwill.
F-18
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
Components of inventories, net at December 31, 2009 and 2008 are as follows:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Raw materials | | $ | 2,294 | | | $ | 1,635 | |
| Inventory held by assemblers | | | — | | | | 34 | |
| Work in process | | | 253 | | | | 146 | |
| Finished goods and parts | | | 18,524 | | | | 22,359 | |
| | | | | | | | | |
| Total cost | | | 21,071 | | | | 24,174 | |
| Less: reserves | | | (2,693 | ) | | | (3,156 | ) |
| | | | | | | | | |
| Inventories, net | | $ | 18,378 | | | $ | 21,018 | |
| | | | | | | | | |
The balances of parts in inventory at December 31, 2009 and 2008 were $10,890 and $11,473, respectively.
| |
| Note 5 | Property and Equipment |
Property and equipment at December 31, 20082009 and 20072008 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | Useful Life | | | 2009 | | 2008 | | Useful Life | |
| | | | | | | (In years) | | | | | | | (In years) | |
| |
| Land | | | $ | 152 | | | $ | — | | | | N/A | |
| Building | | $ | 8,566 | | | $ | 8,566 | | | | 25 | | | | 9,454 | | | | 8,566 | | | | 25 | |
| Machinery and equipment | | | 27,492 | | | | 26,469 | | | | 3-5 | | | | 23,418 | | | | 27,492 | | | | 3-7 | |
| Capitalized software — ERP | | | 3,096 | | | | 3,077 | | | | 5 | | | | 3,096 | | | | 3,096 | | | | 5 | |
| Office furniture and equipment | | | 3,404 | | | | 3,492 | | | | 5 | | | | 3,358 | | | | 3,404 | | | | 5 | |
| Leasehold improvements | | | 7,567 | | | | 7,730 | | | | Life of Lease | | | | 4,941 | | | | 7,567 | | | | Life of Lease | |
| Rental equipment | | | 1,116 | | | | 726 | | | | 5 | | | | 1,079 | | | | 1,116 | | | | 5 | |
| Construction in progress | | | 298 | | | | 511 | | | | N/A | | | | 1,243 | | | | 298 | | | | N/A | |
| | | | | | | | | | | |
| Total property and equipment | | | 51,539 | | | | 50,571 | | | | | | | | 46,741 | | | | 51,539 | | | | | |
| Less: Accumulated depreciation and amortization | | | (27,467 | ) | | | (29,240 | ) | | | | | | | (21,952 | ) | | | (27,467 | ) | | | | |
| | | | | | | | | | | |
| Total property and equipment, net of accumulated depreciation and amortization | | $ | 24,072 | | | $ | 21,331 | | | | | | | $ | 24,789 | | | $ | 24,072 | | | | | |
| | | | | | | | | | | |
Depreciation and amortization expense for 2009, 2008 and 2007 was $4,882, $4,872, and 2006 was $4,872, $4,296, and $3,389, respectively. 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.
Capitalized leases related to buildings had a cost of $8,496 at December 31, 20082009 and 2007.2008. Capitalized leases related to office furniture and equipment had a cost of $542 at December 31, 20082009 and 2007.2008.
For each of the years ended December 31, 20082009 and 2007,2008, the Company recognized software amortization expense of $537 and $491, respectively, for enterprise resource planning (“ERP”) system capitalization costs.
In December 2008, the Company completed the salesold of its Grand Junction, Colorado facility for $5,500, consisting of $3,500 of cash proceeds (before deducting closing costs) and a $2,000 zero interest, five-year promissory note from the buyer. The property had been held for sale or lease since the Company ceased operations at its Grand Junction facility in April 2006. Following the closing of the Grand Junction facility in 2006, approximately $3,454 of assets, net of accumulated depreciation, were reclassified on the Company’s consolidated balance sheet from long-term assets to current assets, where they havehad been recorded as assets held for sale. See Note 12.
F-19
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The Company discounted the note receivable by $1,017, reducing the net gain to $636. In accordance with SFAS No. 66, “Accounting forASC Section 360.20, “Real Estate Sales, of Real Estate”, we have” the Company has not recognized this gain on the sale of ourits Grand Junction facility.facility as of December 31, 2009. The carrying value of the long-term receivable, net of the discount and deferred gain is recorded in “Other assets, net.” In all likelihood onlyOnly a small portion of the gain will be recognized until the earlier of (i) the sale of the property securing the note by the buyer, or (ii) repayment of the promissory note by the buyer.
F-18
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
(a) Licenses and patent costs at December 31, 20082009 and 20072008 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Weighted Average
| | | | | | | Weighted Average
| |
| | | 2008 | | 2007 | | Useful Life | | | 2009 | | 2008 | | Useful Life | |
| | | | | | | (In years) | | | | | | | (In years) | |
| |
| Licenses, at cost | | $ | 5,875 | | | $ | 5,875 | | | | 1.8 | | | $ | 5,875 | | | $ | 5,875 | | | | 0.8 | |
| Patent costs | | | 16,078 | | | | 15,908 | | | | 4.4 | | | | 16,069 | | | | 16,078 | | | | 7.0 | |
| | | | | | | | | | | |
| | | | 21,953 | | | | 21,783 | | | | | | | | 21,944 | | | | 21,953 | | | | | |
| Less: Accumulated amortization | | | (18,431 | ) | | | (17,771 | ) | | | | | | | (19,036 | ) | | | (18,431 | ) | | | | |
| | | | | | | | | | | |
| Net licenses and patent costs | | $ | 3,522 | | | $ | 4,012 | | | | | | | $ | 2,908 | | | $ | 3,522 | | | | | |
| | | | | | | | | | | |
During 2009, 2008 2007 and 2006,2007, the Company capitalized $223, $297 $683 and $506,$683, respectively, for costs incurred to acquire, develop and extend patents in the United States and various other countries. Amortization of such previously capitalized patent costs was $829 in 2009, $787 in 2008, and $1,467 in 2007, and $1,195 in 2006.2007. The Company expects amortization expense with respect to previously capitalized patent costs to be $382 in 2009, $339$408 in 2010, $315$387 in 2011, $278$216 in 2012, $248 in 2013 and $251$274 in 2013.2014.
(b) Acquired Technology
Acquired technology at December 31, 2008 and 2007 is summarized as follows:
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Acquired technology | | $ | 10,337 | | | $ | 10,391 | |
| Less: Accumulated amortization | | | (10,337 | ) | | | (10,391 | ) |
| | | | | | | | | |
| Net acquired technology | | $ | — | | | $ | — | |
| | | | | | | | | |
Acquired technology, which was purchased in 2001 in connection with the DTM Corporation acquisition, became fully amortized in 2007. In 2008, 2007, and 2006,when the Company amortized $0,the remaining $948 and $1,517, respectively, ofbalance. At December 31, 2009, the gross acquired technology.technology balance was $10,367. Acquired technology and the related accumulated amortization each decreased $54increased $30 in 2009 from $10,337 in 2008 for the effect of foreign currency exchange rates reflecting the impact of amounts recorded in currencies other than the U.S. dollar on the financial statements.statements of foreign subsidiaries.
(c) Other Intangible Assets
The Company had $141$726 and $1,158$141 of other net intangible assets, including internally developed software and non-compete agreements from acquisitions, as of December 31, 2009 and 2008, and 2007, respectively. Acquisition activities during the year ended December 31, 2009 yielded $760 of other intangible assets. Amortization expense related to such intangible assets was $175, $1,017, $279, and $429$279 for the years ended December 31, 2009, 2008 and 2007, and 2006, respectively.
F-20
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The following are the changes in the carrying amount of goodwill by geographic reporting unit:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Asia-
| | | | | | | | | Asia-
| | | |
| | | U.S. | | Europe | | Pacific | | Total | | | U.S. | | Europe | | Pacific | | Total | |
| |
| Balance at January 1, 2007 | | $ | 18,605 | | | $ | 21,332 | | | $ | 6,930 | | | $ | 46,867 | | |
| Effect of foreign currency exchange rates | | | — | | | | 815 | | | | — | | | | 815 | | |
| | | | | | | | | | | |
| Balance at December 31, 2007 | | | 18,605 | | | | 22,147 | | | | 6,930 | | | | 47,682 | | |
| Balance at January 1, 2008 | | | $ | 18,605 | | | $ | 22,147 | | | $ | 6,930 | | | $ | 47,682 | |
| Effect of foreign currency exchange rates | | | — | | | | 328 | | | | — | | | | 328 | | | | — | | | | 328 | | | | — | | | | 328 | |
| | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2008 | | $ | 18,605 | | | $ | 22,475 | | | $ | 6,930 | | | $ | 48,010 | | | | 18,605 | | | | 22,475 | | | | 6,930 | | | | 48,010 | |
| Effect of foreign currency exchange rates | | | | — | | | | 312 | | | | — | | | | 312 | |
| Goodwill acquired through acquisitions | | | | 408 | | | | — | | | | — | | | | 408 | |
| | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2009 | | | $ | 19,013 | | | $ | 22,787 | | | $ | 6,930 | | | $ | 48,730 | |
| | | | | | | | | | | |
F-19
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The effect of foreign currency exchange rates in the preceding table reflects the impact on goodwill of amounts recorded in currencies other than the U.S. dollar on the financial statements of subsidiaries in these geographic areas resulting from the yearly effect of foreign currency translation between the applicable functional currency and the U.S. dollar. The remaining goodwill for Europe and the entire amount of goodwill for Asia-Pacific represent amounts allocated in U.S. dollars from the U.S. to those geographic areas for financial reporting purposes.
The Company sponsors a Section 401(k) plan (the “Plan”) covering substantially all of its eligible U.S. employees. The Plan entitles eligible employees to make contributions to the Plan after meeting certain eligibility requirements. Contributions are limited to the maximum contribution allowances permitted under the Internal Revenue Code. The Company matches 50% of the employee contributions up to a maximum of $3 as set forth in the Plan. The Company may also make discretionary contributions to the Plan, which would be allocable to participants in accordance with the Plan. For the years ended December 31, 2009, 2008 2007 and 2006,2007, the Company expensed $187, $206 $213 and $222,$213, respectively, for matching contributions to the 401(k) Plan.
| |
| Note 9 | Accrued and Other Liabilities |
Accrued liabilities at December 31, 20082009 and 20072008 are as follows:
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
| Compensation and benefits | | $ | 2,239 | | | $ | 4,916 | | | $ | 3,680 | | | $ | 2,239 | |
| Vendor accruals | | | 1,880 | | | | 2,848 | | | | 1,197 | | | | 1,880 | |
| Accrued professional fees | | | 1,064 | | | | 1,287 | | | | 642 | | | | 1,064 | |
| Accrued taxes | | | 1,148 | | | | 1,381 | | | | 2,400 | | | | 1,148 | |
| Royalties payable | | | 297 | | | | 645 | | | | 244 | | | | 297 | |
| Non-contractual obligation to repurchase inventory held by assemblers. See Note 3 | | | 34 | | | | 197 | | |
| Non-contractual obligation to repurchase inventory held by assemblers | | | | — | | | | 34 | |
| Accrued interest | | | 54 | | | | 74 | | | | 50 | | | | 54 | |
| Net liabilities assumed in acquisitions | | | | 1,394 | | | | — | |
| Accrued other | | | 1,341 | | | | 900 | | | | 1,507 | | | | 1,341 | |
| | | | | | | | | | | |
| | | $ | 8,057 | | | $ | 12,248 | | | $ | 11,114 | | | $ | 8,057 | |
| | | | | | | | | | | |
Other liabilities at December 31, 2008 and 2007 are summarized below.
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Defined benefit pension obligation. See Note 15 | | $ | 2,801 | | | $ | 2,367 | |
| Other long-term liabilities | | | 476 | | | | 1,871 | |
| | | | | | | | | |
| | | $ | 3,277 | | | $ | 4,238 | |
| | | | | | | | | |
| |
Note 10 | Restructuring and Related Costs |
The Company incurred no restructuring and related costs during the years ended December 31, 2008 and 2007.
Restructuring costs were $6,646 in 2006, related to the Company moving its corporate headquarters, principal R&D activities and all other key corporate support functions into a new facility in Rock Hill, South Carolina. Early in 2006, the Company opened an interim facility in Rock Hill, began to hire employees to replace departing employees and replicated functions in Rock Hill that were previously being performed at the Company’s Valencia and Grand Junction facilities. The Company also began work on exiting and disposing of
F-20F-21
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
its ValenciaOther liabilities at December 31, 2009 and Grand Junction facilities. The Company vacated its Grand Junction facility in 2006 (sold in 2008) and its former Valencia headquarters in January 2008.2008 are summarized below:
All costs incurred in connection with these restructuring activities were expensed as incurred and included as other restructuring and related costs in the accompanying consolidated statements of operations. During 2006, the Company accrued an additional $30 for prior facility closure, which was utilized in 2007.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Balance
| | | | | | | | | Balance
| | | | | | | | | Balance
| |
| | | December 31,
| | | 2007
| | | 2007
| | | December 31,
| | | 2008
| | | 2008
| | | December 31,
| |
| | | 2006 | | | Charges | | | Utilization | | | 2007 | | | Charges | | | Utilization | | | 2008 | |
| |
| Prior closure costs | | $ | 30 | | | $ | — | | | $ | (30 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Severance costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Restructuring costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total severance and other restructuring costs | | $ | 30 | | | $ | — | | | $ | (30 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Defined benefit pension obligation. See Note 16 | | $ | 3,237 | | | $ | 2,801 | |
| Other long-term liabilities | | | 707 | | | | 476 | |
| | | | | | | | | |
| | | $ | 3,944 | | | $ | 3,277 | |
| | | | | | | | | |
| |
Note 1110 | Financial Instruments |
Generally accepted accounting principles require the Company to disclose its estimate of the fair value of material financial instruments, including those recorded as assets or liabilities in its consolidated financial statements. The carrying amounts of current assets and liabilities approximate fair value due to their short-term maturities. Generally, the fair value of a fixed-rate instrument will increase as interest rates fall and decrease as interest rates rise.
The carrying amounts and fair values of the Company’s other financial instruments at December 31, 20082009 and 20072008 were as follows:
| | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | | | | | | | | | | | | | | | |
| | | Carrying
| | Fair
| | Carrying
| | Fair
| | | 2009 | | 2008 | |
| | | Amount | | Value | | Amount | | Value | | | Carrying
| | Fair
| | Carrying
| | Fair
| |
| | | (Dollars in thousands) | | | Amount | | Value | | Amount | | Value | |
| |
| Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grand Junction note receivable | | $ | 983 | | | $ | 983 | | | | — | | | | — | | | $ | 1,126 | | | $ | 1,134 | | | $ | 983 | | | $ | 983 | |
| | | | | | | | | | | | | | | | | | | |
| Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Industrial development bonds | | $ | 3,085 | | | $ | 3,085 | | | $ | 3,325 | | | $ | 3,325 | | | $ | — | | | $ | — | | | $ | 3,085 | | | $ | 3,085 | |
| Capitalized lease obligations | | | 8,662 | | | | 8,859 | | | | 8,844 | | | | 9,064 | | |
| | | | | | | | | | | | | | | | | | | |
| Total debt | | $ | 11,747 | | | $ | 11,944 | | | $ | 12,169 | | | $ | 12,389 | | |
| | | | | | | | | | | |
No adjustment was necessary to reflect theThe fair value of the Grand Junction note receivable as the transaction closed in late December, 2008. No adjustment was necessary to reflect fair value of the industrial development bonds due to the floating-rate nature of those bonds, interest on which varies weekly.
The fair value of the amounts outstanding under the capitalized lease obligations was calculated at December 31, 2008 and 20072009 by discounting the remaining payments using a 6.76% and 6.74% interest15.67% discount rate. This rate respectively, to discount the capital lease obligations. These discount rates werewas derived by taking the risk-free interest rate for similar maturities and adding an estimated risk premium intended to reflect the credit risk. See Note 22 to the Consolidated Financial Statements.
The foregoing estimates are subjective and involve uncertainties and matters of significant judgment. Changes in assumptions could significantly affect the Company’s estimates.
F-21
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
Total outstanding borrowings at December 31, 2008 and 2007 were as follows:
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Industrial development bonds | | $ | 3,085 | | | $ | 3,325 | |
| | | | | | | | | |
| Total current debt | | $ | 3,085 | | | $ | 3,325 | |
| | | | | | | | | |
| Long-term debt | | $ | — | | | $ | — | |
| | | | | | | | | |
| Total debt | | $ | 3,085 | | | $ | 3,325 | |
| | | | | | | | | |
Industrial development bonds
The Company’s Grand Junction, Colorado facility was financed by industrial development bonds in the original aggregate principal amount of $4,900. At December 31, 2008, and 2007, the outstanding principal amount of these bonds was $3,085 and $3,325, respectively.$3,085. The interest rate at December 31, 2008 and 2007 was 1.28% and 3.52%, respectively..
As discussed elsewhere, in December 2008 we completedUpon the sale of our Grand Junction, Colorado facility for $5,500. The property had been held for sale or lease since the Company ceased operations at its Grand Junction facility in April 2006. Following cessation of operations at the Grand Junction facility, the Company reclassified these bonds from long-term debt to current installments of long-term debt. Upon the sale,December 2008, the Company fully collateralized the repayment of the industrial development bonds, including interest and other amounts due through the redemption date, with a portion of the sale proceeds and the $1,200 of restricted cash previously held by the trustee.
The Company gave the required35-day notice and redeemed the remaining outstanding bonds, plus accrued interest through the redemption date, in accordance with their terms on January 28, 2009.
F-22
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The following assets and liabilities related to the Grand Junction facility were classified as current assets or liabilities on the balance sheet at December 31, 2008 and 2007 as follows:
| | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2008 | |
| |
| Current assets: | | | | | | | | | | | | |
| Assets held for sale | | $ | — | | | $ | 3,454 | | |
| Restricted cash | | | 3,161 | | | | 1,200 | | | $ | 3,161 | |
| | | | | |
| Current liabilities: | | | | | | | | | | | | |
| Industrial development bonds | | $ | 3,085 | | | $ | 3,325 | | | $ | 3,085 | |
| | | | | |
Such restricted cash was held on deposit as security for the Company’s obligations under the industrial development bonds discussed above, and therefore was not available to the Company at December 31, 2008 for its general use.
Interest expense totaled $618 in 2009, compared to $918 in 2008 compared toand $1,830 in 2007, and $1,645 in 2006, while interest income totaled $9 in 2009, compared to $526 in 2008 compared toand $1,001 in 2007, and $578, all reflecting the combined effect of lower interest rates and the repayment of the industrial development bonds in 2008.2009. Other expense (income) totaled $379$551 in 2009, compared to $(22) in 2008 comparedand $243 in 2007.
| |
| Note 12 | Lease Obligations |
The Company leases certain of its facilities and equipment under capitalized leases and other facilities and equipment under non-cancelable operating leases. The leases are generally on a net-rent basis, under which the Company pays taxes, maintenance and insurance. Leases that expire at various dates through 2031 are expected to $292be renewed or replaced by leases on other properties. Rental expense for the years ended December 31, 2009, 2008 and 2007 aggregated $1,686, $1,843, and $2,702, respectively.
The Company’s future minimum lease payments as of December 31, 2009 under capitalized leases and non-cancelable operating leases, with initial or remaining lease terms in 2007excess of one year, were as follows:
| | | | | | | | | |
| | | Capitalized
| | | Operating
| |
| | | Leases | | | Leases | |
| |
Years ending December 31: | | | | | | | | |
| 2010 | | $ | 795 | | | $ | 1,257 | |
| 2011 | | | 786 | | | | 687 | |
| 2012 | | | 701 | | | | 434 | |
| 2013 | | | 701 | | | | 188 | |
| 2014 | | | 701 | | | | — | |
| Later years | | | 13,000 | | | | — | |
| | | | | | | | | |
| Total minimum lease payments | | | 16,684 | | | $ | 2,566 | |
| | | | | | | | | |
| Less amounts representing imputed interest | | | (8,217 | ) | | | | |
| | | | | | | | | |
| Present value of minimum lease payments | | | 8,467 | | | | | |
| Less current portion of capitalized lease obligations | | | (213 | ) | | | | |
| | | | | | | | | |
| Capitalized lease obligations, excluding current portion | | $ | 8,254 | | | | | |
| | | | | | | | | |
Rock Hill Facility
The Company leases its current headquarters and $343research and development facility pursuant to a lease agreement with KDC-Carolina Investments 3, LP. After its initial term ending August 31, 2021, the lease provides the Company with the option to renew the lease for two additional five-year terms. The lease also
F-23
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
grants the Company the right to cause KDC, subject to certain terms and conditions, to expand the leased premises during the term of the lease, in 2006.which case the term of the lease would be extended. The lease is a triple net lease and provides for the payment of base rent of approximately $0.7 million annually from 2009 through 2020, including rent escalations in 2011 and 2016, and $0.5 million in 2021. Under the terms of the lease, the Company is obligated to pay all taxes, insurance, utilities and other operating costs with respect to the leased premises. The lease also grants the Company the right to purchase the leased premises and undeveloped land surrounding the leased premises on terms and conditions described more particularly in the lease. This lease is recorded as a capitalized lease obligation under ASC Section 840, “Leases.” The implicit interest rate at December 31, 2009 and 2008 was 6.93%.
Furniture and Fixtures Lease
The Company maintains a lease financing with a financial institution covering office furniture and fixtures. In accordance with ASC 840, the Company has recorded this lease as a capitalized lease. The terms of the lease require the Company to make monthly payments through October 2011. The implicit interest rate at December 31, 2009 and 2008 was 8.05%.
The Company had 5,000 shares of preferred stock that were authorized but unissued at December 31, 20082009 and 2007.2008. In connection with the stockholders’ rights plan approved by the Company’s Board of Directors in December 2008, 1,000 shares of such preferred stock were authorized but unissued as Series A Preferred Stock.
F-22
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)Stock but were unissued at December 31, 2009.
| |
| Note 14 | Stock-Based Compensation and Stockholders’ Rights Plan |
Stock basedStock-based compensation expense for vesting options was $0 and $678 for the years ended December 31, 20082009 and 2007, respectively.2008. The Company recorded a $548$678 charge to operations in 20062007 for stock-based compensation related to options granted from 1998 through 2004. The portion of such amount allocable to each of the years 2006 and prior is not material to the results of operations of any year nor is the cumulative amount material to the consolidated financial statements for the year ended 2006.
Effective May 19, 2004, the Company adopted its 2004 Incentive Stock Plan (the “2004 Stock Plan”) and its 2004 Restricted Stock Plan for Non-Employee Directors (the “2004 Director Plan”). Effective upon the adoption of these Plans, all of the Company’s previous stock option plans terminated, except for the Company’s 1998 Employee Stock Purchase Plan discussed below, except with respect to options outstanding under those plans. As of December 31, 20082009 and 2007,2008, the aggregate number of shares of common stock underlying outstanding options issued under all previous stock option plans was 886864 and 1,084,886, respectively, at an average exercise price per share of $9.12$9.20 and $8.78,$9.12, respectively, with expiration dates through November 3, 2013.
AIn 2009, the maximum number of 1,000 shares of common stock that are reserved for issuance under the 2004 Stock Plan subjectwas increased from 1,000 to adjustment in accordance with the terms of the 2004 Stock Plan.2,000. Total awards issued under this plan, net of repurchases, amounted to 314 shares of restricted stock in 2009, 12 shares of restricted stock in 2008, and 46 shares of restricted stock in 2007, and 121 shares of restricted stock in 2006.2007. The Company estimated the future value associated with awards granted in 2009, 2008, and 2007 as $2,200, $542, and 2006 as $542, $1,384, and $2,833, respectively, which is calculated based on the fair market value of the common stock on the date of grant less the amount paid by the recipient and is expensed over the vesting period of each award. The compensation expense recognized in 2009, 2008, and 2007 was $1,044, $1,216, and 2006 was $1,216, $1,677, and $1,044, respectively. Each of these awards was made with a vesting period of three years from the date of grant and required the recipient to pay $1.00 for each share awarded in fiscal years 2006 and 2007. In 2008, recipients were required to pay the lesser of $1.00 for each share or an amount equal to ten percent of the fair market value of the Company’s common stock per share at the date of grant, at prices ranging from $0.67 to $1.00.grant.
The purpose of this Plan is to provide an incentive that permits the persons responsible for the Company’s growth to share directly in that growth and to further the identity of their interests with the interests of the Company’s stockholders. Any person who is an employee of or consultant to the Company, or a subsidiary or
F-24
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
an affiliate of the Company, is eligible to be considered for the grant of restricted stock awards, stock options or performance awards pursuant to the 2004 Stock Plan. The 2004 Stock Plan is administered by the Compensation Committee of the Board of Directors, which, pursuant to the provisions of the 2004 Stock Plan, has the sole authority to determine recipients of awards under that plan, the number of shares to be covered by such awards and the terms and conditions of each award. The 2004 Stock Plan may be amended, altered or discontinued at the sole discretion of the Board of Directors at any time.
The 2004 Director Plan provides for the grant of up to 200 shares of common stock to non-employee directors (as defined in the Plan) of the Company, subject to adjustment in accordance with the terms of the Plan. The purpose of this Plan is to attract, retain and motivate non-employee directors of exceptional ability and to promote the common interests of directors and stockholders in enhancing the value of the Company’s common stock. Each non-employee director of the Company is eligible to participate in this Plan upon their election to the Board of Directors. The Plan provides for initial grants of 1 shares of common stock to each newly elected non-employee director, annual grants of 3 shares of common stock as of the close of business on the date of each annual meeting of stockholders, and interim grants of 3 shares of common stock, or a pro rata portion thereof, to non-employee directors elected at meetings other than the annual meeting. The issue price of common stock awarded under this Plan is equal to the par value per share of the common stock. The Company accounts for the fair value of awards of common stock made under this Plan, net of the issue price, as director compensation expense in the period in which the award is made. During the years ended
F-23
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
December 31, 2009, 2008, 2007, and 2006,2007, the Company recorded $146, $221, $314,and $372,$314, respectively, as director compensation expense in connection with awards of 21 shares in 2009, 24 shares in 2008, and 15 shares in 2007 and 18 shares in 2006 of common stock made to the non-employee directors of the Company pursuant to this Plan.
As of December 31, 2008, 1072009, 86 and 6621,368 shares of common stock were available for future grants under the 2004 Director Plan and the 2004 Stock Plan, respectively. The status of the Company’s stock options is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | | | | Weighted
| | | | Weighted
| | | | Weighted
| | | | | Weighted
| | | | Weighted
| | | | Weighted
| |
| | | | | Average
| | | | Average
| | | | Average
| | | | | Average
| | | | Average
| | | | Average
| |
| | | | | Exercise
| | | | Exercise
| | | | Exercise
| | | | | Exercise
| | | | Exercise
| | | | Exercise
| |
| | | Options | | Price | | Options | | Price | | Options | | Price | | | Options | | Price | | Options | | Price | | Options | | Price | |
| | | (Shares and options in thousands) | | | (Shares and options in thousands) | |
| |
| Outstanding at beginning of year | | | 1,084 | | | $ | 8.78 | | | | 1,356 | | | $ | 9.16 | | | | 1,688 | | | $ | 9.39 | | | | 886 | | | $ | 9.12 | | | | 1,084 | | | $ | 8.78 | | | | 1,356 | | | $ | 9.16 | |
| Granted | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | |
| Exercised | | | (161 | ) | | | 6.73 | | | | (269 | ) | | | 10.62 | | | | (287 | ) | | | 9.04 | | | | (15 | ) | | | 5.63 | | | | (161 | ) | | | 6.73 | | | | (269 | ) | | | 10.62 | |
| Lapsed or canceled | | | (37 | ) | | | 9.39 | | | | (3 | ) | | | 14.95 | | | | (45 | ) | | | 18.74 | | | | (7 | ) | | | 6.72 | | | | (37 | ) | | | 9.39 | | | | (3 | ) | | | 14.95 | |
| | | | | | | | | | | | | | | |
| Outstanding at end of year | | | 886 | | | $ | 9.12 | | | | 1,084 | | | $ | 8.78 | | | | 1,356 | | | $ | 9.16 | | | | 864 | | | $ | 9.20 | | | | 886 | | | $ | 9.12 | | | | 1,084 | | | $ | 8.78 | |
| | | | | | | | | | | | | | | |
| Options exercisable at end of year | | | 886 | | | | | | | | 1,084 | | | | | | | | 1,231 | | | | | | | | 864 | | | | | | | | 886 | | | | | | | | 1,084 | | | | | |
| Shares available for future option grants | | | 662 | | | | | | | | 729 | | | | | | | | 774 | | | | | | |
| Shares available for future option grants(1) | | | | 1,368 | | | | | | | | 662 | | | | | | | | 729 | | | | | |
| | |
| (1) | | Assumes the issuance of options permitted by the 2004 Incentive Stock Plan. |
F-25
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes information about stock options outstanding at December 31, 2008:2009:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Options Outstanding | | | | | | | Options Outstanding | | Options Exercisable | |
| | | | | Weighted
| | | | Options Exercisable | | | | | Weighted
| | | | | | | |
| | | | | Average
| | Weighted
| | | | Weighted
| | | | | Average
| | Weighted
| | | | Weighted
| |
| | | | | Remaining
| | Average
| | | | Average
| | | | | Remaining
| | Average
| | | | Average
| |
| | | Options
| | Contractual
| | Exercise
| | Options
| | Exercise
| | | Options
| | Contractual
| | Exercise
| | Options
| | Exercise
| |
Range: | | Outstanding | | Life (Years) | | Price | | Outstanding | | Price | | | Outstanding | | Life (Years) | | Price | | Outstanding | | Price | |
| | | (Options in thousands) | | | (Options in thousands) | |
| |
| $5.00 to $9.99 | | | 611 | | | | 4.55 | | | $ | 7.21 | | | | 611 | | | $ | 7.21 | | | | 590 | | | | 3.69 | | | $ | 7.26 | | | | 590 | | | $ | 7.26 | |
| $10.00 to $14.99 | | | 165 | | | | 2.75 | | | | 12.01 | | | | 165 | | | | 12.01 | | | | 164 | | | | 1.75 | | | | 12.02 | | | | 164 | | | | 12.02 | |
| $15.00 to $19.99 | | | 110 | | | | 2.57 | | | | 15.40 | | | | 110 | | | | 15.40 | | | | 110 | | | | 1.57 | | | | 15.40 | | | | 110 | | | | 15.40 | |
| | | | | | | | | | | |
| | | | 886 | | | | 3.97 | | | $ | 9.12 | | | | 886 | | | $ | 9.12 | | | | 864 | | | | 3.05 | | | $ | 9.20 | | | | 864 | | | $ | 9.20 | |
| | | | | | | | | | | |
The intrinsic value of the Company’s 864 outstanding 886 stock options amounted to $519$2,409 at December 31, 2008.2009.
In December 2008, the Company’s Board of Directors adopted a stockholder rights plan (the “Rights Plan”) and declared a dividend of one right for each share of the Company’s Common Stock held by stockholders of record as of the close of business on December 22, 2008. In addition, these rights shall be issued in respect of all shares of Common Stock issued after such date. Initially, these rights willare not be exercisable and will trade with the shares of the Company’s Common Stock. Under the Rights Plan, these rights will generally bebecome exercisable only if a person or group acquires or commences a tender or exchange offer for 15 percent or more of the Company’s Common Stock (including, for this purpose, Common Stock involved in derivative transactions or securities). If the rights become exercisable, each right will permitpermits its holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock for the exercise price of $55.00 per right (subject to adjustment as provided in the Rights Plan). The Rights Plan also contains customary “flip-in” and “flip-over” provisions such that if a person or group acquires beneficial ownership of 15 percent or more of the Company’s Common Stock, each right will permitpermits its holder, other than the acquiring person or group, to purchase shares of the Company’s Common Stock for a price equal to
F-24
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
the quotient obtained by dividing $55.00 per right (subject to adjustment as provided in the plan) by one-half of the then current market price of the Company’s Common Stock. In addition, if, after a person acquires such ownership, the Company is later acquired in a merger or similar transaction, each right will permitpermits its holder, other than the acquiring person or group, to purchase shares of the acquiring corporation’s stock for a price equal to the quotient obtained by dividing $55.00 per right (subject to adjustment as provided in the plan) by one-half of the then current market price of the acquiring company’s Common Stock, based on the market price of the acquiring corporation’s stock prior to such merger.
| |
| Note 15 | Noncontrolling Interest |
In May 2009, the Company formed MQast, LLC (“MQast”), a joint venture with an unrelated third party. MQast is an online provider of rapid, high-quality complex metal parts. The Company maintains a 51% ownership interest in MQast, and MQast’s operating results are included in the consolidated financial statements. In accordance with ASC 810, “Consolidation,” the carrying value of the noncontrolling interest is reported in the consolidated balance sheets as a separate component of equity, and both consolidated net income (loss) and comprehensive income (loss) have been adjusted to include the net income attributable to the noncontrolling interest.
| |
| Note 16 | International Retirement PlansPlan |
The Company sponsors a non-contributory defined benefit pension plan for certain employees of anon-U.S. subsidiary initiated by a predecessor of the Company. The Company maintains insurance contracts
F-26
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
that provide an annuity that is used to fund the current obligations under this plan. The net present value of that annuity was $2,042$2,320 and $1,910$2,042 as of December 31, 20082009 and 2007,2008, respectively. The net present value of that annuity is included in Other assets on the Company’s consolidated balance sheet at December 31, 20082009 and 2007.2008.
The following table provides a reconciliation of the changes in the projected benefit obligation for the years ended December 31, 20082009 and 2007:2008:
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
Reconciliation of benefit obligations: | | | | | | | | | | | | | | | | |
| Obligations as of January 1 | | $ | 2,787 | | | $ | 2,708 | | | $ | 2,844 | | | $ | 2,787 | |
| Service cost | | | 204 | | | | 227 | | | | 173 | | | | 204 | |
| Interest cost | | | 154 | | | | 131 | | | | 164 | | | | 154 | |
| Actuarial gains | | | (109 | ) | | | (538 | ) | |
| Actuarial loss (gain) | | | | 86 | | | | (109 | ) |
| Benefit payments | | | (44 | ) | | | (36 | ) | | | (54 | ) | | | (44 | ) |
| Effect of foreign currency exchange rate changes | | | (148 | ) | | | 295 | | | | 80 | | | | (148 | ) |
| | | | | | | | | | | |
| Obligations as of December 31 | | $ | 2,844 | | | $ | 2,787 | | | $ | 3,293 | | | $ | 2,844 | |
| | | | | | | | | | | |
| Funded status as of December 31 (net of tax benefit) | | $ | (2,844 | ) | | $ | (2,787 | ) | | $ | (3,293 | ) | | $ | (2,844 | ) |
| | | | | | | | | | | |
The projected benefit obligation in the table above includes $(86), $109, $538 and $356$538 of unrecognized net gain (loss) for the years ended December 31, 2009, 2008 and 2007, and 2006, respectively. At December 31, 2009, the Company recorded this $86 loss, net of a $29 tax benefit, as a $57 adjustment to Accumulated other comprehensive income in accordance with ASC Section 715, “Compensation — Retirement Benefits.” At December 31, 2008, the Company recorded thisthe $109 gain, net of a $29 tax provision, as an $80 adjustment to Accumulated other comprehensive income in accordance with SFAS No. 158.income. At December 31, 2007, the Company recorded this $538 gain, net of a $156 tax provision, as a $382 adjustment to Accumulated other comprehensive income in accordance with SFAS No. 158. At December 31, 2006 the Company recorded this $356 of unrecognized loss, net of an $89 tax benefit, as a $267 adjustment to Accumulated other comprehensive income.
The Company has recognized the following amounts in the consolidated balance sheets at December 31, 20082009 and 2007:2008:
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
| Accrued liabilities | | $ | 43 | | | $ | 420 | | | $ | 55 | | | $ | 43 | |
| Other liabilities | | | 2,801 | | | | 2,367 | | | | 3,237 | | | | 2,801 | |
| Accumulated other comprehensive income | | | 195 | | | | 115 | | | | 138 | | | | 195 | |
| | | | | | | | | | | |
| Total | | $ | 3,039 | | | $ | 2,902 | | | $ | 3,430 | | | $ | 3,039 | |
| | | | | | | | | | | |
The following projected benefit obligation and accumulated benefit obligation were estimated as of December 31, 2009 and 2008:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Projected benefit obligation | | $ | 3,293 | | | $ | 2,844 | |
| | | | | | | | | |
| Accumulated benefit obligation | | $ | 3,084 | | | $ | 2,646 | |
| | | | | | | | | |
F-25F-27
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The following projected benefit obligation and accumulated benefit obligation were estimated as of December 31, 2008 and 2007:
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Projected benefit obligation | | $ | 2,844 | | | $ | 2,787 | |
| | | | | | | | | |
| Accumulated benefit obligation | | $ | 2,646 | | | $ | 2,433 | |
| | | | | | | | | |
The following table shows the components of net periodic benefit costs and other amounts recognized in other comprehensive income:
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
Net periodic benefit cost: | | | | | | | | | | | | | | | | |
| Service cost | | $ | 204 | | | $ | 227 | | | $ | 173 | | | $ | 204 | |
| Interest cost | | | 154 | | | | 131 | | | | 164 | | | | 154 | |
| | | | | | | | | | | |
| Total | | $ | 358 | | | $ | 358 | | | $ | 337 | | | $ | 358 | |
| | | | | | | |
Other changes in plan assets and benefit obligations recognized in other comprehensive income: | | | | | | | | | | | | | | | | |
| Net gain | | $ | 80 | | | $ | 382 | | |
| Amortization of net gains (losses) | | | — | | | | (5 | ) | |
| | | | | | | |
Total | | $ | 80 | | | $ | 377 | | |
| | | | | | | |
| Net (loss) gain | | | $ | (57 | ) | | $ | 80 | |
| Total expense (income) recognized in net periodic benefit cost and other comprehensive income | | $ | 278 | | | $ | (19 | ) | | $ | 394 | | | $ | 278 | |
| | | | | | | | | | | |
FollowingThe following assumptions are assumptions used to determine benefit obligations as of December 31:
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
| Discount rate | | | 5.85 | % | | | 5.60 | % | | | 5.75 | % | | | 5.85 | % |
| Rate of compensation | | | 1.50 | % | | | 1.50 | % | |
| Rate of increase in compensation | | | | 1.50 | % | | | 1.50 | % |
The following benefit payments, including expected future service cost, are expected to be paid:
| | | | | | | | | |
Estimated future benefit payments: | | | | | | | |
| 2009 | | $ | 75 | | |
| 2010 | | | 76 | | | $ | 77 | |
| 2011 | | | 130 | | | | 132 | |
| 2012 | | | 133 | | | | 134 | |
| 2013 | | | 161 | | | | 162 | |
| 2014 and thereafter | | | 909 | | | | 1,135 | |
| |
Note 1617 | Warranty Contracts |
The Company provides product warranties for up to one year as part of sales transactions for certain of its systems. Warranty revenue is recognized ratably over the term of the warranties, which is the period during which the related costs are incurred. This warranty provides the customer with maintenance on the equipment during the warranty period and provides for certain repair, labor and replacement parts that may be required.
F-26
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
In connection with this activity, the Company recognized warranty revenue and incurred warranty costs as shown in the table below:
Warranty Revenue RecognitionFurniture and Fixtures Lease
| | | | | | | | | | | | | | | | | |
| | | Beginning Balance
| | | Warranty
| | | Warranty
| | | Ending Balance
| |
| | | Deferred Warranty
| | | Revenue
| | | Revenue
| | | Deferred Warranty
| |
| | | Revenue | | | Deferred | | | Recognized | | | Revenue | |
| |
Year Ended December 31, | | | | | | | | | | | | | | | | |
| 2008 | | $ | 4,340 | | | $ | 5,058 | | | $ | (6,323 | ) | | $ | 3,075 | |
| 2007 | | | 3,723 | | | | 6,700 | | | | (6,083 | ) | | | 4,340 | |
| 2006 | | | 3,569 | | | | 6,005 | | | | (5,851 | ) | | | 3,723 | |
Warranty Costs Incurred
| | | | | | | | | | | | | |
| | | | | | Labor and
| | | | |
| | | Materials | | | Overhead | | | Total | |
| |
Year Ended December 31, | | | | | | | | | | | | |
| 2008 | | $ | 2,580 | | | $ | 3,619 | | | $ | 6,199 | |
| 2007 | | | 2,463 | | | | 3,009 | | | | 5,472 | |
| 2006 | | | 3,034 | | | | 4,117 | | | | 7,151 | |
The Company maintains a lease financing with a financial institution covering office furniture and fixtures. In accordance with ASC 840, the Company has recorded this lease as a capitalized lease. The terms of the lease require the Company to make monthly payments through October 2011. The implicit interest rate at December 31, 2009 and 2008 was 8.05%.
| |
Note 1713 | Computation of Net Loss per SharePreferred Stock |
The following is a reconciliationCompany had 5,000 shares of preferred stock that were authorized but unissued at December 31, 2009 and 2008. In connection with the numerator and denominatorstockholders’ rights plan approved by the Company’s Board of the basic and diluted loss per share computationsDirectors in December 2008, 1,000 shares of such preferred stock were authorized as Series A Preferred Stock but were unissued at December 31, 2009.
| |
| Note 14 | Stock-Based Compensation and Stockholders’ Rights Plan |
Stock-based compensation expense for vesting options was $0 for the years ended December 31, 2008,2009 and 2008. The Company recorded a $678 charge to operations in 2007 and 2006:for stock-based compensation related to options granted from 1998 through 2004.
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Numerator: | | | | | | | | | | | | |
| Net loss available to common stockholders — numerator for basic net loss per share | | $ | (6,154 | ) | | $ | (6,740 | ) | | $ | (30,694 | ) |
| Add: Effect of dilutive securities | | | | | | | | | | | | |
| Stock options, other equity compensation, convertible redeemable preferred stock and debentures | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Net loss available to common stockholders — numerator for dilutive net loss per share | | $ | (6,154 | ) | | $ | (6,740 | ) | | $ | (30,694 | ) |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Denominator for basic net loss per share-weighted average shares | | | 22,352 | | | | 20,631 | | | | 17,306 | |
| Add: Effect of dilutive securities | | | | | | | | | | | | |
| Stock options, other equity compensation, convertible redeemable preferred stock and debentures | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Denominator for dilutive net loss per share | | | 22,352 | | | | 20,631 | | | | 17,306 | |
| | | | | | | | | | | | | |
| Loss per share | | | | | | | | | | | | |
| Basic | | $ | (0.28 | ) | | $ | (0.33 | ) | | $ | (1.77 | ) |
| | | | | | | | | | | | | |
| Diluted | | $ | (0.28 | ) | | $ | (0.33 | ) | | $ | (1.77 | ) |
| | | | | | | | | | | | | |
Effective May 19, 2004, the Company adopted its 2004 Incentive Stock Plan (the “2004 Stock Plan”) and its 2004 Restricted Stock Plan for Non-Employee Directors (the “2004 Director Plan”). Effective upon the adoption of these Plans, all the Company’s previous stock option plans terminated, except with respect to options outstanding under those plans. As of December 31, 2009 and 2008, the aggregate number of shares of common stock underlying outstanding options issued under all previous stock option plans was 864 and 886, respectively, at an average exercise price per share of $9.20 and $9.12, respectively, with expiration dates through November 2013.
In 2009, the maximum number of shares of common stock that are reserved for issuance under the 2004 Stock Plan was increased from 1,000 to 2,000. Total awards issued under this plan, net of repurchases, amounted to 314 shares of restricted stock in 2009, 12 shares of restricted stock in 2008, and 46 shares of restricted stock in 2007. The Company estimated the future value associated with awards granted in 2009, 2008, and 2007 as $2,200, $542, and $1,384, respectively, which is calculated based on the fair market value of the common stock on the date of grant less the amount paid by the recipient and is expensed over the vesting period of each award. The compensation expense recognized in 2009, 2008, and 2007 was $1,044, $1,216, and $1,677, respectively. Each of these awards was made with a vesting period of three years from the date of grant and required the recipient to pay the lesser of $1.00 for each share or an amount equal to ten percent of the fair market value of the Company’s common stock per share at the date of grant.
The purpose of this Plan is to provide an incentive that permits the persons responsible for the Company’s growth to share directly in that growth and to further the identity of their interests with the interests of the Company’s stockholders. Any person who is an employee of or consultant to the Company, or a subsidiary or
F-24
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
an affiliate of the Company, is eligible to be considered for the grant of restricted stock awards, stock options or performance awards pursuant to the 2004 Stock Plan. The 2004 Stock Plan is administered by the Compensation Committee of the Board of Directors, which, pursuant to the provisions of the 2004 Stock Plan, has the sole authority to determine recipients of awards under that plan, the number of shares to be covered by such awards and the terms and conditions of each award. The 2004 Stock Plan may be amended, altered or discontinued at the sole discretion of the Board of Directors at any time.
The 2004 Director Plan provides for the grant of up to 200 shares of common stock to non-employee directors (as defined in the Plan) of the Company, subject to adjustment in accordance with the terms of the Plan. The purpose of this Plan is to attract, retain and motivate non-employee directors of exceptional ability and to promote the common interests of directors and stockholders in enhancing the value of the Company’s common stock. Each non-employee director of the Company is eligible to participate in this Plan upon their election to the Board of Directors. The Plan provides for initial grants of 1 shares of common stock to each newly elected non-employee director, annual grants of 3 shares of common stock as of the close of business on the date of each annual meeting of stockholders, and interim grants of 3 shares of common stock, or a pro rata portion thereof, to non-employee directors elected at meetings other than the annual meeting. The issue price of common stock awarded under this Plan is equal to the par value per share of the common stock. The Company accounts for the fair value of awards of common stock made under this Plan, net of the issue price, as director compensation expense in the period in which the award is made. During the years ended December 31, 2009, 2008, and 2007, the Company recorded $146, $221, and $314, respectively, as director compensation expense in connection with awards of 21 shares in 2009, 24 shares in 2008, and 15 shares in 2007 of common stock made to the non-employee directors of the Company pursuant to this Plan.
As of December 31, 2009, 86 and 1,368 shares of common stock were available for future grants under the 2004 Director Plan and the 2004 Stock Plan, respectively. The status of the Company’s stock options is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| | | | | | Weighted
| | | | | | Weighted
| | | | | | Weighted
| |
| | | | | | Average
| | | | | | Average
| | | | | | Average
| |
| | | | | | Exercise
| | | | | | Exercise
| | | | | | Exercise
| |
| | | Options | | | Price | | | Options | | | Price | | | Options | | | Price | |
| | | (Shares and options in thousands) | |
| |
| Outstanding at beginning of year | | | 886 | | | $ | 9.12 | | | | 1,084 | | | $ | 8.78 | | | | 1,356 | | | $ | 9.16 | |
| Exercised | | | (15 | ) | | | 5.63 | | | | (161 | ) | | | 6.73 | | | | (269 | ) | | | 10.62 | |
| Lapsed or canceled | | | (7 | ) | | | 6.72 | | | | (37 | ) | | | 9.39 | | | | (3 | ) | | | 14.95 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding at end of year | | | 864 | | | $ | 9.20 | | | | 886 | | | $ | 9.12 | | | | 1,084 | | | $ | 8.78 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Options exercisable at end of year | | | 864 | | | | | | | | 886 | | | | | | | | 1,084 | | | | | |
| Shares available for future option grants(1) | | | 1,368 | | | | | | | | 662 | | | | | | | | 729 | | | | | |
| | |
| (1) | | Assumes the issuance of options permitted by the 2004 Incentive Stock Plan. |
F-25
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes information about stock options outstanding at December 31, 2009:
| | | | | | | | | | | | | | | | | | | | | |
| | | Options Outstanding | | | Options Exercisable | |
| | | | | | Weighted
| | | | | | | | | | |
| | | | | | Average
| | | Weighted
| | | | | | Weighted
| |
| | | | | | Remaining
| | | Average
| | | | | | Average
| |
| | | Options
| | | Contractual
| | | Exercise
| | | Options
| | | Exercise
| |
Range: | | Outstanding | | | Life (Years) | | | Price | | | Outstanding | | | Price | |
| | | (Options in thousands) | |
| |
| $5.00 to $9.99 | | | 590 | | | | 3.69 | | | $ | 7.26 | | | | 590 | | | $ | 7.26 | |
| $10.00 to $14.99 | | | 164 | | | | 1.75 | | | | 12.02 | | | | 164 | | | | 12.02 | |
| $15.00 to $19.99 | | | 110 | | | | 1.57 | | | | 15.40 | | | | 110 | | | | 15.40 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | 864 | | | | 3.05 | | | $ | 9.20 | | | | 864 | | | $ | 9.20 | |
| | | | | | | | | | | | | | | | | | | | | |
The intrinsic value of the Company’s 864 outstanding stock options amounted to $2,409 at December 31, 2009.
In December 2008, the Company’s Board of Directors adopted a stockholder rights plan (the “Rights Plan”) and declared a dividend of one right for each share of the Company’s Common Stock held by stockholders of record as of the close of business on December 22, 2008. In addition, these rights shall be issued in respect of all shares of Common Stock issued after such date. Initially, these rights are not exercisable and trade with the shares of the Company’s Common Stock. Under the Rights Plan, these rights generally become exercisable only if a person or group acquires or commences a tender or exchange offer for 15 percent or more of the Company’s Common Stock (including, for this purpose, Common Stock involved in derivative transactions or securities). If the rights become exercisable, each right permits its holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock for the exercise price of $55.00 per right (subject to adjustment as provided in the Rights Plan). The Rights Plan also contains customary “flip-in” and “flip-over” provisions such that if a person or group acquires beneficial ownership of 15 percent or more of the Company’s Common Stock, each right permits its holder, other than the acquiring person or group, to purchase shares of the Company’s Common Stock for a price equal to the quotient obtained by dividing $55.00 per right (subject to adjustment as provided in the plan) by one-half of the then current market price of the Company’s Common Stock. In addition, if, after a person acquires such ownership, the Company is later acquired in a merger or similar transaction, each right permits its holder, other than the acquiring person or group, to purchase shares of the acquiring corporation’s stock for a price equal to the quotient obtained by dividing $55.00 per right (subject to adjustment as provided in the plan) by one-half of the then current market price of the acquiring company’s Common Stock, based on the market price of the acquiring corporation’s stock prior to such merger.
| |
| Note 15 | Noncontrolling Interest |
In May 2009, the Company formed MQast, LLC (“MQast”), a joint venture with an unrelated third party. MQast is an online provider of rapid, high-quality complex metal parts. The Company maintains a 51% ownership interest in MQast, and MQast’s operating results are included in the consolidated financial statements. In accordance with ASC 810, “Consolidation,” the carrying value of the noncontrolling interest is reported in the consolidated balance sheets as a separate component of equity, and both consolidated net income (loss) and comprehensive income (loss) have been adjusted to include the net income attributable to the noncontrolling interest.
| |
| Note 16 | International Retirement Plan |
The Company sponsors a non-contributory defined benefit pension plan for certain employees of anon-U.S. subsidiary initiated by a predecessor of the Company. The Company maintains insurance contracts
F-26
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
that provide an annuity that is used to fund the current obligations under this plan. The net present value of that annuity was $2,320 and $2,042 as of December 31, 2009 and 2008, respectively. The net present value of that annuity is included in Other assets on the Company’s consolidated balance sheet at December 31, 2009 and 2008.
The following table provides a reconciliation of the changes in the projected benefit obligation for the years ended December 31, 2009 and 2008:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
Reconciliation of benefit obligations: | | | | | | | | |
| Obligations as of January 1 | | $ | 2,844 | | | $ | 2,787 | |
| Service cost | | | 173 | | | | 204 | |
| Interest cost | | | 164 | | | | 154 | |
| Actuarial loss (gain) | | | 86 | | | | (109 | ) |
| Benefit payments | | | (54 | ) | | | (44 | ) |
| Effect of foreign currency exchange rate changes | | | 80 | | | | (148 | ) |
| | | | | | | | | |
| Obligations as of December 31 | | $ | 3,293 | | | $ | 2,844 | |
| | | | | | | | | |
| Funded status as of December 31 (net of tax benefit) | | $ | (3,293 | ) | | $ | (2,844 | ) |
| | | | | | | | | |
The projected benefit obligation in the table above includes $(86), $109, and $538 of unrecognized net gain (loss) for the years ended December 31, 2009, 2008 and 2007, respectively. At December 31, 2009, the Company recorded this $86 loss, net of a $29 tax benefit, as a $57 adjustment to Accumulated other comprehensive income in accordance with ASC Section 715, “Compensation — Retirement Benefits.” At December 31, 2008, the Company recorded the $109 gain, net of a $29 tax provision, as an $80 adjustment to Accumulated other comprehensive income. At December 31, 2007, the Company recorded this $538 gain, net of a $156 tax provision, as a $382 adjustment to Accumulated other comprehensive income.
The Company has recognized the following amounts in the consolidated balance sheets at December 31, 2009 and 2008:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Accrued liabilities | | $ | 55 | | | $ | 43 | |
| Other liabilities | | | 3,237 | | | | 2,801 | |
| Accumulated other comprehensive income | | | 138 | | | | 195 | |
| | | | | | | | | |
| Total | | $ | 3,430 | | | $ | 3,039 | |
| | | | | | | | | |
The following projected benefit obligation and accumulated benefit obligation were estimated as of December 31, 2009 and 2008:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Projected benefit obligation | | $ | 3,293 | | | $ | 2,844 | |
| | | | | | | | | |
| Accumulated benefit obligation | | $ | 3,084 | | | $ | 2,646 | |
| | | | | | | | | |
F-27
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
ForThe following table shows the years ended December 31, 2008, 2007components of net periodic benefit costs and 2006, potentially dilutive shares of 531, 1,084 and 2,739, respectively, were excluded from the calculation of potentially dilutive shares for those years because their effect would have been anti-dilutive.other amounts recognized in other comprehensive income:
| |
Note 18 | Supplemental Cash Flow Information |
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
Net periodic benefit cost: | | | | | | | | |
| Service cost | | $ | 173 | | | $ | 204 | |
| Interest cost | | | 164 | | | | 154 | |
| | | | | | | | | |
| Total | | $ | 337 | | | $ | 358 | |
Other changes in plan assets and benefit obligations recognized in other comprehensive income: | | | | | | | | |
| Net (loss) gain | | $ | (57 | ) | | $ | 80 | |
| Total expense (income) recognized in net periodic benefit cost and other comprehensive income | | $ | 394 | | | $ | 278 | |
| | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Interest payments | | $ | 939 | | | $ | 1,833 | | | $ | 1,522 | |
| Income tax payments | | | 692 | | | | 1,776 | | | | 1,064 | |
| Non-cash items: | | | | | | | | | | | | |
| Acquisition of property and equipment via capitalized leases | | | — | | | | — | | | | 9,038 | |
| Conversion of 6% convertible subordinated debentures | | | — | | | | 15,354 | | | | 7,250 | |
| Conversion of Series B convertible redeemable preferred stock | | | — | | | | — | | | | 15,242 | |
| Accrued dividends on preferred stock | | | — | | | | — | | | | 1,003 | |
| Transfer of equipment from inventory to property and equipment(a) | | | 4,615 | | | | 1,644 | | | | 2,602 | |
| Transfer of equipment to inventory from property and equipment(b) | | | 2,395 | | | | 946 | | | | 3,064 | |
| | |
(a) | | Inventory is transferred from inventory to property and equipment at cost when the Company requires additional machines for training, demonstration and short-term rentals. |
|
(b) | | In general, an asset is transferred from property and equipment into inventory at its net book value when the Company has identified a potential sale for a used machine. The machine is removed from inventory upon recognition of the sale. |
| |
Note 19 | Fair Value Measurements |
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157,“Fair Value Measurements.” SFAS No. 157 introduced a framework for measuring fair value and expanded required disclosure about fair value measurement of assets and liabilities. For financial assets and liabilities, SFAS No. 157 was effective for fiscal years beginning after November 15, 2007. The Company adopted the standard for those assets and liabilities as of January 1, 2008, and the impact of adoption was not significant.
SFAS No. 157 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. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs that may be used to measure fair value:
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.
The Company utilizes the market approachfollowing assumptions are used 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.determine benefit obligations as of December 31:
F-28
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| |
| Description | | | | | | | | | | | | | | | | |
| Cash equivalents | | $ | 17,153 | | | $ | — | | | $ | — | | | $ | 17,153 | |
| Currency derivative contracts(1) | | | 1,699 | | | | — | | | | — | | | | 1,699 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 18,852 | | | $ | — | | | $ | — | | | $ | 18,852 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Discount rate | | | 5.75 | % | | | 5.85 | % |
| Rate of increase in compensation | | | 1.50 | % | | | 1.50 | % |
The following benefit payments, including expected future service cost, are expected to be paid:
| | |
(1) | | Unrealized gains or losses on derivatives are recorded in the statement of operations at each measurement date. |
The fair market value of Level 1 currency derivative contracts at December 31, 2008 and December 31, 2007 was as follows:
| | | | | | | | | |
| | | Foreign Currency
| |
| | | Purchase Contracts | |
| | | 2008 | | | 2007 | |
| |
| Notional amount | | $ | 1,680 | | | $ | 2,905 | |
| Fair value | | | 1,699 | | | | 2,891 | |
| | | | | | | | | |
| Net unrealized gain (loss) | | $ | 19 | | | $ | (14 | ) |
| | | | | | | | | |
| | | | | |
Estimated future benefit payments: | | | | |
| 2010 | | $ | 77 | |
| 2011 | | | 132 | |
| 2012 | | | 134 | |
| 2013 | | | 162 | |
| 2014 and thereafter | | | 1,135 | |
The components of the Company’s income (loss) before income taxes are as follows:
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Income (loss) before income taxes: | | | | | | | | | | | | |
| Domestic | | $ | (11,047 | ) | | $ | (9,140 | ) | | $ | (30,817 | ) |
| Foreign | | | 5,187 | | | | 2,891 | | | | 3,716 | |
| | | | | | | | | | | | | |
| Total | | $ | (5,860 | ) | | $ | (6,249 | ) | | $ | (27,101 | ) |
| | | | | | | | | | | | | |
The components of income tax provision for the years ended December 31, 2008, 2007 and 2006 are as follows:
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Current: | | | | | | | | | | | | |
| U.S. federal | | $ | (97 | ) | | $ | — | | | $ | (56 | ) |
| State | | | 17 | | | | — | | | | 14 | |
| Foreign | | | 617 | | | | 759 | | | | 469 | |
| | | | | | | | | | | | | |
| Total | | | 537 | | | | 759 | | | | 427 | |
| | | | | | | | | | | | | |
| Deferred: | | | | | | | | | | | | |
| U.S. federal | | | — | | | | — | | | | 2,500 | |
| State | | | — | | | | — | | | | — | |
| Foreign | | | (243 | ) | | | (268 | ) | | | (748 | ) |
| | | | | | | | | | | | | |
| Total | | | (243 | ) | | | (268 | ) | | | 1,752 | |
| | | | | | | | | | | | | |
| Total income tax provision | | $ | 294 | | | $ | 491 | | | $ | 2,179 | |
| | | | | | | | | | | | | |
F-29
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The overall effective tax rate differs from the statutory federal tax rate for the years ended December 31, 2008, 2007 and 2006 as follows:
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
% of Pretax Income (Loss) | | | | | | | | | | | | |
| Tax provision based on the federal statutory rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
| Change in valuation allowances(1) | | | (46.0 | ) | | | (35.2 | ) | | | (60.2 | ) |
| Deemed income related to foreign operations(1) | | | (23.9 | ) | | | (15.9 | ) | | | — | |
| Non-deductible expenses | | | 3.4 | | | | (4.7 | ) | | | 0.5 | |
| State taxes, net of federal benefit, before valuation allowance | | | 6.5 | | | | 6.5 | | | | 6.6 | |
| Impact of foreign tax settlement | | | 20.2 | | | | — | | | | — | |
| Return to provision adjustments, foreign current and deferred balances | | | (2.4 | ) | | | 6.6 | | | | 9.1 | |
| Foreign income tax rate differential | | | 2.7 | | | | 0.9 | | | | — | |
| Other | | | (0.5 | ) | | | (1.1 | ) | | | 1.0 | |
| | | | | | | | | | | | | |
| Effective tax rate | | | (5.0 | )% | | | (7.9 | )% | | | (8.0 | )% |
| | | | | | | | | | | | | |
| | |
(1) | | 2007 amounts have been changed to conform with the 2008 presentation |
The difference between the Company’s effective tax rates for 2008, 2007 and 2006 and the federal statutory rate resulted primarily from the favorable settlement of a tax audit for the years 2000 to 2005 with a foreign tax authority. This settlement reduced 2008 income tax expense by $1,185, as amounts owing under the settlement are less than the estimated amounts previously recorded by the Company. The settlement allows the Company to recognize tax loss carry-forwards, resulting in an increase in our deferred tax asset of $911. In addition, the difference in the effective tax rates and the federal statutory rate also were affected by changes in the valuation allowances discussed below.
In 2008, the Company’s valuation allowance against net deferred income tax assets increased by $26. This increase consisted of a $151 increase against the U.S. deferred income tax assets and a $125 decrease in the valuation allowance against foreign deferred income tax assets. The increase in the valuation allowance against the net U.S. deferred income tax assets resulted primarily from the increase in the Company’s domestic net operating losses. In 2007, the Company’s valuation allowance against net deferred income tax assets decreased by $817. This decrease consisted of a $2,177 increase against the U.S. deferred income tax assets and a $2,994 decrease in the valuation allowance against foreign deferred income tax assets. The increase in the valuation allowance against the net U.S. deferred income tax assets resulted primarily from the increase in the Company’s domestic net operating losses.
The increase in the valuation allowance against the net U.S. deferred income tax assets in 2006 resulted primarily from the increase in the Company’s domestic net operating losses and the reversal of the $2,500 net deferred income tax asset previously recorded at December 31, 2005 on its consolidated balance sheet. This deferred income tax asset was recorded at December 31, 2005 after the Company determined that it was more likely than not that it would be able to utilize a portion of its deferred income tax assets attributable to its U.S. income. As a result of the losses incurred during 2006 and the related prospects for the future, the Company believed that recording a valuation allowance against this deferred income tax asset was prudent and appropriate in accordance with SFAS No. 109, “Accounting for Income Taxes.”
In light of the improvement in the Company’s foreign operations and management’s adoption of transfer pricing strategies that should result in future foreign taxable income, the Company determined at December 31, 2007 and 2006 that it is more likely than not that it would be able to utilize a portion of its deferred income tax assets attributable to foreign income taxes, and the Company accordingly reversed $389 and $748 of its valuation allowance and recognized a corresponding benefit against its income tax provision in the consolidated statement of operations for the years ended December 31, 2007 and 2006, respectively.
F-30
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The components of the Company’s net deferred income tax assets at December 31, 2008 and 2007 are as follows:
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Deferred income tax assets: | | | | | | | | |
| Tax credit carry-forwards | | $ | 6,465 | | | $ | 6,435 | |
| Net operating loss carry-forwards | | | 27,803 | | | | 25,979 | |
| Reserves and allowances | | | 2,314 | | | | 2,077 | |
| Accrued liabilities | | | 478 | | | | 1,429 | |
| Intangibles | | | 2,323 | | | | 2,142 | |
| Stock options and awards | | | 1,803 | | | | 1,703 | |
| Deferred lease revenue | | | 74 | | | | 230 | |
| Deferred revenue | | | 19 | | | | 55 | |
| | | | | | | | | |
| Gross deferred income tax assets | | | 41,279 | | | | 40,050 | |
| Valuation allowance | | | (38,326 | ) | | | (38,300 | ) |
| | | | | | | | | |
| Total deferred income tax assets | | | 2,953 | | | | 1,750 | |
| Deferred income tax liabilities: | | | | | | | | |
| Property, plant & equipment | | | 2,018 | | | | 1,057 | |
| | | | | | | | | |
| Total deferred income tax liabilities | | | 2,018 | | | | 1,057 | |
| | | | | | | | | |
| Net deferred income tax assets | | $ | 935 | | | $ | 693 | |
| | | | | | | | | |
The Company accounts for income taxes in accordance with SFAS No. 109. Under SFAS No. 109, deferred income tax assets and liabilities are determined based on the difference between financial statement and tax bases of assets and liabilities, using enacted rates in effect for the year in which the differences are expected to reverse. The provision for income taxes is based on domestic and international statutory income tax rates in the jurisdictions in which the Company operates.
At December 31, 2008, $27,803 of the Company’s deferred income tax assets was attributable to $124,924 of net operating loss carry-forwards, which consisted of $70,963 of loss carry-forwards for U.S. federal income tax purposes, $51,689 of loss carry-forwards for U.S. state income tax purposes and $2,272 of loss carry-forwards for foreign income tax purposes.
At December 31, 2007, $25,979 of the Company’s deferred income tax assets was attributable to $114,324 of net operating loss carry-forwards, which consisted of $67,256 of loss carry-forwards for U.S. federal income tax purposes, $45,922 of loss carry-forwards for U.S. state income tax purposes and $1,146 of loss carry-forwards for foreign income tax purposes.
The Federal net operating loss carry-forwards set forth above exclude deductions for the exercise of stock options. The net operating loss attributable to the excess of the tax deduction for the exercise of the stock options over the cumulative expense that would be recorded under FAS 123(R) in the financial statements is not recorded as a deferred income tax asset. The benefit of the excess deduction of $6,603 will be recorded to additional paid-in capital when the Company realizes a reduction in its current taxes payable.
At December 31, 2008 and 2007, approximately $5,897 of the federal net operating loss carry-forwards were acquired as part of the DTM acquisition in 2001 and are subject to the annual limitation of loss deduction pursuant to Section 382 of the Internal Revenue Code of 1986, as amended. The net operating loss carry-forwards acquired as part of the DTM acquisition and certain loss carry-forwards for U.S. federal income tax purposes will begin to expire in 2017, and certain loss carry-forwards for U.S. state income tax purposes begin to expire in 2009. In addition, certain loss carry-forwards for foreign income tax purposes will begin to expire in 2017 and certain other loss carry-forwards for foreign purposes do not expire. Ultimate
F-31
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
utilization of these loss carry-forwards depends on future taxable earnings of the Company and its subsidiaries.
At December 31, 2008, tax credit carry-forwards included in the Company’s deferred income tax assets consisted of $3,049 of research and experimentation tax credit carry-forwards for U.S. federal income tax purposes, $2,563 of such tax credit carry-forwards for U.S. state income tax purposes, $515 of alternative minimum tax credit carry-forwards for U.S. federal income tax purposes and $338 of other state tax credits. At December 31, 2007, tax credit carry-forwards included in the Company’s deferred income tax assets consisted of $3,122 of research and experimentation tax credit carry-forwards for U.S. federal income tax purposes, $2,537 of such tax credit carry-forwards for U.S. state income tax purposes, $515 of alternative minimum tax credit carry-forwards for U.S. federal income tax purposes, $58 of other federal tax credits and $203 of other state tax credits. The alternative minimum tax credits and the state research and experimentation tax credits do not expire.
The Company has not provided for any taxes on approximately $4,762 of unremitted earnings of its foreign subsidiaries, as the Company intends to permanently reinvest all such earnings outside of the U.S. Quantifying the deferred tax liability, if any, associated with these undistributed earnings is not practical.
As a result of adoption of FIN 48, at January 1, 2007, the Company had recognized a $1,208 increase to its accumulated deficit in earnings that consisted of a $323 reduction in its deferred tax assets and the recording of an $885 long-term income tax payable in its consolidated balance sheet. In addition, the Company would have recognized a $3,734 increase to deferred tax assets for unrecognized benefits related to positions taken in prior periods, which would have affected accumulated deficit in earnings if it had not made, which it did, a corresponding increase in the valuation allowance maintained in its consolidated financial statements. For the years ended December 31, 2008 and 2007, the Company decreased its FIN 48 reserve by $521 and $3, and increased its unrecognized benefits by $289 and $267, respectively. The Company does not anticipate any additional unrecognized tax benefits during the next twelve months that would result in a material change to its consolidated financial position.
| | | | | | | | | |
Unrecognized Tax Benefits | | 2008 | | | 2007 | |
| |
| Balance at January 1 | | $ | 2,790 | | | $ | 2,526 | |
| Increases related to prior year tax positions | | | 373 | | | | 60 | |
| Decreases related to prior year tax positions | | | (59 | ) | | | (189 | ) |
| Increases related to current year tax positions | | | — | | | | 5 | |
| Decreases related to current year tax positions | | | (9 | ) | | | (339 | ) |
| Decreases in unrecognized liability due to settlements with foreign tax authorities | | | (16 | ) | | | 727 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31 | | $ | 3,079 | | | $ | 2,790 | |
| | | | | | | | | |
The Company includes interest and penalties accrued in accordance with FIN 48 in the consolidated financial statements as a component of income tax expense.
The principal tax jurisdictions in which the Company files income tax returns are the United States, France, Germany, Japan, Italy, Switzerland and the United Kingdom. Tax years 2005 through 2008 remain subject to examination by the U.S. Internal Revenue Service. Should the Company utilize any of its U.S. loss carry- forwards, its losses, which date back to 1997, would be subject to examination. The Company’snon-U.S. subsidiaries tax returns are open to possible examination beginning in the year shown in parentheses in the following countries: France (2004), Germany (2006), Japan (2003), Italy (2004), Switzerland (2004) and United Kingdom (2006).
F-32
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
| |
Note 21 | Segment InformationWarranty Contracts |
The Company operates inprovides product warranties for up to one reportable business segment in which it develops, manufactures and markets worldwide3-D printing, rapid prototyping and manufacturing systems designed to reduce the time it takes to produce three-dimensional objects. The Company conducts its business through subsidiaries in the U.S, a subsidiary in Switzerland that operates a research and production facility andyear as part of sales and service offices operated by subsidiaries in the European Community (France, Germany, the United Kingdom, Italy and Switzerland) and in Asia (Japan and Hong Kong.) The Company has historically disclosed summarized financial informationtransactions for the geographic areas of operations as if they were segments in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.”
Such summarized financial information concerning the Company’s geographical operations is shown in the following tables:
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Revenue from unaffiliated customers: | | | | | | | | | | | | |
| United States | | $ | 54,766 | | | $ | 65,502 | | | $ | 58,646 | |
| Germany | | | 32,307 | | | | 34,773 | | | | 24,144 | |
| Other Europe | | | 29,807 | | | | 34,047 | | | | 29,740 | |
| Asia Pacific | | | 22,060 | | | | 22,194 | | | | 22,290 | |
| | | | | | | | | | | | | |
| Total | | $ | 138,940 | | | $ | 156,516 | | | $ | 134,820 | |
| | | | | | | | | | | | | |
The Company’s revenue from unaffiliated customers by type is as follows:
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Systems and other products | | $ | 41,323 | | | $ | 58,178 | | | $ | 46,463 | |
| Materials | | | 62,290 | | | | 61,969 | | | | 52,062 | |
| Services | | | 35,327 | | | | 36,369 | | | | 36,295 | |
| | | | | | | | | | | | | |
| Total revenue | | $ | 138,940 | | | $ | 156,516 | | | $ | 134,820 | |
| | | | | | | | | | | | | |
Intercompany sales were as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2008 | |
| | | Intercompany Sales to | |
| | | United
| | | | | | Other
| | | Asia
| | | | |
| | | States | | | Germany | | | Europe | | | Pacific | | | Total | |
| |
| United States | | $ | — | | | $ | 19,670 | | | $ | 11,677 | | | $ | 12,988 | | | $ | 44,335 | |
| Germany | | | 1,406 | | | | — | | | | 5,873 | | | | — | | | | 7,279 | |
| Other Europe | | | 6,766 | | | | 236 | | | | — | | | | 1 | | | | 7,003 | |
| Asia Pacific | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 8,172 | | | $ | 19,906 | | | $ | 17,550 | | | $ | 12,989 | | | $ | 58,617 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2007 | |
| | | Intercompany Sales to | |
| | | United
| | | | | | Other
| | | Asia
| | | | |
| | | States | | | Germany | | | Europe | | | Pacific | | | Total | |
| |
| United States | | $ | — | | | $ | 21,333 | | | $ | 11,797 | | | $ | 15,783 | | | $ | 48,913 | |
| Germany | | | 445 | | | | — | | | | 6,793 | | | | 90 | | | | 7,328 | |
| Other Europe | | | 6,973 | | | | 260 | | | | — | | | | — | | | | 7,233 | |
| Asia Pacific | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 7,418 | | | $ | 21,593 | | | $ | 18,590 | | | $ | 15,873 | | | $ | 63,474 | |
| | | | | | | | | | | | | | | | | | | | | |
F-33
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2006 | |
| | | Intercompany Sales to | |
| | | United
| | | | | | Other
| | | Asia
| | | | |
| | | States | | | Germany | | | Europe | | | Pacific | | | Total | |
| |
| United States | | $ | — | | | $ | 15,201 | | | $ | 12,271 | | | $ | 13,609 | | | $ | 41,081 | |
| Germany | | | 266 | | | | — | | | | 3,593 | | | | 301 | | | | 4,160 | |
| Other Europe | | | 5,722 | | | | 145 | | | | — | | | | 61 | | | | 5,928 | |
| Asia Pacific | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 5,988 | | | $ | 15,346 | | | $ | 15,864 | | | $ | 13,971 | | | $ | 51,169 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Income (loss) from operations: | | | | | | | | | | | | |
| United States | | $ | (10,656 | ) | | $ | (9,924 | ) | | $ | (28,888 | ) |
| Germany | | | 1,080 | | | | 430 | | | | 1,608 | |
| Other Europe | | | 2,373 | | | | 1,110 | | | | 1,621 | |
| Asia Pacific | | | 1,764 | | | | 2,127 | | | | 1,770 | |
| | | | | | | | | | | | | |
| Subtotal | | | (5,439 | ) | | | (6,257 | ) | | | (23,889 | ) |
| Inter-segment elimination | | | 349 | | | | 1,128 | | | | (1,802 | ) |
| | | | | | | | | | | | | |
| Total | | $ | (5,090 | ) | | $ | (5,129 | ) | | $ | (25,691 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Assets: | | | | | | | | |
| United States | | $ | 61,974 | | | $ | 79,691 | |
| Germany | | | 25,762 | | | | 24,279 | |
| Other Europe | | | 43,396 | | | | 48,459 | |
| Asia Pacific | | | 21,870 | | | | 14,956 | |
| | | | | | | | | |
| Total | | $ | 153,002 | | | $ | 167,385 | |
| | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Depreciation and amortization: | | | | | | | | | | | | |
| United States | | $ | 5,830 | | | $ | 6,216 | | | $ | 5,668 | |
| Germany | | | 287 | | | | 379 | | | | 324 | |
| Other Europe | | | 362 | | | | 309 | | | | 334 | |
| Asia Pacific | | | 197 | | | | 66 | | | | 203 | |
| | | | | | | | | | | | | |
| Total | | $ | 6,676 | | | $ | 6,970 | | | $ | 6,529 | |
| | | | | | | | | | | | | |
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Long-lived assets: | | | | | | | | |
| United States | | $ | 20,867 | | | $ | 27,341 | |
| Germany | | | 15,235 | | | | 12,627 | |
| Other Europe | | | 28,611 | | | | 29,397 | |
| Asia Pacific | | | 13,986 | | | | 7,399 | |
| | | | | | | | | |
| Total | | $ | 78,699 | | | $ | 76,764 | |
| | | | | | | | | |
F-34
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Capital expenditures: | | | | | | | | | | | | |
| North America | | $ | 3,162 | | | $ | 854 | | | $ | 9,114 | |
| Germany | | | 596 | | | | 21 | | | | 541 | |
| Other Europe | | | 1,024 | | | | 39 | | | | 445 | |
| Asia Pacific | | | 1,029 | | | | 32 | | | | — | |
| | | | | | | | | | | | | |
| Total | | $ | 5,811 | | | $ | 946 | | | $ | 10,100 | |
| | | | | | | | | | | | | |
| |
Note 22 | Lease Obligations |
The Company leases certain of its facilities and equipment under capitalized leases and other facilities and equipment under non-cancelable operating leases. The leases are generally on a net-rent basis, under which the Company pays taxes, maintenance and insurance. Leases that expire at various dates through 2031 are expected to be renewed or replaced by leases on other properties. Rental expense for the years ended December 31, 2008, 2007 and 2006 aggregated $1,843, $2,702 and $2,367, respectively.
The Company’s future minimum lease payments as of December 31, 2008 under capitalized leases and non-cancelable operating leases, with initial or remaining lease terms in excess of one year, were as follows:
| | | | | | | | | |
| | | Capitalized
| | | Operating
| |
| | | Leases | | | Leases | |
| |
Years ending December 31: | | | | | | | | |
| 2009 | | $ | 795 | | | $ | 1,309 | |
| 2010 | | | 795 | | | | 845 | |
| 2011 | | | 786 | | | | 687 | |
| 2012 | | | 701 | | | | 417 | |
| 2013 | | | 701 | | | | 192 | |
| Later years | | | 13,701 | | | | — | |
| | | | | | | | | |
| Total minimum lease payments | | | 17,479 | | | $ | 3,450 | |
| | | | | | | | | |
| Less amounts representing imputed interest | | | (8,817 | ) | | | | |
| | | | | | | | | |
| Present value of minimum lease payments | | | 8,662 | | | | | |
| Less current portion of capitalized lease obligations | | | (195 | ) | | | | |
| | | | | | | | | |
| Capitalized lease obligations, excluding current portion | | $ | 8,467 | | | | | |
| | | | | | | | | |
Rock Hill Facility
The Company took occupancy of its current headquarters and research and development facility in November 2006. The Company leases that facility pursuant to a lease agreement with KDC-Carolina Investments 3, LP. After its initial term ending August 31, 2021, the lease provides the Company with the option to renew the lease for two additional five-year terms. The lease also grants the Company the right to cause KDC, subject to certain terms and conditions, to expand the leased premises duringsystems. Warranty revenue is recognized ratably over the term of the lease, inwarranties, which caseis the term ofperiod during which the lease would be extended. The lease is a triple net leaserelated costs are incurred. This warranty provides the customer with maintenance on the equipment during the warranty period and provides for the payment of base rent of approximately $0.1 million in 2006, $0.7 million annually from 2007 through 2020, including rent escalations in 2011certain repair, labor and 2016, and $0.5 million in 2021. Under the terms of the lease,replacement parts that may be required. In connection with this activity, the Company is obligated to pay all taxes, insurance, utilitiesrecognized warranty revenue and other operatingincurred warranty costs with respect toas shown in the leased premises. The lease also grants the Company the right to purchase the leased premises and undeveloped land
F-35
3D Systems Corporationtable below:
Notes to Consolidated Financial Statements — (Continued)
surrounding the leased premises on terms and conditions described more particularly in the lease. This lease is recorded as a capitalized lease obligation under Statement of Financial Accounting Standards No. 13, “Accounting for Leases.” The implicit interest rate at December 31, 2008 and 2007 was 6.93%.
Furniture and Fixtures Lease
In November 2006, theThe Company entered intomaintains a lease financing with a financial institution covering office furniture and fixtures. In accordance with SFAS No. 13,ASC 840, the Company has recorded this lease as a capitalized lease. The terms of the lease require the Company to make monthly payments through October 2011. The implicit interest rate at December 31, 2009 and 2008 was 8.05%.
The Company had 5,000 shares of preferred stock that were authorized but unissued at December 31, 2009 and 2008. In connection with the stockholders’ rights plan approved by the Company’s Board of Directors in December 2008, 1,000 shares of such preferred stock were authorized as Series A Preferred Stock but were unissued at December 31, 2009.
| |
| Note 14 | Stock-Based Compensation and Stockholders’ Rights Plan |
Stock-based compensation expense for vesting options was $0 for the years ended December 31, 2009 and 2008. The Company recorded a $678 charge to operations in 2007 for stock-based compensation related to options granted from 1998 through 2004.
Effective May 19, 2004, the Company adopted its 2004 Incentive Stock Plan (the “2004 Stock Plan”) and its 2004 Restricted Stock Plan for Non-Employee Directors (the “2004 Director Plan”). Effective upon the adoption of these Plans, all the Company’s previous stock option plans terminated, except with respect to options outstanding under those plans. As of December 31, 2009 and 2008, the aggregate number of shares of common stock underlying outstanding options issued under all previous stock option plans was 864 and 886, respectively, at an average exercise price per share of $9.20 and $9.12, respectively, with expiration dates through November 2013.
In 2009, the maximum number of shares of common stock that are reserved for issuance under the 2004 Stock Plan was increased from 1,000 to 2,000. Total awards issued under this plan, net of repurchases, amounted to 314 shares of restricted stock in 2009, 12 shares of restricted stock in 2008, and 46 shares of restricted stock in 2007. The Company estimated the future value associated with awards granted in 2009, 2008, and 2007 as $2,200, $542, and $1,384, respectively, which is calculated based on the fair market value of the common stock on the date of grant less the amount paid by the recipient and is expensed over the vesting period of each award. The compensation expense recognized in 2009, 2008, and 2007 was 8.05%$1,044, $1,216, and $1,677, respectively. Each of these awards was made with a vesting period of three years from the date of grant and required the recipient to pay the lesser of $1.00 for each share or an amount equal to ten percent of the fair market value of the Company’s common stock per share at the date of grant.
The purpose of this Plan is to provide an incentive that permits the persons responsible for the Company’s growth to share directly in that growth and to further the identity of their interests with the interests of the Company’s stockholders. Any person who is an employee of or consultant to the Company, or a subsidiary or
F-24
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
an affiliate of the Company, is eligible to be considered for the grant of restricted stock awards, stock options or performance awards pursuant to the 2004 Stock Plan. The 2004 Stock Plan is administered by the Compensation Committee of the Board of Directors, which, pursuant to the provisions of the 2004 Stock Plan, has the sole authority to determine recipients of awards under that plan, the number of shares to be covered by such awards and the terms and conditions of each award. The 2004 Stock Plan may be amended, altered or discontinued at the sole discretion of the Board of Directors at any time.
The 2004 Director Plan provides for the grant of up to 200 shares of common stock to non-employee directors (as defined in the Plan) of the Company, subject to adjustment in accordance with the terms of the Plan. The purpose of this Plan is to attract, retain and motivate non-employee directors of exceptional ability and to promote the common interests of directors and stockholders in enhancing the value of the Company’s common stock. Each non-employee director of the Company is eligible to participate in this Plan upon their election to the Board of Directors. The Plan provides for initial grants of 1 shares of common stock to each newly elected non-employee director, annual grants of 3 shares of common stock as of the close of business on the date of each annual meeting of stockholders, and interim grants of 3 shares of common stock, or a pro rata portion thereof, to non-employee directors elected at meetings other than the annual meeting. The issue price of common stock awarded under this Plan is equal to the par value per share of the common stock. The Company accounts for the fair value of awards of common stock made under this Plan, net of the issue price, as director compensation expense in the period in which the award is made. During the years ended December 31, 2009, 2008, and 2007, the Company recorded $146, $221, and $314, respectively, as director compensation expense in connection with awards of 21 shares in 2009, 24 shares in 2008, and 15 shares in 2007 of common stock made to the non-employee directors of the Company pursuant to this Plan.
As of December 31, 2009, 86 and 1,368 shares of common stock were available for future grants under the 2004 Director Plan and the 2004 Stock Plan, respectively. The status of the Company’s stock options is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| | | | | | Weighted
| | | | | | Weighted
| | | | | | Weighted
| |
| | | | | | Average
| | | | | | Average
| | | | | | Average
| |
| | | | | | Exercise
| | | | | | Exercise
| | | | | | Exercise
| |
| | | Options | | | Price | | | Options | | | Price | | | Options | | | Price | |
| | | (Shares and options in thousands) | |
| |
| Outstanding at beginning of year | | | 886 | | | $ | 9.12 | | | | 1,084 | | | $ | 8.78 | | | | 1,356 | | | $ | 9.16 | |
| Exercised | | | (15 | ) | | | 5.63 | | | | (161 | ) | | | 6.73 | | | | (269 | ) | | | 10.62 | |
| Lapsed or canceled | | | (7 | ) | | | 6.72 | | | | (37 | ) | | | 9.39 | | | | (3 | ) | | | 14.95 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding at end of year | | | 864 | | | $ | 9.20 | | | | 886 | | | $ | 9.12 | | | | 1,084 | | | $ | 8.78 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Options exercisable at end of year | | | 864 | | | | | | | | 886 | | | | | | | | 1,084 | | | | | |
| Shares available for future option grants(1) | | | 1,368 | | | | | | | | 662 | | | | | | | | 729 | | | | | |
| | |
| (1) | | Assumes the issuance of options permitted by the 2004 Incentive Stock Plan. |
F-25
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes information about stock options outstanding at December 31, 2009:
| | | | | | | | | | | | | | | | | | | | | |
| | | Options Outstanding | | | Options Exercisable | |
| | | | | | Weighted
| | | | | | | | | | |
| | | | | | Average
| | | Weighted
| | | | | | Weighted
| |
| | | | | | Remaining
| | | Average
| | | | | | Average
| |
| | | Options
| | | Contractual
| | | Exercise
| | | Options
| | | Exercise
| |
Range: | | Outstanding | | | Life (Years) | | | Price | | | Outstanding | | | Price | |
| | | (Options in thousands) | |
| |
| $5.00 to $9.99 | | | 590 | | | | 3.69 | | | $ | 7.26 | | | | 590 | | | $ | 7.26 | |
| $10.00 to $14.99 | | | 164 | | | | 1.75 | | | | 12.02 | | | | 164 | | | | 12.02 | |
| $15.00 to $19.99 | | | 110 | | | | 1.57 | | | | 15.40 | | | | 110 | | | | 15.40 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | 864 | | | | 3.05 | | | $ | 9.20 | | | | 864 | | | $ | 9.20 | |
| | | | | | | | | | | | | | | | | | | | | |
The intrinsic value of the Company’s 864 outstanding stock options amounted to $2,409 at December 31, 2009.
In December 2008, the Company’s Board of Directors adopted a stockholder rights plan (the “Rights Plan”) and declared a dividend of one right for each share of the Company’s Common Stock held by stockholders of record as of the close of business on December 22, 2008. In addition, these rights shall be issued in respect of all shares of Common Stock issued after such date. Initially, these rights are not exercisable and trade with the shares of the Company’s Common Stock. Under the Rights Plan, these rights generally become exercisable only if a person or group acquires or commences a tender or exchange offer for 15 percent or more of the Company’s Common Stock (including, for this purpose, Common Stock involved in derivative transactions or securities). If the rights become exercisable, each right permits its holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock for the exercise price of $55.00 per right (subject to adjustment as provided in the Rights Plan). The Rights Plan also contains customary “flip-in” and “flip-over” provisions such that if a person or group acquires beneficial ownership of 15 percent or more of the Company’s Common Stock, each right permits its holder, other than the acquiring person or group, to purchase shares of the Company’s Common Stock for a price equal to the quotient obtained by dividing $55.00 per right (subject to adjustment as provided in the plan) by one-half of the then current market price of the Company’s Common Stock. In addition, if, after a person acquires such ownership, the Company is later acquired in a merger or similar transaction, each right permits its holder, other than the acquiring person or group, to purchase shares of the acquiring corporation’s stock for a price equal to the quotient obtained by dividing $55.00 per right (subject to adjustment as provided in the plan) by one-half of the then current market price of the acquiring company’s Common Stock, based on the market price of the acquiring corporation’s stock prior to such merger.
| |
| Note 15 | Noncontrolling Interest |
In May 2009, the Company formed MQast, LLC (“MQast”), a joint venture with an unrelated third party. MQast is an online provider of rapid, high-quality complex metal parts. The Company maintains a 51% ownership interest in MQast, and MQast’s operating results are included in the consolidated financial statements. In accordance with ASC 810, “Consolidation,” the carrying value of the noncontrolling interest is reported in the consolidated balance sheets as a separate component of equity, and both consolidated net income (loss) and comprehensive income (loss) have been adjusted to include the net income attributable to the noncontrolling interest.
| |
| Note 16 | International Retirement Plan |
The Company sponsors a non-contributory defined benefit pension plan for certain employees of anon-U.S. subsidiary initiated by a predecessor of the Company. The Company maintains insurance contracts
F-26
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
that provide an annuity that is used to fund the current obligations under this plan. The net present value of that annuity was $2,320 and $2,042 as of December 31, 2009 and 2008, respectively. The net present value of that annuity is included in Other assets on the Company’s consolidated balance sheet at December 31, 2009 and 2008.
The following table provides a reconciliation of the changes in the projected benefit obligation for the years ended December 31, 2009 and 2008:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
Reconciliation of benefit obligations: | | | | | | | | |
| Obligations as of January 1 | | $ | 2,844 | | | $ | 2,787 | |
| Service cost | | | 173 | | | | 204 | |
| Interest cost | | | 164 | | | | 154 | |
| Actuarial loss (gain) | | | 86 | | | | (109 | ) |
| Benefit payments | | | (54 | ) | | | (44 | ) |
| Effect of foreign currency exchange rate changes | | | 80 | | | | (148 | ) |
| | | | | | | | | |
| Obligations as of December 31 | | $ | 3,293 | | | $ | 2,844 | |
| | | | | | | | | |
| Funded status as of December 31 (net of tax benefit) | | $ | (3,293 | ) | | $ | (2,844 | ) |
| | | | | | | | | |
The projected benefit obligation in the table above includes $(86), $109, and $538 of unrecognized net gain (loss) for the years ended December 31, 2009, 2008 and 2007, respectively. At December 31, 2009, the Company recorded this $86 loss, net of a $29 tax benefit, as a $57 adjustment to Accumulated other comprehensive income in accordance with ASC Section 715, “Compensation — Retirement Benefits.” At December 31, 2008, the Company recorded the $109 gain, net of a $29 tax provision, as an $80 adjustment to Accumulated other comprehensive income. At December 31, 2007, the Company recorded this $538 gain, net of a $156 tax provision, as a $382 adjustment to Accumulated other comprehensive income.
The Company has recognized the following amounts in the consolidated balance sheets at December 31, 2009 and 2008:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Accrued liabilities | | $ | 55 | | | $ | 43 | |
| Other liabilities | | | 3,237 | | | | 2,801 | |
| Accumulated other comprehensive income | | | 138 | | | | 195 | |
| | | | | | | | | |
| Total | | $ | 3,430 | | | $ | 3,039 | |
| | | | | | | | | |
The following projected benefit obligation and accumulated benefit obligation were estimated as of December 31, 2009 and 2008:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Projected benefit obligation | | $ | 3,293 | | | $ | 2,844 | |
| | | | | | | | | |
| Accumulated benefit obligation | | $ | 3,084 | | | $ | 2,646 | |
| | | | | | | | | |
F-27
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The following table shows the components of net periodic benefit costs and other amounts recognized in other comprehensive income:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
Net periodic benefit cost: | | | | | | | | |
| Service cost | | $ | 173 | | | $ | 204 | |
| Interest cost | | | 164 | | | | 154 | |
| | | | | | | | | |
| Total | | $ | 337 | | | $ | 358 | |
Other changes in plan assets and benefit obligations recognized in other comprehensive income: | | | | | | | | |
| Net (loss) gain | | $ | (57 | ) | | $ | 80 | |
| Total expense (income) recognized in net periodic benefit cost and other comprehensive income | | $ | 394 | | | $ | 278 | |
| | | | | | | | | |
The following assumptions are used to determine benefit obligations as of December 31:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Discount rate | | | 5.75 | % | | | 5.85 | % |
| Rate of increase in compensation | | | 1.50 | % | | | 1.50 | % |
The following benefit payments, including expected future service cost, are expected to be paid:
| | | | | |
Estimated future benefit payments: | | | | |
| 2010 | | $ | 77 | |
| 2011 | | | 132 | |
| 2012 | | | 134 | |
| 2013 | | | 162 | |
| 2014 and thereafter | | | 1,135 | |
| |
| Note 17 | Warranty Contracts |
The Company provides product warranties for up to one year as part of sales transactions for certain of its systems. Warranty revenue is recognized ratably over the term of the warranties, which is the period during which the related costs are incurred. This warranty provides the customer with maintenance on the equipment during the warranty period and provides for certain repair, labor and replacement parts that may be required. In connection with this activity, the Company recognized warranty revenue and incurred warranty costs as shown in the table below:
Warranty Revenue Recognition
| | | | | | | | | | | | | | | | | |
| | | Beginning Balance
| | Warranty
| | Warranty
| | Ending Balance
|
| | | Deferred Warranty
| | Revenue
| | Revenue
| | Deferred Warranty
|
| | | Revenue | | Deferred | | Recognized | | Revenue |
| |
Year Ended December 31, | | | | | | | | | | | | | | | | |
| 2009 | | $ | 3,075 | | | $ | 3,417 | | | $ | (3,815 | ) | | $ | 2,677 | |
| 2008 | | | 4,340 | | | | 5,058 | | | | (6,323 | ) | | | 3,075 | |
| 2007 | | | 3,723 | | | | 6,700 | | | | (6,083 | ) | | | 4,340 | |
F-28
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
Warranty Costs Incurred
| | | | | | | | | | | | | |
| | | | | Labor and
| | |
| | | Materials | | Overhead | | Total |
| |
Year Ended December 31, | | | | | | | | | | | | |
| 2009 | | $ | 1,288 | | | $ | 2,476 | | | $ | 3,764 | |
| 2008 | | | 2,580 | | | | 3,619 | | | | 6,199 | |
| 2007 | | | 2,463 | | | | 3,009 | | | | 5,472 | |
| |
| Note 18 | Computation of Net Income (Loss) per Share |
The following is a reconciliation of the numerator and denominator of the basic and diluted income (loss) per share computations for the years ended December 31, 2009, 2008 and 2007:
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Numerator: | | | | | | | | | | | | |
| Net income(loss) available to 3D Systems common stockholders: numerator for basic net income (loss) per share | | $ | 1,066 | | | $ | (6,154 | ) | | $ | (6,740 | ) |
| Add: Effect of dilutive securities | | | | | | | | | | | | |
| Stock options, other equity compensation, convertible redeemable preferred stock and debentures | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Net income (loss) available to 3D Systems common stockholders: numerator for dilutive net income (loss) per share | | $ | 1,066 | | | $ | (6,154 | ) | | $ | (6,740 | ) |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Denominator for basic net income (loss) per share: weighted average shares | | | 22,544 | | | | 22,352 | | | | 20,631 | |
| Add: Effect of dilutive securities | | | | | | | | | | | | |
| Stock options, other equity compensation, convertible redeemable preferred stock and debentures | | | 61 | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Denominator for dilutive net income (loss) per share | | | 22,605 | | | | 22,352 | | | | 20,631 | |
| | | | | | | | | | | | | |
| Income (loss) per share | | | | | | | | | | | | |
| Basic | | $ | 0.05 | | | $ | (0.28 | ) | | $ | (0.33 | ) |
| | | | | | | | | | | | | |
| Diluted | | $ | 0.05 | | | $ | (0.28 | ) | | $ | (0.33 | ) |
| | | | | | | | | | | | | |
For the years ended December 31, 2008 and 2007, potentially dilutive shares of 531 and 1,084, respectively, were excluded from the calculation of potentially dilutive shares for those years because their effect would have been anti-dilutive.
F-29
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
| |
| Note 19 | Supplemental Cash Flow Information |
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Interest payments | | $ | 622 | | | $ | 939 | | | $ | 1,833 | |
| Income tax (receipts) payments | | | (541 | ) | | | 692 | | | | 1,776 | |
| Non-cash items: | | | | | | | | | | | | |
| Conversion of 6% convertible subordinated debentures | | | — | | | | — | | | | 15,354 | |
| Transfer of equipment from inventory to property and equipment(a) | | | 1,323 | | | | 4,615 | | | | 1,644 | |
| Transfer of equipment to inventory from property and equipment(b) | | | 915 | | | | 2,395 | | | | 946 | |
| | |
| (a) | | Inventory is transferred from inventory to property and equipment at cost when the Company requires additional machines for training, demonstration, short-term rentals and use in its 3Dpropartstm service. |
|
| (b) | | In general, an asset is transferred from property and equipment into inventory at its net book value when the Company has identified a potential sale for a used machine. The machine is removed from inventory upon recognition of the sale. |
| |
| Note 20 | Fair Value Measurements |
ASC Section 820, “Fair Value Measurements and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs that may be used to measure fair value:
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.
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 December 31, 2009 | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| |
| Description | | | | | | | | | | | | | | | | |
| Cash equivalents | | $ | 19,481 | | | $ | — | | | $ | — | | | $ | 19,481 | |
| Currency derivative contracts(1) | | | 1,563 | | | | — | | | | — | | | | 1,563 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 21,044 | | | $ | — | | | $ | — | | | $ | 21,044 | |
| | | | | | | | | | | | | | | | | |
| | |
| (1) | | Unrealized gains or losses on derivatives are recorded in “Interest and other expense, net” in the condensed consolidated statements of operations at each measurement date. |
F-30
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The fair market value of Level 1 currency derivative contracts at December 31, 2009 and December 31, 2008 was as follows:
| | | | | | | | | |
| | | Foreign Currency
| |
| | | Purchase Contracts | |
| | | 2009 | | | 2008 | |
| |
| Notional amount | | $ | 1,587 | | | $ | 1,680 | |
| Fair value | | | 1,563 | | | | 1,699 | |
| | | | | | | | | |
| Net unrealized (loss) gain | | $ | (24 | ) | | $ | 19 | |
| | | | | | | | | |
The components of the Company’s income (loss) before income taxes are as follows:
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Income (loss) before income taxes: | | | | | | | | | | | | |
| Domestic | | $ | (734 | ) | | $ | (11,047 | ) | | $ | (9,140 | ) |
| Foreign | | | 2,647 | | | | 5,187 | | | | 2,891 | |
| | | | | | | | | | | | | |
| Total | | $ | 1,913 | | | $ | (5,860 | ) | | $ | (6,249 | ) |
| | | | | | | | | | | | | |
The components of income tax provision for the years ended December 31, 2009, 2008 and 2007 are as follows:
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Current: | | | | | | | | | | | | |
| U.S. federal | | $ | (41 | ) | | $ | (97 | ) | | $ | — | |
| State | | | — | | | | 17 | | | | — | |
| Foreign | | | 506 | | | | 617 | | | | 759 | |
| | | | | | | | | | | | | |
| Total | | | 465 | | | | 537 | | | | 759 | |
| | | | | | | | | | | | | |
| Deferred: | | | | | | | | | | | | |
| U.S. federal | | | — | | | | — | | | | — | |
| State | | | — | | | | — | | | | — | |
| Foreign | | | 309 | | | | (243 | ) | | | (268 | ) |
| | | | | | | | | | | | | |
| Total | | | 309 | | | | (243 | ) | | | (268 | ) |
| | | | | | | | | | | | | |
| Total income tax provision | | $ | 774 | | | $ | 294 | | | $ | 491 | |
| | | | | | | | | | | | | |
F-31
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The overall effective tax rate differs from the statutory federal tax rate for the years ended December 31, 2009, 2008 and 2007 as follows:
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
% of Pretax Income (Loss) | | | | | | | | | | | | |
| Tax provision based on the federal statutory rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
| Change in valuation allowances | | | (96.3 | ) | | | (46.0 | ) | | | (35.2 | ) |
| Deemed income related to foreign operations | | | 109.3 | | | | (23.9 | ) | | | (15.9 | ) |
| Non-deductible expenses | | | 1.3 | | | | 3.4 | | | | (4.7 | ) |
| State taxes, net of federal benefit, before valuation allowance | | | (1.4 | ) | | | 6.5 | | | | 6.5 | |
Impact of foreign tax settlement1 | | | (2.7 | ) | | | 21.4 | | | | — | |
| Return to provision adjustments, foreign current and deferred balances | | | (2.3 | ) | | | (2.4 | ) | | | 6.6 | |
| Foreign income tax rate differential | | | (3.8 | ) | | | 2.7 | | | | 0.9 | |
| Other(1) | | | 1.4 | | | | (1.2 | ) | | | (1.1 | ) |
| | | | | | | | | | | | | |
| Effective tax rate | | | 40.5 | % | | | (4.5 | )% | | | (7.9 | )% |
| | | | | | | | | | | | | |
| | |
| (1) | | 2008 amounts have been reclassified to conform with 2009 presentation |
The difference between the Company’s effective tax rates for 2009 and 2007 and the federal statutory rate resulted primarily from changes in valuation allowances and from the impact of deemed income related to foreign operations. The difference between the Company’s effective tax rate for 2008 and the federal statutory rate resulted primarily from the favorable settlement of a tax audit for the years 2000 to 2005 with a foreign tax authority and from changes in the valuation allowances.
In 2009, the Company’s valuation allowance against net deferred income tax assets increased by $401. This increase consisted of a $497 increase against the U.S. deferred income tax assets partially offset by a $96 decrease in the valuation allowance against foreign deferred income tax assets. The increase in the valuation allowance against the net U.S. deferred income tax assets resulted primarily from the increase in the Company’s domestic net operating losses. In 2008, the Company’s valuation allowance against net deferred income tax assets increased by $26. This increase consisted of a $151 increase against the U.S. deferred income tax assets and a $125 decrease in the valuation allowance against foreign deferred income tax assets. The increase in the valuation allowance against the net U.S. deferred income tax assets resulted primarily from the increase in the Company’s domestic net operating losses. In 2007, the Company’s valuation allowance against net deferred income tax assets decreased by $817. This decrease consisted of a $2,177 increase against the U.S. deferred income tax assets offset by a $2,994 decrease in the valuation allowance against foreign deferred income tax assets. The increase in the valuation allowance against the net U.S. deferred income tax assets resulted primarily from the increase in the Company’s domestic net operating losses.
In light of the improvement in the Company’s foreign operations and management’s adoption of transfer pricing strategies that should result in future foreign taxable income, the Company determined at December 31, 2007 that it is more likely than not that it would be able to utilize a portion of its deferred income tax assets attributable to foreign income taxes, and the Company accordingly reversed $389 of its valuation allowance and recognized a corresponding benefit against its income tax provision in the consolidated statement of operations for the year ended December 31, 2007.
F-32
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
The components of the Company’s net deferred income tax assets at December 31, 2009 and 2008 are as follows:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Deferred income tax assets: | | | | | | | | |
| Tax credit carry-forwards | | $ | 6,693 | | | $ | 6,465 | |
| Net operating loss carry-forwards | | | 32,751 | | | | 27,803 | |
| Reserves and allowances | | | 2,248 | | | | 2,314 | |
| Accrued liabilities | | | 128 | | | | 478 | |
| Intangibles | | | — | | | | 2,323 | |
| Stock options and awards | | | 1,838 | | | | 1,803 | |
| Deferred lease revenue | | | 3 | | | | 74 | |
| Deferred revenue | | | — | | | | 19 | |
| | | | | | | | | |
| Gross deferred income tax assets | | | 43,661 | | | | 41,279 | |
| Valuation allowance | | | (38,727 | ) | | | (38,326 | ) |
| | | | | | | | | |
| Total deferred income tax assets | | | 4,934 | | | | 2,953 | |
| Deferred income tax liabilities: | | | | | | | | |
| Intangibles | | | 2,004 | | | | — | |
| Property, plant and equipment | | | 2,296 | | | | 2,018 | |
| | | | | | | | | |
| Total deferred income tax liabilities | | | 4,300 | | | | 2,018 | |
| | | | | | | | | |
| Net deferred income tax assets | | $ | 634 | | | $ | 935 | |
| | | | | | | | | |
The Company accounts for income taxes in accordance with ASC 740. Under ASC 740, deferred income tax assets and liabilities are determined based on the differences between financial statement and tax bases of assets and liabilities, using enacted rates in effect for the year in which the differences are expected to reverse. The provision for income taxes is based on domestic and international statutory income tax rates in the jurisdictions in which the Company operates.
At December 31, 2009, $32,751 of the Company’s deferred income tax assets was attributable to $149,616 of net operating loss carry-forwards, which consisted of $85,709 of loss carry-forwards for U.S. federal income tax purposes, $63,632 of loss carry-forwards for U.S. state income tax purposes and $275 of loss carry-forwards for foreign income tax purposes.
At December 31, 2008, $27,803 of the Company’s deferred income tax assets was attributable to $124,924 of net operating loss carry-forwards, which consisted of $70,963 of loss carry-forwards for U.S. federal income tax purposes, $51,689 of loss carry-forwards for U.S. state income tax purposes and $2,272 of loss carry-forwards for foreign income tax purposes.
The federal net operating loss carry-forwards set forth above exclude deductions for the exercise of stock options. The net operating loss attributable to the excess of the tax deduction for the exercise of the stock options over the cumulative expense that would be recorded under ASC 718 in the financial statements is not recorded as a deferred income tax asset. The benefit of the excess deduction of $6,616 will be recorded to additional paid-in capital when the Company realizes a reduction in its current taxes payable.
At December 31, 2009 and 2008, approximately $5,897 of the federal net operating loss carry-forwards were acquired as part of the DTM acquisition in 2001 and are subject to the annual limitation of loss deduction pursuant to Section 382 of the Internal Revenue Code of 1986, as amended. The net operating loss carry-forwards for U.S. federal income tax purposes will begin to expire in 2017, and certain loss carry-
F-33
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
forwards for U.S. state income tax purposes begin to expire in 2010. In addition, certain loss carry-forwards for foreign income tax purposes will begin to expire in 2027 and certain other loss carry-forwards for foreign purposes do not expire. Ultimate utilization of these loss carry-forwards depends on future taxable earnings of the Company and its subsidiaries.
At December 31, 2009, tax credit carry-forwards included in the Company’s deferred income tax assets consisted of $3,058 of research and experimentation tax credit carry-forwards for U.S. federal income tax purposes, $2,696 of such tax credit carry-forwards for U.S. state income tax purposes, $554 of alternative minimum tax credit carry-forwards for U.S. federal income tax purposes and $385 of other state tax credits. The alternative minimum tax credits and $2,180 of state research and experimentation credits do not expire; the other federal and state credits begin to expire in 2012.
At December 31, 2008, tax credit carry-forwards included in the Company’s deferred income tax assets consisted of $3,049 of research and experimentation tax credit carry-forwards for U.S. federal income tax purposes, $2,563 of such tax credit carry-forwards for U.S. state income tax purposes, $515 of alternative minimum tax credit carry-forwards for U.S. federal income tax purposes and $338 of other state tax credits.
The Company has not provided for any taxes on approximately $1,807 of unremitted earnings of its foreign subsidiaries, as the Company intends to permanently reinvest all such earnings outside of the U.S. Quantifying the deferred tax liability, if any, associated with these undistributed earnings is not practical.
As a result of adoption of FIN 48 (now ASC 740), at January 1, 2007, the Company recognized a $1,208 increase to its accumulated deficit in earnings that consisted of a $323 reduction in its deferred tax assets and the recording of an $885 long-term income tax payable in its consolidated balance sheet. In addition, the Company would have recognized a $3,734 increase to deferred tax assets for unrecognized benefits related to positions taken in prior periods, which would have affected accumulated deficit in earnings if it had not made, which it did, a corresponding increase in the valuation allowance maintained in its consolidated financial statements. The Company increased its ASC 740 reserve by $209 for the year ended December 31, 2009, and decreased this reserve by $521 for the year ended December 31, 2008. The Company decreased its unrecognized benefits by $3,431 for the year ended December 31, 2009, as a result of amending certain of its prior years’ income tax returns, and increased these benefits by $289 for the year ended December 31, 2008. The Company does not anticipate any additional unrecognized tax benefits during the next twelve months that would result in a material change to its consolidated financial position.
| | | | | | | | | | | | | |
Unrecognized Tax Benefits | | 2009 | | | 2008 | | | 2007 | |
| |
| Balance at January 1 | | $ | 3,079 | | | $ | 2,790 | | | $ | 2,526 | |
| Increases related to prior year tax positions | | | — | | | | 373 | | | | 60 | |
| Decreases related to prior year tax positions | | | (3,281 | ) | | | (59 | ) | | | (189 | ) |
| Increases related to current year tax positions | | | — | | | | — | | | | 5 | |
| Decreases related to current year tax positions | | | (150 | ) | | | (9 | ) | | | (339 | ) |
| Decreases in unrecognized liability due to settlements with foreign tax authorities | | | — | | | | (16 | ) | | | 727 | |
| | | | | | | | | | | | | |
| Balance at December 31 | | $ | (352 | ) | | $ | 3,079 | | | $ | 2,790 | |
| | | | | | | | | | | | | |
The Company includes interest and penalties accrued in the consolidated financial statements as a component of income tax expense.
The principal tax jurisdictions in which the Company files income tax returns are the United States, France, Germany, Japan, Italy, Switzerland and the United Kingdom. Tax years 2006 through 2009 remain subject to examination by the U.S. Internal Revenue Service. Should the Company utilize any of its U.S. loss carry- forwards, its losses, which date back to 1997, would be subject to examination. The Company’s
F-34
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
non-U.S. subsidiaries tax returns are open to possible examination beginning in the year shown in parentheses in the following countries: France (2004), Germany (2006), Japan (2004), Italy (2004), Switzerland (2005) and the United Kingdom (2007).
| |
| Note 22 | Segment Information |
The Company operates in one reportable business segment in which it develops, manufactures and markets worldwide3-D printing, rapid prototyping and manufacturing systems and parts solutions, which produce three-dimensional objects more quickly than traditional manufacturing. The Company conducts its business through subsidiaries in the U.S, a subsidiary in Switzerland that operates a research and production facility and sales and service offices operated by subsidiaries in the European Community (France, Germany, the United Kingdom, Italy and Switzerland) and in Asia (Japan). The Company has historically disclosed summarized financial information for the geographic areas of operations as if they were segments in accordance with ASC Section 280, “Segment Reporting.”
Such summarized financial information concerning the Company’s geographical operations is shown in the following tables:
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Revenue from unaffiliated customers: | | | | | | | | | | | | |
| United States | | $ | 48,917 | | | $ | 54,766 | | | $ | 65,502 | |
| Germany | | | 24,128 | | | | 32,307 | | | | 34,773 | |
| Other Europe | | | 24,612 | | | | 29,807 | | | | 34,047 | |
| Asia Pacific | | | 15,178 | | | | 22,060 | | | | 22,194 | |
| | | | | | | | | | | | | |
| Total | | $ | 112,835 | | | $ | 138,940 | | | $ | 156,516 | |
| | | | | | | | | | | | | |
The Company’s revenue from unaffiliated customers by type is as follows:
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Systems and other products | | $ | 30,501 | | | $ | 41,323 | | | $ | 58,178 | |
| Materials | | | 50,297 | | | | 62,290 | | | | 61,969 | |
| Services | | | 32,037 | | | | 35,327 | | | | 36,369 | |
| | | | | | | | | | | | | |
| Total revenue | | $ | 112,835 | | | $ | 138,940 | | | $ | 156,516 | |
| | | | | | | | | | | | | |
Intercompany sales were as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2009 | |
| | | Intercompany Sales to | |
| | | United
| | | | | | Other
| | | Asia
| | | | |
| | | States | | | Germany | | | Europe | | | Pacific | | | Total | |
| |
| United States | | $ | — | | | $ | 12,377 | | | $ | 7,415 | | | $ | 3,005 | | | $ | 22,797 | |
| Germany | | | 477 | | | | — | | | | 3,851 | | | | — | | | | 4,328 | |
| Other Europe | | | 7,421 | | | | 559 | | | | — | | | | — | | | | 7,980 | |
| Asia Pacific | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 7,898 | | | $ | 12,936 | | | $ | 11,266 | | | $ | 3,005 | | | $ | 35,105 | |
| | | | | | | | | | | | | | | | | | | | | |
F-35
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2008 | |
| | | Intercompany Sales to | |
| | | United
| | | | | | Other
| | | Asia
| | | | |
| | | States | | | Germany | | | Europe | | | Pacific | | | Total | |
| |
| United States | | $ | — | | | $ | 19,670 | | | $ | 11,677 | | | $ | 12,988 | | | $ | 44,335 | |
| Germany | | | 1,406 | | | | — | | | | 5,873 | | | | — | | | | 7,279 | |
| Other Europe | | | 6,766 | | | | 236 | | | | — | | | | 1 | | | | 7,003 | |
| Asia Pacific | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 8,172 | | | $ | 19,906 | | | $ | 17,550 | | | $ | 12,989 | | | $ | 58,617 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2007 | |
| | | Intercompany Sales to | |
| | | United
| | | | | | Other
| | | Asia
| | | | |
| | | States | | | Germany | | | Europe | | | Pacific | | | Total | |
| |
| United States | | $ | — | | | $ | 21,333 | | | $ | 11,797 | | | $ | 15,783 | | | $ | 48,913 | |
| Germany | | | 445 | | | | — | | | | 6,793 | | | | 90 | | | | 7,328 | |
| Other Europe | | | 6,973 | | | | 260 | | | | — | | | | — | | | | 7,233 | |
| Asia Pacific | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 7,418 | | | $ | 21,593 | | | $ | 18,590 | | | $ | 15,873 | | | $ | 63,474 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Income (loss) from operations: | | | | | | | | | | | | |
| United States | | $ | (2,478 | ) | | $ | (10,947 | ) | | $ | (9,820 | ) |
| Germany | | | 234 | | | | 1,350 | | | | 507 | |
| Other Europe | | | 1,316 | | | | 2,793 | | | | 1,192 | |
| Asia Pacific | | | 3,486 | | | | 965 | | | | 1,816 | |
| | | | | | | | | | | | | |
| Subtotal | | | 2,558 | | | | (5,839 | ) | | | (6,305 | ) |
| Inter-segment elimination | | | 515 | | | | 349 | | | | 1,128 | |
| | | | | | | | | | | | | |
| Total | | $ | 3,073 | | | $ | (5,490 | ) | | $ | (5,177 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Assets: | | | | | | | | |
| United States | | $ | 54,931 | | | $ | 61,974 | |
| Germany | | | 23,873 | | | | 25,762 | |
| Other Europe | | | 50,607 | | | | 43,396 | |
| Asia Pacific | | | 20,992 | | | | 21,870 | |
| | | | | | | | | |
| Total | | $ | 150,403 | | | $ | 153,002 | |
| | | | | | | | | |
F-36
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Depreciation and amortization: | | | | | | | | | | | | |
| United States | | $ | 4,943 | | | $ | 5,830 | | | $ | 6,216 | |
| Germany | | | 359 | | | | 287 | | | | 379 | |
| Other Europe | | | 403 | | | | 362 | | | | 309 | |
| Asia Pacific | | | 181 | | | | 197 | | | | 66 | |
| | | | | | | | | | | | | |
| Total | | $ | 5,886 | | | $ | 6,676 | | | $ | 6,970 | |
| | | | | | | | | | | | | |
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Long-lived assets: | | | | | | | | |
| United States | | $ | 11,941 | | | $ | 20,867 | |
| Germany | | | 18,664 | | | | 15,235 | |
| Other Europe | | | 32,336 | | | | 28,611 | |
| Asia Pacific | | | 17,309 | | | | 13,986 | |
| | | | | | | | | |
| Total | | $ | 80,250 | | | $ | 78,699 | |
| | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Capital expenditures: | | | | | | | | | | | | |
| United States | | $ | 798 | | | $ | 3,162 | | | $ | 854 | |
| Germany | | | 125 | | | | 596 | | | | 21 | |
| Other Europe | | | 36 | | | | 1,024 | | | | 39 | |
| Asia Pacific | | | 15 | | | | 1,029 | | | | 32 | |
| | | | | | | | | | | | | |
| Total | | $ | 974 | | | $ | 5,811 | | | $ | 946 | |
| | | | | | | | | | | | | |
| |
| Note 23 | Commitments and Contingencies |
On March 14, 2008, DSM Desotech Inc. filed a complaint, in an action titledDSM Desotech Inc. v. 3D Systems Corporationin the United States District Court for the Northern District of Illinois (Eastern Division) asserting that the Company engaged in anticompetitive behavior with respect to resins used in large-frame stereolithography machines. The complaint further assertsasserted that the Company is infringing upon two of DSM Desotech’s patents relating to stereolithography machines. We understandThe Company understands that DSM Desotech estimates the damages associated with its claims to be in excess of $40 million.
On or about June 6, 2008,Following a decision of the Company filed aCourt on the Company’s motion to dismiss the non-patent causes of action. This motion to dismiss was granted in part and denied in part on January 26, 2009, with leave granted tothe action, DSM Desotech to amend itsfiled a second amended complaint with respect toon March 2, 2009 in which it reasserted causes of action previously dismissed by the dismissed claims.Court. The Company filed an answer to DSM Desotech’s competition and patent claimsthe second amended complaint on March 19, 2009 in which, among other things, it denied the material allegations of those claims and asserted various defenses and counterclaims. In view of the Court’s decision of January 26, 2009, discoverysecond amended complaint. Discovery is proceeding on the claims pending in this case. On March 2, 2009, DSM Desotech filed a second amended complaint in which, among other things, it reasserts the claims previously dismissed by the Court’s decision of January 26, 2009.
The Company intends to vigorously contest all of the claims asserted by DSM Desotech.
The Company is also involved in various other legal matters incidental to ourits business. The CompanyCompany’s management believes, after consulting with counsel, that the disposition of these other legal matters will not have a material effect on itsthe Company’s consolidated results of operations or consolidated financial position.
F-37
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
| |
| Note 24 | Selected Quarterly Financial Data (unaudited) |
The following tables set forth unaudited selected quarterly financial data.data:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | | Quarter Ended | |
| | | December 31,
| | September 30,
| | June 30,
| | March 31,
| | | December 31,
| | September 30,
| | June 30,
| | March 31,
| |
| | | 2008 | | 2008 | | 2008 | | 2008 | | | 2009 | | 2009 | | 2009 | | 2009 | |
| |
| Consolidated revenue | | $ | 34,920 | | | $ | 35,577 | | | $ | 36,656 | | | $ | 31,787 | | | $ | 36,432 | | | $ | 27,667 | | | $ | 24,705 | | | $ | 24,031 | |
Gross profit(1) | | | 15,434 | | | | 13,788 | | | | 13,320 | | | | 13,426 | | | | 16,102 | | | | 12,319 | | | | 10,830 | | | | 10,479 | |
| Total operating expenses | | | 13,934 | | | | 14,330 | | | | 16,133 | | | | 16,661 | | | | 11,671 | | | | 11,227 | | | | 11,673 | | | | 12,086 | |
Income (loss) from operations(2) | | | 1,500 | | | | (542 | ) | | | (2,813 | ) | | | (3,235 | ) | | | 4,431 | | | | 1,092 | | | | (843 | ) | | | (1,607 | ) |
Income tax (benefit) expense(3) | | | (762 | ) | | | 360 | | | | 310 | | | | 386 | | | | 208 | | | | 106 | | | | 210 | | | | 250 | |
| Net income (loss) | | | 1,849 | | | | (989 | ) | | | (3,323 | ) | | | (3,691 | ) | | | 3,565 | | | | 902 | | | | (1,317 | ) | | | (2,084 | ) |
| Basic net income (loss) per share | | $ | 0.08 | | | $ | (0.04 | ) | | $ | (0.15 | ) | | $ | (0.17 | ) | | $ | 0.16 | | | $ | 0.04 | | | $ | (0.06 | ) | | $ | (0.09 | ) |
| Diluted net income (loss) per share | | $ | 0.08 | | | $ | (0.04 | ) | | $ | (0.15 | ) | | $ | (0.17 | ) | | $ | 0.16 | | | $ | 0.04 | | | $ | (0.06 | ) | | $ | (0.09 | ) |
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | |
| | | December 31,
| | | September 30,
| | | June 30,
| | | March 31,
| |
| | | 2008 | | | 2008 | | | 2008 | | | 2008 | |
| |
| Consolidated revenue | | $ | 34,920 | | | $ | 35,577 | | | $ | 36,656 | | | $ | 31,787 | |
| Gross profit | | | 15,226 | | | | 14,037 | | | | 13,605 | | | | 12,700 | |
| Total operating expenses | | | 13,934 | | | | 14,330 | | | | 16,133 | | | | 16,661 | |
| Income (loss) from operations | | | 1,292 | | | | (293 | ) | | | (2,528 | ) | | | (3,961 | ) |
| Income tax (benefit) expense(1) | | | (762 | ) | | | 360 | | | | 310 | | | | 386 | |
| Net income (loss) | | | 1,849 | | | | (989 | ) | | | (3,323 | ) | | | (3,691 | ) |
| Basic net income (loss) per share | | $ | 0.08 | | | $ | (0.04 | ) | | $ | (0.15 | ) | | $ | (0.17 | ) |
| Diluted net income (loss) per share | | $ | 0.08 | | | $ | (0.04 | ) | | $ | (0.15 | ) | | $ | (0.17 | ) |
| | |
| (1) | | The decline in gross profit in the fourth quarter of 2008 compared to the fourth quarter of 2007 was primarily related to lower total revenue partially offset by reduced amortization of internally developed software and reduced third-party logistics costs. |
F-36
3D Systems Corporation
Notes to Consolidated Financial Statements — (Continued)
| | |
(2) | | Includes reversal of a $500 employee bonus accrual in the fourth quarter of 2008. |
|
(3) | | Includes a $1,185 benefit from settlement of foreign tax audit in the fourth quarter of 2008. See Note 2021 above. |
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | |
| | | December 31,
| | | September 30,
| | | June 30,
| | | March 31,
| |
| | | 2007 | | | 2007 | | | 2007 | | | 2007 | |
| |
| Consolidated revenue | | $ | 44,930 | | | $ | 38,228 | | | $ | 36,426 | | | $ | 36,932 | |
| Gross profit | | | 18,140 | | | | 15,938 | | | | 13,479 | | | | 15,903 | |
| Total operating expenses | | | 16,704 | | | | 15,506 | | | | 18,400 | | | | 17,979 | |
| Income (loss) from operations | | | 1,436 | | | | 432 | | | | (4,921 | ) | | | (2,076 | ) |
| Income tax (benefit) expense | | | 62 | | | | 248 | | | | (177 | ) | | | 358 | |
| Net income (loss) | | | 1,353 | | | | 330 | | | | (5,303 | ) | | | (3,120 | ) |
| Basic net income (loss) per share | | $ | 0.06 | | | $ | 0.02 | | | $ | (0.27 | ) | | $ | (0.16 | ) |
| Diluted net income (loss) per share | | $ | 0.06 | | | $ | 0.01 | | | $ | (0.27 | ) | | $ | (0.16 | ) |
The sum of per share amounts for each of the quarterly periods presented does not necessarily equal the total presented for the year because each quarterly amount is independently calculated at the end of each period based on the net income (loss) available to common stockholders for such period and the weighted average shares of outstanding common stock for such period.
| |
| Note 25 | Subsequent EventsEvent |
On January 28, 2009February 16, 2010, the Company redeemedacquired the remaining $3,085assets of outstanding industrial development bonds, plus accruedMoeller Design and unpaid interest through the redemption date, in accordance with their terms.
On February 25, 2009, the Company received notice that its largest customer in Japan filed for protection under the Civil Rehabilitation Act, which we understand to be similar to a Chapter 11 filing under the U.S. Bankruptcy Code.Development. The Company immediately began assessing the bad debt and business risk arising from this filing. The total receivable owed by this customeracquisition was not significant to the Company as of February 25 was $1,265; of this amount, $787 relates to accounts receivable as of December 31, 2008 that were unpaid as ofCompany’s financial statements. Future revenue from the date ofacquisition will be reported within the customer’s filing. Based on the facts as the Company presently understands them, the Company increased its allowance for doubtful accounts as of December 31, 2008 to properly account for the expected loss associated with the outstanding receivables at December 31, 2008. Future adjustments may be necessary relating to transactions with this customer occurring in 2009.service revenue line. See Note 3.
F-37F-38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
3D Systems Corporation
Rock Hill, South Carolina
The audits referred to in our report dated March 3, 2009,February 24, 2010, relating to the Consolidated Financial Statements of 3D Systems Corporation for the years ended December 31, 2009, 2008 2007 and 2006,2007, which is contained in Item 8 of theForm 10-K, included the audit of the financial statement schedule listed in the accompanying index. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statement schedule based upon our audits.
In our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
BDO Seidman, LLP
Charlotte, North Carolina
March 3, 2009
February 24, 2010
F-38F-39
SCHEDULE II
3D Systems Corporation
Valuation and Qualifying Accounts
Years ended December 31, 2009, 2008 2007 and 20062007
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Ended | Ended | | Item | | Year | | Expense | | Deductions | | Year | | Ended | | Item | | Year | | Expense | | Deductions | | Year | |
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| | 2008 | | | Allowance for doubtful accounts | | $ | 2,072 | | | $ | 849 | | | $ | (906 | ) | | $ | 2,015 | | 2009 | | | Allowance for doubtful accounts | | $ | 2,015 | | | $ | 909 | | | $ | (1,134 | ) | | $ | 1,790 | |
| | 2007 | | | Allowance for doubtful accounts | | | 2,359 | | | | 109 | | | | (396 | ) | | | 2,072 | | 2008 | | | Allowance for doubtful accounts | | | 2,072 | | | | 849 | | | | (906 | ) | | | 2,015 | |
| | 2006 | | | Allowance for doubtful accounts | | | 990 | | | | 1,612 | | | | (243 | ) | | | 2,359 | | 2007 | | | Allowance for doubtful accounts | | | 2,359 | | | | 109 | | | | (396 | ) | | | 2,072 | |
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| | 2008 | | | Reserve for excess and obsolete inventory | | $ | 2,306 | | | $ | 1,721 | | | $ | (871 | ) | | $ | 3,156 | | 2009 | | | Reserve for excess and obsolete inventory | | $ | 3,156 | | | $ | (15 | ) | | $ | (448 | ) | | $ | 2,693 | |
| | 2007 | | | Reserve for excess and obsolete inventory | | | 2,353 | | | | (82 | ) | | | (35 | ) | | | 2,306 | | 2008 | | | Reserve for excess and obsolete inventory | | | 2,306 | | | | 1,721 | | | | (871 | ) | | | 3,156 | |
| | 2006 | | | Reserve for excess and obsolete inventory | | | 1,317 | | | | 968 | | | | (68 | ) | | | 2,353 | | 2007 | | | Reserve for excess and obsolete inventory | | | 2,353 | | | | (82 | ) | | | 35 | | | | 2,306 | |
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| | 2008 | | | Deferred income tax asset allowance accounts(1) | | $ | 38,300 | | | $ | 3,416 | | | $ | (3,390 | ) | | $ | 38,326 | | 2009 | | | Deferred income tax asset allowance accounts(1) | | $ | 38,326 | | | $ | 6,272 | | | $ | (5,871 | ) | | $ | 38,727 | |
| | 2007 | | | Deferred income tax asset allowance accounts(1) | | | 39,117 | | | | 2,177 | | | | (2,994 | ) | | | 38,300 | | 2008 | | | Deferred income tax asset allowance accounts(1) | | | 38,300 | | | | 3,416 | | | | (3,390 | ) | | | 38,326 | |
| | 2006 | | | Deferred income tax asset allowance accounts(1) | | | 22,979 | | | | 17,890 | | | | (1,752 | ) | | | 39,117 | | 2007 | | | Deferred income tax asset allowance accounts(1) | | | 39,117 | | | | 2,177 | | | | (2,994 | ) | | | 38,300 | |
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| (1) | | Additions represent increases in valuation allowances against deferred tax assets; deductions represent decreases in valuation allowances against deferred tax assets. |
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