SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-22250
3D SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4431352
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
26081 AVENUE HALL, VALENCIA, CALIFORNIA 91355
(Address of Principal Executive Offices) (Zip Code)
(661) 295-5600
(Registrant's Telephone Number, Including Area Code)
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Shares of Common Stock, par value $0.001, outstanding as of July 24, 2000:
11,899,442
Page 1 of 19
3D SYSTEMS CORPORATION
TABLE OF CONTENTS
Page Number
-----------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 ..................................... 3
Consolidated Statements of Operations
For the Three and Six Month Periods Ended
June 30, 2000 and July 2, 1999 ..................................... 4
Consolidated Statements of Cash Flows
For the Three and Six Month Periods Ended
June 30, 2000 and July 2, 1999 ..................................... 5
Consolidated Statements of Comprehensive Income
For the Three and Six Month Periods Ended
June 30, 2000 and July 2, 1999 ..................................... 6
Notes to Consolidated Financial Statements.................................... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .....................................10
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk .....................................18
ITEM 4. Submission of Matters to a Vote
of Security Holders .....................................18
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K .....................................18
Page 2 of 19
3D SYSTEMS CORPORATION
Consolidated Balance Sheets
As of June 30, 2000 and December 31, 1999
(in thousands)
(Unaudited)
ASSETS June 30, 2000 December 31, 1999
------------------ -------------------
Current assets:
Cash and cash equivalents $ 13,537 $ 12,553
Accounts receivable, less allowances for
doubtful accounts of $2,481 (2000) and $2,912 (1999) 24,727 26,772
Current portion of lease receivables 1,094 607
Inventories 15,323 8,786
Current portion of deferred tax assets 2,355 2,355
Prepaid expenses and other current assets 2,632 2,028
------------------ -------------------
Total current assets 59,668 53,101
Property and equipment, net 14,714 16,245
Licenses and patent costs, net 8,851 9,135
Deferred tax assets, less current portion 6,612 7,658
Lease receivables, less current portion 3,064 2,436
Other assets 2,483 2,083
------------------ -------------------
$ 95,392 $ 90,658
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,892 $ 5,838
Accrued liabilities 7,879 8,741
Current portion of long-term debt 115 110
Customer deposits 581 345
Deferred revenues 8,141 6,848
------------------ -------------------
Total current liabilities 23,608 21,882
Other liabilities 3,607 4,673
Long-term debt, less current portion 4,435 4,495
------------------ -------------------
31,650 31,050
------------------ -------------------
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 5,000
shares; none issued -- --
Common stock, $.001 par value. Authorized 25,000
shares; issued 12,109 and outstanding 11,884 (2000)
and issued 11,658 and outstanding 11,433 (1999) 12 12
Capital in excess of par value 78,069 75,064
Notes receivable from officers and employees (430) (240)
Accumulated deficit (9,078) (12,066)
Accumulated other comprehensive loss (3,291) (1,622)
Treasury stock, at cost, 225 shares (2000 and 1999) (1,540) (1,540)
------------------ -------------------
Total stockholders' equity 63,742 59,608
------------------ -------------------
$ 95,392 $ 90,658
================== ===================
See accompanying notes to consolidated financial statements.
Page 3 of 19
3D SYSTEMS CORPORATION
Consolidated Statements of Operations
(Unaudited)
(in thousands)
Three Month Periods Ended Six Month Periods Ended
-------------------------------- --------------------------------
June 30, 2000 July 2, 1999 June 30, 2000 July 2, 1999
--------------- -------------- --------------- --------------
Sales:
Products $ 18,603 $ 14,206 $ 34,276 $ 29,485
Services 6,813 7,256 14,153 14,661
--------------- -------------- --------------- --------------
Total sales 25,416 21,462 48,429 44,146
--------------- -------------- --------------- --------------
Cost of sales:
Products 8,220 8,595 15,171 17,130
Services 5,017 5,019 10,281 9,974
--------------- -------------- --------------- --------------
Total cost of sales 13,237 13,614 25,452 27,104
--------------- -------------- --------------- --------------
Gross profit 12,179 7,848 22,977 17,042
Operating expenses:
Selling, general and administrative 7,239 8,714 14,571 18,944
Research and development 2,108 2,432 3,979 4,875
Other -- 2,188 -- 2,188
--------------- -------------- --------------- --------------
Total operating expenses 9,347 13,334 18,550 26,007
--------------- -------------- --------------- --------------
Income (loss) from operations 2,832 (5,486) 4,427 (8,965)
Interest income 180 86 312 263
Interest and other expense (121) (83) (212) (134)
--------------- -------------- --------------- --------------
Income (loss) before provision for income taxes 2,891 (5,483) 4,527 (8,836)
Provision for (benefit from) income taxes 983 (1,534) 1,539 (2,607)
--------------- -------------- --------------- --------------
Net income (loss) $ 1,908 $ (3,949) $ 2,988 $ (6,229)
=============== ============== =============== ==============
Shares used to calculate basic net income
(loss) per share 11,710 11,406 11,630 11,398
=============== ============== =============== ==============
Basic net income (loss) per share $ 0.16 $ (0.35) $ 0.26 $ (0.55)
=============== ============== =============== ==============
Shares used to calculate diluted net income
(loss) per share 12,684 11,406 12,512 11,398
=============== ============== =============== ==============
Diluted net income (loss) per share $ 0.15 $ (0.35) $ 0.24 $ (0.55)
=============== ============== =============== ==============
See accompanying notes to consolidated financial statements.
Page 4 of 19
3D SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six Month Periods Ended
----------------------------------
June 30, 2000 July 2, 1999
----------------- ----------------
OPERATING ACTIVITIES:
Net income (loss) $ 2,988 $ (6,229)
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Deferred income taxes 1,046 (1,442)
Depreciation and amortization 3,381 2,697
Provision for accounts receivable (353) (519)
Increase (decrease) in cash resulting from changes in:
Accounts receivable 1,520 (3,330)
Lease receivables (1,115) 5,087
Inventories (7,439) (3,106)
Prepaid expenses and other current assets (603) (534)
Other assets (696) 188
Accounts payable 1,054 612
Accrued liabilities (862) 743
Customer deposits 236 141
Deferred revenues 1,293 (1,548)
Other liabilities (1,066) 2,492
----------------- ----------------
Net cash used for operating activities (616) (4,748)
INVESTING ACTIVITIES:
Purchase of property and equipment (2,608) (3,265)
Disposition of property and equipment 1,580 2,169
License and patent (241) (4,636)
Purchase of short-term investments -- (498)
Proceeds from short-term investments -- 1,982
------------------------------------------
Net cash used for investing activities (1,269) (4,248)
FINANCING ACTIVITIES:
Exercise of stock options 2,695 158
Repayment of officer and employee loans 120 --
Repayments of note payable (55) (50)
----------------- ----------------
Net cash provided by financing activities 2,760 108
Effect of exchange rate changes on cash 109 1,808
----------------- ----------------
Net increase (decrease) in cash and cash equivalents 984 (7,080)
Cash and cash equivalents at the beginning of the period 12,553 15,912
----------------- ----------------
Cash and cash equivalents at the end of the period $ 13,537 $ 8,832
================= ================
See accompanying notes to consolidated financial statements.
Page 5 of 19
3D SYSTEMS CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)
Three Month Periods Ended Six Month Periods Ended
----------------------------- -----------------------------
June 30, 2000 July 2, 1999 June 30, 2000 July 2, 1999
------------- ------------ ------------- ------------
Net income (loss) $ 1,908 $ (3,949) $ 2,988 $ (6,229)
Foreign currency translation (250) (570) (1,669) (1,798)
------------- ------------ ------------- ------------
Comprehensive income (loss) $ 1,658 $ (4,519) $ 1,319 $ (8,027)
============= ============ ============= ============
Page 6 of 19
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of 3D Systems
Corporation and subsidiaries (the "Company") are prepared in accordance
with instructions to Form 10-Q and, in the opinion of management, include
all material adjustments (consisting only of normal recurring accruals)
which are necessary for the fair presentation of results for the interim
periods. The Company reports its interim financial information on a 13-week
basis ending the last Friday of each quarter, and reports its annual
financial information through the calendar year ended December 31. These
unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999. The results of the six month period ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full year.
(2) Significant Accounting Policies
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101), which provides additional guidance in applying generally
accepted accounting principles to revenue recognition in the financial
statements. The Company has evaluated the provisions of SAB 101 and
believes its impact on the Company's revenue recognition policy is
immaterial.
(3) Inventories (in thousands):
June 30, 2000 December 31, 1999
------------------ -------------------
Raw materials $ 1,915 $ 1,633
Work in progress 1,794 778
Finished goods 11,614 6,375
------------------ -------------------
$ 15,323 $ 8,786
================== ===================
(4) Property and Equipment (in thousands):
June 30, 2000 December 31, 1999
------------------ -------------------
Land and building $ 4,637 $ 4,637
Machinery and equipment 19,578 20,420
Office furniture and equipment 3,094 3,083
Leasehold improvements 2,818 2,836
Rental equipment 1,102 1,014
Construction in progress 392 97
------------------ -------------------
31,621 32,087
Less accumulated depreciation (16,907) (15,842)
------------------ -------------------
$ 14,714 $ 16,245
================== ===================
Page 7 of 19
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2000 and July 2, 1999
(Unaudited)
(5) Interest income and interest and other expense
This primarily consists of interest income, interest expense and other
expenses related to investment and leasing activities.
(6) Employee Stock Purchase Plan
In May 1998, the Company established the 1998 Employee Stock Purchase
Plan to provide eligible employees the opportunity to acquire limited
amounts of the Company's common stock. Under the plan, participants
will receive options to purchase shares, which are exercisable no later
than one year from the date of grant. The exercise price of each option
will be the lesser of (I) 85% of the fair market value of the shares on
the date the option is granted or (II) 85% of the fair market value of
shares on the last day of the period during which the option is
outstanding. An aggregate of 600,000 shares of common stock have been
reserved for issuance under the plan. As of June 30, 2000, 107,264
shares have been purchased through this plan.
In accordance with Statement of Financial Accounting Standards No. 128,
Earnings Per Share, basic net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of shares of
common stock outstanding during the period. Dilutive net income (loss)
per share is computed by dividing net income (loss) 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 potential common shares had been issued. Potential common
shares related to stock options and stock warrants are excluded from
the computation when their effect is antidilutive.
The following is a reconciliation of the numerator and denominator of
the basic and diluted earnings per share (EPS) computations for the six
month periods ended June 30, 2000 and July 2, 1999 (in thousands):
2000 1999
------------ ------------
Numerator:
Net income (loss): numerator for basic net income (loss)
per share and dilutive net income (loss) per share $ 2,988 $ (6,229)
============ ============
Denominator:
Denominator for basic net income (loss) per
share-weighted average shares 11,630 11,398
Effect of dilutive securities:
Stock options and warrants 882 --
------------ ------------
Denominator for dilutive net income (loss) per
share 12,512 11,398
============ ============
Common shares related to stock options and stock warrants that are antidilutive
amounted to 150,800 shares and 2,212,611 shares for the three months ended June
30, 2000 and July 2, 1999, respectively.
Page 8 of 19
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2000 and July 2, 1999
(Unaudited)
(8) Geographic Segment Information
All of the Company's assets are devoted to the manufacture and sale of
Company systems, together with related supplies and services. The
Company attributes revenues to geographic areas based on shipment in
the country of origination.
Summarized data for the Company's operations are as follows:
USA Europe Asia Elimination Total
----------------------------------------------------
(in thousands)
For the three month period ended June 30, 2000:
Sales to unaffiliated customers $13,623 8,907 2,886 -- $25,416
Inter-area sales $ 4,146 465 -- (4,611) --
Income (loss) from operations $ 2,401 416 -- 15 $ 2,832
For the three month period ended July 2, 1999:
Sales to unaffiliated customers $ 9,988 10,220 1,254 -- $21,462
Inter-area sales $ 6,162 795 -- (6,957) --
Income (loss) from operations $(5,465) 133 -- (154) $(5,486)
Inter-area sales to the Company's foreign subsidiaries are recorded at amounts
consistent with prices charged to distributors, which are above cost.
(9) Subsequent Event
Subsequent to June 30, 2000, a subsidiary of the Company, 3D Systems, Inc.,
entered into a $10 million line of credit facility (the "Credit
Facility"). The Credit Facility will allow 3D Systems, Inc. to borrow funds
as needed for working capital purposes based on a percentage of eligible
(as defined) accounts receivable and inventory held by 3D Systems, Inc. The
Credit Facility has a term of three years and is collateralized by the
accounts receivable, inventory, property and equipment and other assets
held by 3D Systems, Inc.
Page 9 of 19
3D SYSTEMS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read in conjunction with the consolidated
financial statements and notes thereto included in Item 1 of this Quarterly
Report and the audited consolidated financial statements and notes thereto,
Management's Discussion and Analysis of Results of Operations and Financial
Condition, and Cautionary Statements and Risk Factors contained in the
Company's SEC report on Form 10-K for the year ended December 31, 1999.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's future results could differ materially from
those discussed herein. Factors that could cause or contribute to these
differences include, but are not limited to: the ability of the Company to
contain costs, increase recurring revenue, maintain gross revenues at a
level necessary to maintain gross profit margins, the availability and
acceptance of products, the impact of competitive products and pricing,
dependence on key personnel and suppliers, industry-wide domestic and
international economic conditions and other risks detailed in the Company's
SEC report on Form 10-K for the year ended December 31, 1999 under the
section entitled "Cautionary Statements and Risk Factors."
OVERVIEW
We develop, manufacture and market worldwide solid imaging systems designed
to rapidly produce physical objects from the digital output of solid or
surface data from computer aided design and manufacturing ("CAD/CAM") and
related computer systems. Our systems include SLA-Registered Tradmark-
systems and ThermoJet -TM- solid object printers.
SLA industrial systems use our proprietary stereolithography ("SL")
technology, a solid imaging process which uses a laser beam to expose and
solidify successive layers of photosensitive epoxy resin until the desired
object is formed to precise specifications in epoxy or acrylic resin.
SL-produced parts can be used for concept models, engineering prototypes,
patterns and masters for molds, consumable tooling, and short-run
manufacturing of final product, among other applications. ThermoJet solid
object printers employ hot melt ink jet technology to build models in
successive layers using our proprietary thermoplastic material. These
printers, about the size of an office copier, are designed for operation in
engineering and design office environments. The ThermoJet solid object
printer output can be used as patterns and molds, and when combined with
other secondary processes, can produce parts with representative end-use
properties.
Our customers include major corporations in a broad range of industries
including manufacturers of automotive, aerospace, computer, electronic,
consumer, and medical products. Our revenues are generated by product and
service sales. Product sales are comprised of sales of systems and related
equipment, materials, software and other component parts, as well as
rentals of systems. Service sales include revenues from a variety of
on-site maintenance services, customer training, services provided by our
Technology Centers and licensing of 3D Keltool-Registered Tradmark- process
and support services.
During the quarter ended June 30, 2000 we continued to show improvements in
several areas due to the operating plan put in place in the fourth quarter
of 1999. As a result of increased recurring revenues, particularly
materials, and increases in units sales, overall revenue improved
considerably over the prior year. We also secured contracts for multi-unit
sales of SLA and ThermoJet systems which positively impacted our results in
the first half and are expected to provide ongoing benefit through the end
of the year. These sales and marketing efforts, in addition to strict cost
controls, have resulted in overall increased revenue, significant
improvements in gross profits, reduced operating expenses and increased
profitability.
For the remainder of 2000, we will continue to focus on multi-unit sales of
our higher end SLA systems, selling and marketing efforts relating to our
lower end SLA systems and ThermoJet printers, and continued cost
containment efforts, all of which will provide significant opportunities
for increased profitability. These are forward-looking statements and, as
with other such statements, are subject to uncertainties. For example, the
exact timing of customer requirements, competitive selling and pricing
issues, requirements for continued development of systems and materials,
and the ineffectiveness of cost containment efforts may negatively impact
our revenue and profitability objectives.
Page 10 of 19
3D SYSTEMS CORPORATION
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain items
from the Company's Statement of Operations and Total Revenues:
Percentage of Total Revenues Percentage of Total Revenues
Three Month Periods Ended Six Month Periods Ended
--------------------------------- ---------------------------------
June 30, 2000 July 2, 1999 June 30, 2000 July 2, 1999
--------------- -------------- ---------------------------------
Sales:
Products 73.2% 66.2% 70.8% 66.8%
Services 26.8% 33.8% 29.2% 33.2%
--------------- -------------- ---------------------------------
Total sales 100.0% 100.0% 100.0% 100.0%
--------------- -------------- ---------------------------------
Cost of sales:
Products 32.3% 40.0% 31.3% 38.8%
Services 19.8% 23.4% 21.3% 22.6%
--------------- -------------- ---------------------------------
Total cost of sales 52.1% 63.4% 52.6% 61.4%
--------------- -------------- ---------------------------------
Total gross profit 47.9% 36.6% 47.4% 38.6%
Gross profit - products 55.8% 39.5% 55.7% 41.9%
Gross profit - services 26.4% 30.8% 27.4% 32.0%
Selling, general and administrative expenses 28.5% 40.6% 30.1% 42.9%
Research and development expenses 8.3% 11.3% 8.2% 11.0%
Other 0.0% 10.2% 0.0% 5.0%
Income (loss) from operations 11.1% (25.6%) 9.1% (20.3%)
Interest income and interest and other expense,
net 0.2% 0.0% 0.2% 0.3%
Provision for (benefit from) income taxes 3.9% (7.1%) 3.2% (5.9%)
Net income (loss) 7.5% (18.4%) 6.2% (14.1%)
Page 11 of 19
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The following table sets forth, for the periods indicated, total revenues
attributable to each of the Company's major products and services groups, and
those revenues as a percentage of total sales:
Three Month Periods Ended Six Month Periods Ended
-------------------------------------- ------------------------------------
June 30, 2000 July 2, 1999 June 30, 2000 July 2, 1999
------------------ ------------------ ------------------ ----------------
(in thousands, except for percentages) (in thousands,except for percentages)
Products:
SLA systems $ 10,396 $ 7,281 $ 18,141 $ 17,510
Solid object printers 1,567 1,352 3,080 1,954
Materials 5,560 4,524 11,304 8,445
Other 1,080 1,049 1,751 1,576
------------------ ------------------ ------------------ ----------------
Total products 18,603 14,206 34,276 29,485
------------------ ------------------ ------------------ ----------------
Services:
Maintenance 6,097 6,348 12,625 12,836
Other 716 908 1,528 1,825
------------------ ------------------ ------------------ ----------------
Total services 6,813 7,256 14,153 14,661
------------------ ------------------ ------------------ ----------------
Total sales $ 25,416 $ 21,462 $ 48,429 $ 44,146
================== ================== ================== ================
Products:
SLA systems 40.9% 33.9% 37.4% 39.7%
Solid object printers 6.2% 6.3% 6.4% 4.4%
Materials 21.9% 21.1% 23.3% 19.1%
Other 4.2% 4.9% 3.6% 3.6%
------------------ ------------------ ------------------ ----------------
Total products 73.2% 66.2% 70.7% 66.8%
------------------ ------------------ ------------------ ----------------
Services:
Maintenance 24.0% 29.6% 26.1% 29.1%
Other 2.8% 4.2% 3.2% 4.1%
------------------ ------------------ ------------------ ----------------
Total services 26.8% 33.8% 29.3% 33.2%
------------------ ------------------ ------------------ ----------------
Total sales 100.0% 100.0% 100.0% 100.0%
------------------ ------------------ ------------------ ----------------
Page 12 of 19
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
And Results of Operations (Continued)
THREE MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTH PERIOD
ENDED JULY 2, 1999.
SALES. Sales during the three month period ended June 30, 2000, (the
"second quarter of 2000") were $25.4 million, an 18.4% increase from the
$21.5 million recorded during the three month period ended July 2, 1999
(the "second quarter of 1999").
Product sales of $18.6 million were recorded for the second quarter of
2000, an increase of 31.0% compared to $14.2 million for the second quarter
of 1999. The increase in product sales is due primarily to the growth in
revenue for systems and related equipment of $3.3 million or 38.6% and an
increase in material revenues over the prior year's quarter of $1.0 million
or 22.9%. The increase in system revenue is attributable to sales of the
higher end SLA industrial systems and ThermoJet solid object printers. We
expect these trends to continue throughout the remainder of 2000. This is a
forward-looking statement and is subject to uncertainties. For example, the
exact timing of customer requirements and the extended procurement cycle of
large dollar capital purchases in certain companies may significantly
impact product sales in future quarters.
The increase in material revenue is derived from an increase in the
installed base of machines and a stronger emphasis on recurring revenue
related to the sale of materials derived from post-installation sales. We
expect both of these trends to continue through the remainder of 2000. This
is a forward-looking statement and, as with other such statements, is
subject to uncertainties. For example, the introduction and related pricing
of competitive systems and materials may negatively impact the growth rate
of recurring revenue.
System orders and resultant sales may fluctuate on a quarterly basis as a
result of a number of other factors, including world economic conditions,
fluctuations in foreign currency exchange rates, acceptance of new products
and the timing of product shipments. Due to the price of certain systems
and the overall low unit volumes, the acceleration or delay of shipments of
a small number of high end SLA systems from one quarter to another can
significantly affect the results of operations for the quarters involved.
Service sales during the second quarter of 2000 totaled $6.8 million, a
decrease of 6.1% from the second quarter of 1999 of $7.3 million. The
decrease is primarily due to the impact of improved system reliability and
continued competitive pricing pressure on maintenance contracts, especially
for our lower end machines, and multi-tiered pricing introduced in April,
1999 in response to these competitive pressures. We are taking steps with
targeted sales and marketing activities to address the decline in service
revenue and expect to minimize the potential for any further declines.
This is a forward-looking statement and, as with other such statements,
is subject to uncertainties. For example, continued competitive pricing
pressure related to services provided by third parties may result in
continued declines in service revenue.
Page 13 of 19
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
And Results of Operations (continued)
COST OF SALES. Cost of sales decreased to $13.2 million or 52.1% of sales
in the second quarter of 2000 from $13.6 million or 63.4% of sales in the
first quarter of 1999.
Product cost of sales as a percentage of product sales decreased to 44.2%
in the first quarter of 2000 from 60.5% in the first quarter of 1999. This
decrease as a percent of product sales is due primarily to continued
reduction in manufacturing overhead and component costs, increased
manufacturing activity relative to our level of fixed overhead expenses,
and a shift in the sales mix to higher end SLA systems in the second
quarter of 2000 as compared to the second quarter of 1999, all of which
positively impacted the overall product cost of sales as a percent of
product revenue.
Service cost of sales as a percentage of service sales increased to 73.6%
in the second quarter of 2000 from 69.2% for the second quarter of 1999.
This is due to a decrease in service revenue from the second quarter of
1999 to the second quarter of 2000. In conjunction with our activities to
minimize any further decreases in service revenues and to control service
costs, we expect the service cost of sales as a percent of service revenue
to improve through the end of the year. This is a forward-looking statement
and, as with other such statements, is subject to uncertainties. For
example, continued declines in our service revenues without immediate
adjustments to our cost structure could result in the service cost of sales
as a percent of the service revenue to increase.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") decreased $1.5 million or 16.9% in the
second quarter of 2000 compared to the second quarter of 1999. The decrease
was primarily the result of cost reductions associated with the operating
plan adopted in late 1999, more focused selling and marketing efforts and
costs associated with the launch of new products in the second quarter of
1999.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses during
the second quarter of 2000 decreased $0.3 million or 13.3% to $2.1 million
compared to $2.4 million in the second quarter of 1999. This is a result of
more focused engineering efforts on specific development projects and
reduced costs as a result of the introduction of new products in early
1999. Research and development expenses as a percent of total revenue were
8.3% in the second quarter of 2000 compared to 11.3% in the second quarter
of 1999. Based on the Company's historical expenditures related to research
and development and its current development objectives, the Company
anticipates for the foreseeable future that research and development
expenses will be equal to approximately 8% of sales. This is a
forward-looking statement, however, and as with any such statement, is
subject to uncertainties. For example, if total sales of the Company for
any particular period exceed the anticipated sales of the Company for that
period, research and development expenses as a percentage of sales may fall
below 8%.
OTHER. Other expenses totaled $2.2 million in the second quarter of 1999.
No such costs were incurred in the second quarter of 2000. The costs
incurred in 1999 related to litigation and settlement costs and
non-recurring charges associated with certain employee costs.
INCOME (LOSS) FROM OPERATIONS. Operating income for the second quarter of
2000 was $2.8 million or 11.1% of revenue compared to an operating loss of
$5.5 million or 25.6% of revenue in the second quarter of 1999. The
improvement is attributable to increased revenue, decreased costs related
to our manufacturing operations, decreased system costs and reduced
operating expenses.
Page 14 of 19
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
And Results of Operations (continued)
SIX MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTH PERIOD ENDED
JULY 2, 1999.
SALES. Sales for the six month period ended June 30, 2000 (the "first half
of 2000") were $48.4 million, a 9.7% increase from the $44.1 million for
the six month period ended July 2, 1999 (the "first half of 1999").
Product sales for the first half of 2000 of $34.3 million increased 16.3%
from $29.5 million in the first half of 1999. The increase in product sales
over the prior year is due primarily to increased sales of systems and
related equipment of $1.8 million or 9.0% and an increase in material
revenues of $2.9 million or 33.9%. The increase in machine sales results
from increased sales of the higher end SLA industrial systems and ThermoJet
solid object printers. We expect these trends to continue throughout the
remainder of 2000. This is a forward-looking statement and is subject to
uncertainties. For example, the exact timing of customer requirements and
the extended procurement cycle of large dollar capital procurement in
certain companies may significantly impact product sales in future
quarters.
The increase in material revenue is derived from an increase in the
installed base of machines and a stronger emphasis on recurring revenue
related to the sale of materials derived from post-installation sales. We
expect both of these trends to continue through the remainder of 2000. This
is a forward-looking statement and, as with other such statements, is
subject to uncertainties. For example, the introduction and related pricing
of competitive systems and materials may negatively impact the growth rate
of recurring revenue.
Service sales during the first half of 2000 totaled $14.2 million, a
decrease of 3.5% or $0.5 million from the first half of 1999. The decrease
is primarily due to the impact of improved system reliability and continued
competitive pricing pressure on maintenance contracts, especially for our
lower end machines, and the resultant multi-tiered pricing introduced in
April, 1999. We are taking steps with regard to targeted sales and
marketing activities to address the decline in service revenue and expect
to minimize the potential for any further declines as a result of these
activities. This is a forward-looking statement and, as with other such
statements, is subject to uncertainties. For example, continued competitive
pricing pressure related to services provided by third parties may result
in continued declines in service revenue.
COST OF SALES. Cost of sales decreased to $25.5 million or 52.6% of sales
in the first half of 2000 from $27.1 million or 61.4% of sales in the first
half of 1999.
Product cost of sales as a percentage of product sales decreased to 44.3%
in the first half of 2000 compared to 58.1% in the first half of 1999. This
decrease as a percent of product sales is due primarily to continued
reduction in manufacturing overhead and component costs, increased
manufacturing activity relative to our level of fixed overhead expenses,
and a shift in the sales mix to higher end SLA systems in the second
quarter of 2000 as compared to the second quarter of 1999, all of which
positively impacted the overall product cost of sales as a percent of
product revenue.
Service cost of sales as a percentage of service sales increased to 72.6%
in the first half of 2000 from 68.0% in the first half of 1999. This is due
to overall decreases in service revenue from the first half of 1999 to the
first half of 2000. In conjunction with our activities to minimize any
further decreases in service revenues and to control service costs, we
expect the service cost of sales as a percent of service revenue to improve
through the end of the year. This is a forward-looking statement and, as
with other such statements, is subject to uncertainties. For example,
continued declines in our service revenues without immediate adjustments to
our cost structure could result in the service cost of sales as a percent
of the service revenue to increase.
Page 15 of 19
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
And Results of Operations (continued)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative ("S,G&A") expenses decreased $4.4 million or 23.1% in the
first half of 2000 compared to the first half of 1999. The decrease was
primarily the result of cost reduction benefits associated with the
operating plan adopted in late 1999, more focused selling and marketing
efforts and high costs associated with the launch of new products in the
first half of 1999. In addition, in 1999 the Company incurred S,G&A costs
associated with the sale of its St. Paul, Minnesota 3D Keltool insert
operations and legal expenses associated with the protection of certain
patents owned by the Company.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses during
the first half of 2000 decreased $0.9 million or 18.4% to $4.0 million
compared to $4.9 million the first half of 1999. This is a result of more
focused engineering efforts on specific development projects and the
introduction of new products in early 1999. Research and development
expenses as a percentage of total revenue was 8.2% in the first half of
2000 compared to 11.0% in the first half of 1999. Based on the Company's
historical expenditures related to research and development and its current
development objectives, the Company anticipates for the foreseeable future
that research and development expenses will be equal to approximately 8% of
sales. This is a forward looking statement and, as with any such statement,
is subject to uncertainties. For example, if total sales of the Company for
any particular period exceed the anticipated sales of the Company for that
period, research and development expenses as a percentage of sales may fall
below 8%.
OTHER. Other expenses totaled $2.2 million in the first half of 1999. No
such costs were incurred in the first half of 2000. The costs incurred in
1999 related to litigation and settlement costs and non-recurring charges
associated with certain employee costs.
INCOME (LOSS) FROM OPERATIONS. Operating income for the first half of 2000
was $4.4 million or 9.1% of revenue versus an operating loss of $9.0
million or 20.3% of total revenue in the first half of 1999. The
improvement is primarily attributable to increased revenue, decreased costs
related to our manufacturing operations, decreased system costs and reduced
operating expenses.
Page 16 of 19
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
And Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
June 30, 2000 December 31, 1999
--------------- -----------------
Cash and cash equivalents 13,537 12,553
Working capital 36,060 31,219
Six Month Periods Ended
-----------------------------------
June 30, 2000 July 2, 1999
---------------- ----------------
Cash used for operating activities $ (616) $ (4,748)
Cash used for investing activities (1,269) (4,248)
Cash provided by financing activities 2,760 108
The use of cash for operating activities in the first half of 2000 of $0.6
million primarily results from net income of $3.0 million and the decrease
in deferred income taxes of $1.0 million, non-cash depreciation and
amortization charges of $3.4 million, decrease in accounts receivable of
$1.5 million, an increase in accounts payable of $1.1 million and an
increase in deferred revenues of $1.3 million offset by an increase in
inventory of $7.4 million and changes in various other current asset and
current liability accounts.
In the first half of 1999, the use of cash for operating activities of $4.7
million primarily resulted from the effects of the non-cash depreciation
and amortization charges of $2.7 million, decrease in lease receivables of
$5.1 million due to the sale of several leases, increase in other
liabilities of $2.5 million and changes in various other current asset and
current liability accounts. These were offset by the net loss of $6.2
million, increase in deferred income taxes of $1.4 million, increase in
accounts receivable of $3.4 million, increase in inventories of $3.1
million and decrease in deferred revenues of $1.5 million.
Net cash used for investing activities during the first half of 2000
totaled $1.3 million and was primarily the result of net additions to
property and equipment and additions to license and patents. Net cash used
for investing activities in the first half of 1999 totaled $4.2 million and
resulted from the net additions to property and equipment, additions to
license and patents, and the net proceeds from short-term investments.
Net cash provided by financing activities during the first half of 2000
totaled $2.8 million and was primarily the result of the exercise of stock
options.
Subsequent to June 30, 2000, we entered into a $10 million line of
credit facility (the "Credit Facility"). The Credit Facility will allow
3D Systems Inc., a subsidiary of 3D Systems Corporation, to borrow funds as
needed for working capital purposes based on a percentage of eligible (as
defined) accounts receivable and inventory held by 3D Systems Inc. The
Credit Facility has a term of three years and is collateralized by the
accounts receivable, inventory, property and equipment and other assets
held by 3D Systems Inc.
We believe that funds generated from operations and available under the
Credit Facility will be sufficient to satisfy our anticipated working
capital requirements for at least the next 12 months. From time to time,
we consider the acquisition of businesses, products or technologies
complementary to our current business, although we have no current
commitments or agreements with respect to any such transactions. Should
we decide to pursue such a transaction, we may need to borrow additional
funds.
We assigned a team to address the issues raised by the introduction of the
Single European Currency ("Euro") for initial implementation as of January
1, 1999 and the transition period through to January 1, 2002. We have
completed the modifications to our internal systems that will be affected
by the initial introduction and transition period. We do not expect that
the introduction and use of the Euro as a single currency will materially
affect our foreign exchange position or result in any material increase in
cost to us.
Page 17 of 19
3D SYSTEMS CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required hereunder for the Company is not significantly
different from the information set forth in Item 7a Quantitative and
Qualitative Disclosures About Market Risk included in the 1999 Form 10-K
and is therefore not presented herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 2, 2000, we held the Annual Meeting of Stockholders. The following
sets forth the identity of the directors elected as Class I directors to
hold office for three years and until their respective successors have been
elected and the voting results of the approval to amend the Company's 1996
Stock Incentive Plan.
Yes No Abstain Broker Non
--- -- ------- ----------
Election of Class I Directors
G. Walter Loewenbaum II 6,345,921 0 121,980 0
Jim D. Kever 6,351,736 0 123,967 0
Approval to amend the 1996 Stock Incentive Plan 6,120,268 227,537 120,096 0
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial data schedule.
(b) Reports on Form 8-K
None
Page 18 of 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ H. Michael Hogan III August 14, 2000
-------------------------------------------------- ---------------
H. Michael Hogan III Date
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
(Duly authorized to sign on behalf of Registrant)
Page 19 of 19