SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 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
October 31, 2000: 12,065,839
Page 1 of 19
3D SYSTEMS CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
ITEM 1. Financial Statements
Consolidated Balance Sheets as of
September 29, 2000 and December 31, 1999 .....................................3
Consolidated Statements of Operations
For the Three and Nine Month Periods Ended
September 29, 2000 and October 1, 1999 .....................................4
Consolidated Statements of Cash Flows For the
Nine Month Periods Ended September 29, 2000
And October 1, 1999 .....................................5
Consolidated Statements of Comprehensive Income (Loss)
For the Three and Nine Month Periods Ended
September 29, 2000 and October 1, 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
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 September 29, 2000 and December 31, 1999
(in thousands)
ASSETS SEPTEMBER 29,2000 DECEMBER 31, 1999
----------------- -----------------
Current assets:
Cash and cash equivalents $ 12,227 $ 12,553
Accounts receivable, less allowances for doubtful
accounts of $1,661 (2000) and $2,912 (1999) 31,294 26,772
Current portion of lease receivables 1,198 607
Inventories 14,443 8,786
Current portion of deferred tax assets 2,355 2,355
Prepaid expenses and other current assets 3,353 2,028
----------------- -----------------
Total current assets 64,870 53,101
Property and equipment, net 13,842 16,245
Licenses and patent costs, net 8,943 9,135
Deferred tax assets, less current portion 5,284 7,658
Lease receivables, less current portion 3,011 2,436
Other assets 2,491 2,083
----------------- -----------------
$ 98,441 $ 90,658
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,663 $ 5,838
Accrued liabilities 9,685 8,741
Current portion of long-term debt 120 110
Customer deposits 771 345
Deferred revenues 9,586 6,848
----------------- -----------------
Total current liabilities 24,825 21,882
Other liabilities 3,581 4,673
Long-term debt, less current portion 4,375 4,495
----------------- -----------------
32,781 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 12,291 and outstanding 12,066 (2000);
and issued 11,658 and outstanding 11,433 (1999) 12 12
Capital in excess of par value 78,683 75,064
Notes receivable from officers and employees (371) (240)
Accumulated deficit (6,308) (12,066)
Accumulated other comprehensive loss (4,816) (1,622)
Treasury stock, at cost, 225 shares (2000 and 1999) (1,540) (1,540)
----------------- -----------------
Total stockholders' equity 65,660 59,608
----------------- -----------------
$ 98,441 $ 90,658
================= =================
See accompanying notes to consolidated financial statements
Page 3 of 19
3D SYSTEMS CORPORATION
Consolidated Statements of Operations
(in thousands, except per share data)
THREE MONTH PERIODS ENDED NINE MONTH PERIODS ENDED
SEPTEMBER 29, 2000 OCTOBER 1, 1999 SEPTEMBER 29, 2000 OCTOBER 1, 1999
----------------- ----------------- ----------------- -----------------
Sales:
Products $ 21,724 $ 16,264 $ 55,999 $ 45,749
Services 7,824 7,633 21,977 22,295
----------------- ----------------- ----------------- -----------------
Total sales 29,548 23,897 77,976 68,044
----------------- ----------------- ----------------- -----------------
Cost of sales:
Products 9,245 8,452 24,416 25,583
Services 5,715 5,337 15,996 15,311
----------------- ----------------- ----------------- -----------------
Total cost of sales 14,960 13,789 40,412 40,894
----------------- ----------------- ----------------- -----------------
Gross profit 14,588 10,108 37,564 27,150
Operating expenses:
Selling, general and administrative 8,430 8,368 23,001 27,311
Research and development 1,911 2,015 5,890 6,891
Other - 1,196 - 3,384
----------------- ----------------- ----------------- -----------------
Total operating expenses 10,341 11,579 28,891 37,586
----------------- ----------------- ----------------- -----------------
Income (loss) from operations 4,247 (1,471) 8,673 (10,436)
Interest income 84 141 397 405
Interest and other expense (133) (77) (345) (211)
----------------- ----------------- ----------------- -----------------
Income (loss) before provision for
(benefit from) income taxes 4,198 (1,407) 8,725 (10,242)
Provision for (benefit from)
income taxes 1,427 (394) 2,966 (3,000)
----------------- ----------------- ----------------- -----------------
Net income (loss) $ 2,771 $ (1,013) $ 5,759 $ (7,242)
================= ================= ================= =================
Shares used to calculate basic net income
(loss) per share 12,009 11,288 11,756 11,320
================= ================= ================= =================
Basic net income (loss) per share $ .23 $ (.09) $ .49 $ (.64)
================= ================= ================= =================
Shares used to calculate diluted net income
(loss) per share 13,336 11,288 12,789 11,320
================= ================= ================= =================
Diluted net income (loss) per share $ .21 $ (.09) $ .45 $ (.64)
================= ================= ================= =================
See accompanying notes to consolidated financial statements.
Page 4 of 19
3D SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
NINE MONTH PERIODS ENDED
SEPTEMBER 29, 2000 OCTOBER 1, 1999
------------------ ------------------
OPERATING ACTIVITIES:
Net income (loss) $ 5,759 $ (7,242)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Deferred income taxes 2,374 (1,836)
Depreciation and amortization 4,938 4,270
Provision for accounts receivable (1,137) (603)
Increase (decrease) in cash resulting from changes in:
Accounts receivables (5,307) (2,617)
Lease receivables (1,166) 4,888
Inventories (6,597) (3,143)
Prepaid expenses and other current assets (1,455) (139)
Other assets (902) 77
Accounts payable (961) 1,768
Accrued liabilities 770 813
Customer deposits 428 185
Deferred revenues 3,081 (1,777)
Other liabilities (1,021) 2,548
------------------ ------------------
Net cash used in operating activities (1,196) (2,808)
INVESTING ACTIVITIES:
Purchase of property and equipment (3,893) (5,003)
Disposition of property and equipment 2,081 2,401
Additions to licenses and patents (551) (4,947)
Purchase of short-term investments - (497)
Proceeds from short-term investments - 3,982
------------------ ------------------
Net cash used in investing activities (2,363) (4,064)
FINANCING ACTIVITIES:
Exercise of stock options 3,619 205
Repayment of notes receivable from officers and employees (131) (100)
Repayments of long-term debt (110) -
------------------ ------------------
Net cash provided by financing activities 3,378 105
Effect of exchange rate changes on cash (145) 1,570
------------------ ------------------
Net decrease in cash and cash equivalents (326) (5,197)
Cash and cash equivalents at the beginning of the period 12,553 15,912
------------------ ------------------
Cash and cash equivalents at the end of the period $ 12,227 $ 10,715
================== ==================
See accompanying notes to consolidated financial statements.
Page 5 of 19
3D SYSTEMS CORPORATION
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
THREE MONTH PERIODS ENDED NINE MONTH PERIODS ENDED
SEPTEMBER 29, 2000 OCTOBER 1, 1999 SEPTEMBER 29, 2000 OCTOBER 1, 1999
------------------ ------------------ ------------------ ------------------
Net Income (loss) $ 2,771 $ (1,013) $ 5,759 $ (7,242)
Foreign currency translation (1,524) 1,157 (3,194) (641)
------------------ ------------------ ------------------ ------------------
Comprehensive income (loss) $ 1,247 $ 144 $ 2,565 $ (7,883)
================== ================== ================== ==================
Page 6 of 19
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
September 29, 2000 and December 31, 1999
(1) Basis of Presentation
The accompanying 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 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 nine-month period ended September 29, 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.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and amended it with Statement No. 138 in June 2000. It
establishes accounting and reporting standards for derivative instruments
and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. Management has not yet assessed
the impact on the Company's operations. The Company will adopt Statement
No. 133 as required for its first quarterly filing of fiscal year 2001.
(3) Inventories (in thousands):
SEPTEMBER 29, 2000 DECEMBER 31, 1999
------------------ ------------------
Raw materials $ 1,945 $ 1,633
Work in progress 650 778
Finished goods 11,848 6,375
------------------ ------------------
$ 14,443 $ 8,786
================== ==================
(4) Property and Equipment (in thousands):
SEPTEMBER 29, 2000 DECEMBER 31, 1999
------------------ ------------------
Land and building $ 4,637 $ 4,637
Machinery and equipment 18,857 20,420
Office furniture and equipment 3,061 3,083
Leasehold improvements 2,817 2,836
Rental equipment 1,106 1,014
Construction in progress 529 97
------------------ ------------------
31,007 32,087
Less accumulated depreciation (17,165) (15,842)
------------------ ------------------
$ 13,842 $ 16,245
================== ==================
Page 7 of 19
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
September 29, 2000 and October 1, 1999
(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 (the "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 the shares on the last day of the period during
which the option is outstanding. An aggregate of 600,000 shares of common
stock has been reserved for issuance under the Plan. As of September 29,
2000, 110,024 shares have been purchased through the Plan.
(7) Computation of Earnings Per Share
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 nine
month periods ended September 29, 2000 and October 1, 1999.
2000 1999
-------- ---------
Numerator:
Net income (loss) - numerator for basic net income (loss)
per share and dilutive net income (loss) per share $ 5,759 $ (7,242)
Denominator:
Denominator for basic net income (loss) per share -
weighted average shares 11,756 11,320
Effect of dilutive securities:
Stock options and warrants 1,033 -
-------- ---------
Denominator for dilutive net income (loss) per share 12,789 11,320
======== =========
Common shares related to stock options and stock warrants that are
antidilutive amounted to 110,801 shares and 2,205,986 shares for the nine
months ended September 29, 2000 and October 1, 1999, respectively.
Page 8 of 19
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
September 29, 2000 and October 1, 1999
(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 (in
thousands):
USA EUROPE ASIA ELIMINATION TOTAL
-------------------------------------------------------------
For the three month period ended September 29, 2000:
Sales to unaffiliated customers $ 16,573 $11,347 $1,628 $ - $29,548
Inter-area sales 2,503 1,586 - (4,089) -
Income (loss) from operations 2,297 1,980 - (30) 4,247
For the three month period ended October 1, 1999:
Sales to unaffiliated customers $ 14,982 $7,875 $1,040 $ - $23,897
Inter-area sales 4,585 336 - (4,921) -
Income (loss) from operations (1,186) 305 - (590) (1,471)
Inter-area sales to the Company's foreign subsidiaries are recorded at
amounts consistent with prices charged to distributors, which are above
cost.
(9) Borrowings
On August 8, 2000, 3D Systems, Inc., a subsidiary of 3D Systems
Corporation, entered into a Revolving Line of Credit agreement (Line of
Credit) which allows 3D Systems, Inc. to borrow up to $10.0 million
subject to limits based on a percentage of eligible (as defined) accounts
receivable and inventory held by 3D Systems, Inc. The interest on
borrowings under the Line of Credit is at variable rates which float with
the Chase Manhattan Bank Prime Rate ("Chase Bank Rate") or the London
Interbank Offered Rates ("LIBOR"), plus an applicable margin ranging from
0.25% to 2.25% over the stated rates. Commencing with the first quarter
of 2001, the margins will be based on 3D Systems, Inc.'s EBITDA and will
range from 1.75% to 2.5% for LIBOR and 0% to 0.5% for the Chase Bank
Rate. As of September 29, 2000, there were no material balances
outstanding. 3D Systems, Inc. also pays a fee of 0.25% per annum on the
unused amount of the Line of Credit. The Line of Credit has an initial
term of three years with automatic annual renewals thereafter and is
collateralized by the accounts receivable, inventory, property and
equipment and other assets held by 3D Systems, Inc.
(10) Extension of Regent Pacific Management Agreement
On September 9, 2000, the Company extended its agreement with Regent
Pacific Management Corporation from 12 months to 24 months, with the
potential for additional extensions beyond that period. All other terms
of the agreement remain substantially unchanged.
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 annual 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. Our
future results could differ materially from those discussed here. Factors that
could cause or contribute to these differences include, but are not limited to,
our ability 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 our annual 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 Trademark-
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
network-ready and are designed for operation in engineering and design office
environments. The ThermoJet printer output can be used as patterns and molds,
and when combined with other secondary processes such as investment casting, can
produce parts with representative end-use properties.
Our customers include major corporations in a broad range of industries
including service bureaus and 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 Trademark- process and support services.
During the quarter ended September 29, 2000 we continued to show improvements in
several areas from the operating plan put in place in the fourth quarter of
1999. As a result of increased recurring revenues, particularly materials, and
increased unit sales, overall revenue improved considerably over the comparable
period in the prior year. We also continued to realize the benefit from
contracts for multi-unit sales of SLA and ThermoJet systems. These sales and
marketing efforts, as well as strict cost controls, have resulted in overall
increased revenue, significantly improved gross profits, reduced operating
expenses and increased profitability. Going forward, 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 continued opportunities for
increased profitability.
On September 9, 2000 the Company extended its agreement with Regent Pacific
Management Corporation from 12 months to 24 months, with the potential for
additional extensions beyond that period. All other terms of the agreement
remain substantially unchanged. The Board of Directors took this action based on
the results achieved by Regent Pacific over the last year and the Board's
confidence in their ability to continue to achieve continued results in the
future. 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, particularly in Europe,
requirements for continued developments of systems and materials, and any
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 to total sales:
PERCENTAGE OF TOTAL SALES
-------------------------
THREE MONTH PERIODS ENDED NINE MONTH PERIODS ENDED
--------------------------------------- -------------------------------------
SEPTEMBER 29, 2000 OCTOBER 1, 1999 SEPTEMBER 29, 2000 OCTOBER 1, 1999
------------------ --------------- ------------------ ---------------
Sales:
Products 73.5% 68.1% 71.8% 67.2%
Services 26.5% 31.9% 28.2% 32.8%
Total sales 100.0% 100.0% 100.0% 100.0%
Cost of sales:
Products 31.3% 35.4% 31.3% 37.6%
Services 19.3% 22.3% 20.5% 22.5%
Total cost of sales 50.6% 57.7% 51.8% 60.1%
Gross profit 49.4% 42.3% 48.2% 39.9%
Selling, general and administrative expenses 28.5% 35.0% 29.5% 40.1%
Research and development expenses 6.5% 8.4% 7.6% 10.1%
Other expenses - 5.0% - 5.0%
Income (loss) from operations 14.4% (6.1%) 11.1% (15.3%)
Interest income and interest and
other expense, net (0.2%) 0.3% 0.1% 0.3%
Provision for (benefit from) income taxes 4.8% (1.6%) 3.8% (4.4%)
Net income (loss) 9.4% (4.2%) 7.4% (10.6%)
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 sales attributable to each of the Company's major products and
services groups, and those sales as a percentage of total sales (in thousands, except for percentages):
THREE MONTH PERIODS ENDED NINE MONTH PERIODS ENDED
------------------------- ------------------------
SEPTEMBER 29, 2000 OCTOBER 1, 1999 SEPTEMBER 29, 2000 OCTOBER 1, 1999
-------------------- --------------- ------------------- ----------------
Products:
SLA systems
and related equipment $ 12,669 $ 9,527 $ 30,810 $ 26,984
Solid object printers 1,694 1,623 4,774 3,630
Materials 6,561 4,428 17,865 12,872
Other 800 686 2,550 2,263
--------------------- ---------------- -------------------- -----------------
Total products 21,724 16,264 55,999 45,749
--------------------- ---------------- -------------------- -----------------
Services:
Maintenance $ 6,727 $ 6,937 $ 19,353 $ 19,772
Other 1,097 696 2,624 2,523
--------------------- ---------------- -------------------- -----------------
Total services 7,824 7,633 21,977 22,295
--------------------- ---------------- -------------------- -----------------
Total sales $ 29,548 $ 23,897 $ 77,976 $ 68,044
===================== ================ ==================== =================
Products:
SLA systems
and related equipment 42.9% 39.9% 39.5% 39.7%
Solid object printers 5.7% 6.8% 6.1% 5.3%
Materials 22.2% 18.5% 22.9% 18.9%
Other 2.7% 2.9% 3.3% 3.3%
--------------------- ---------------- -------------------- -----------------
Total products 73.5% 68.1% 71.8% 67.2%
--------------------- ---------------- -------------------- -----------------
Services:
Maintenance 22.8% 29.0% 24.8% 29.1%
Other 3.7% 2.9% 3.4% 3.7%
--------------------- ---------------- -------------------- -----------------
Total services 26.5% 31.9% 28.2% 32.8%
--------------------- ---------------- -------------------- -----------------
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 SEPTEMBER 29, 2000 COMPARED TO THE THREE-MONTH PERIOD
ENDED OCTOBER 1, 1999.
SALES. Sales during the three month period ended September 29, 2000, (the "third
quarter of 2000") were $29.5 million, a 23.7% increase from the $23.9 million
recorded during the three month period ended October 1, 1999 (the "third quarter
of 1999").
Product sales of $21.7 million were recorded for the third quarter of 2000, an
increase of 33.6% compared to $16.3 million for the third quarter of 1999. The
increase in product sales is due primarily to the growth in revenue for SLA
systems and related equipment of $3.1 million or 33.0% and an increase in
material revenues over the prior year's quarter of $2.1 million or 48.2%. The
increase in SLA systems and related equipment revenue is attributable to sales
of the higher-end SLA industrial systems. We expect to continue to sell more
higher-end SLA industrial systems throughout the remainder of 2000. This is a
forward-looking statement and is subject to uncertainties. For example, the
exact timing of customer requirements, the ability of the factory to produce
sufficient machines in a specified timeframe and the extended procurement cycle
of large-dollar capital purchases in certain companies may significantly impact
product sales in the remainder of 2000 and in future quarters.
The increase in material revenue primarily is due to an increase in the
installed base of machines and a stronger sales and marketing emphasis on
recurring revenue related to the post-installation sale of materials. 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 third quarter of 2000 totaled $7.8 million, an increase
of 2.5% from the third quarter of 1999 of $7.6 million. The increase is
primarily a result of targeted sales and marketing activities to positively
impact service sales, and higher revenue associated with time and material
activities versus maintenance contracts.
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 increased to $15.0 million or 50.6% of sales in the
third quarter of 2000 from $13.8 million or 57.7% of sales in the third quarter
of 1999.
Product cost of sales as a percentage of product sales decreased to 42.6% in the
third quarter of 2000 from 52.0% in the third quarter of 1999. This decrease as
a percent of product sales is due primarily to reduced 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 third
quarter of 2000 as compared to the third 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 73.0% in the
third quarter of 2000 from 69.9% for the third quarter of 1999. This is due to a
change in the mix of service sales to those with lower gross margins in the
third quarter of 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") totaled $8.4 million for both the third quarter
of 2000 and the third quarter of 1999, as a result of continued cost controls
offset by increased selling commissions as a result of higher sales levels.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses during the
third quarter of 2000 decreased slightly to $1.9 million compared to $2.0
million in the third quarter of 1999. Research and development expenses as a
percent of total revenue was 6.5% in the third quarter of 2000 compared to 8.4%
in the third quarter of 1999, primarily due to increases in total revenue and
the timing of the expenditures between the periods.
OTHER EXPENSES. Other expenses totaled $1.2 million in the third quarter of
1999. No such costs were incurred in the third quarter of 2000. The cost
incurred in 1999 related to litigation and settlement costs and non-recurring
charges associated with certain employee and exit plan costs.
INCOME (LOSS) FROM OPERATIONS. Operating income for the third quarter of 2000
was $4.2 million or 14.4% of revenue compared to an operating loss of $1.5
million or 6.1% of revenue in the third quarter of 1999. The improvement is
attributable to increased revenue, improved gross margins and reduced operating
expenses.
Page 14 of 19
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
And Results of Operations (continued)
NINE MONTH PERIOD ENDED SEPTEMBER 29, 2000 COMPARED TO THE NINE MONTH PERIOD
ENDED OCTOBER 1, 1999.
SALES. Sales for the nine month period ended September 29, 2000 (the "first nine
months of 2000") were $78.0 million, a 14.6% increase from the $68.0 million for
the nine month period ended October 1, 1999 (the "first nine months of 1999").
Product sales for the first nine months of 2000 of $56.0 million increased 22.4%
from $45.7 million in the first nine months of 1999. The increase in product
sales over the prior year is due primarily to increased sales of SLA systems and
related equipment of $3.8 million or 14.2% and an increase in material revenue
of $5.0 million or 38.8%. The increase in machine sales results from increased
sales of the higher-end SLA industrial systems and ThermoJet solid object
printers.
The increase in material revenue primarily is due to an increase in the
installed base of machines and a stronger sales and marketing 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 nine months of 2000 totaled $22.0 million, a
decrease of 1.4% or $0.3 million from the first nine months of 1999. The
decrease in service revenue is a result of the net impact of a reduction in
revenue from maintenance contracts and an increase related to time and material
revenues.
COST OF SALES. Cost of sales decreased to $40.4 million or 51.8% of sales in the
first nine months of 2000 from $40.9 million or 60.1% of sales in the first nine
months of 1999.
Product cost of sales as a percentage of product sales decreased to 43.6% in the
first nine months of 2000 compared to 55.9% in the first nine months of 1999.
This decrease as a percent of product sales is due primarily to reduced
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
first nine months of 2000 as compared to the first nine months 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 72.8% in the
first nine months of 2000 from 68.7% in the first nine months of 1999. This is
attributable to a decrease in service revenue over the prior year and a change
in the mix of service sales to those with lower gross margins in the third
quarter of 2000.
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3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
And Results of Operations (continued)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses decreased $4.3
million or 15.8% in the first nine months of 2000 compared to the first nine
months 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 nine months of 1999, offset by increased selling commissions on
higher volume of sales.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses during the
first nine months of 2000 decreased $1.0 million or 14.5% to $5.9 million
compared to $6.9 million the first nine months 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 7.6% in the first nine months of 2000 compared
to 10.1% in the first nine months of 1999.
OTHER EXPENSES. Other expenses totaled $3.4 million in the first nine months of
1999. No such costs were incurred in the first nine months of 2000. The cost
incurred in 1999 related to litigation and settlement costs and non-recurring
charges associated with certain employee and exit plan costs.
INCOME (LOSS) FROM OPERATIONS. Operating income for the first nine months of
2000 was $8.7 million or 11.1% of total revenue versus an operating loss of
$10.4 million or 15.3% of total revenue in the first nine months of 1999. The
improvement is primarily attributable to increased revenue, improved gross
margins and reduced operating expenses.
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3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
And Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
SEPTEMBER 29, 2000 DECEMBER 31, 1999
------------------ -----------------
Cash and cash equivalents $ 12,227 $ 12,553
Working capital 40,045 31,219
NINE MONTH PERIODS ENDED
------------------------
SEPTEMBER 29, 2000 OCTOBER 1, 1999
------------------ ---------------
Cash used for operating activities $ (1,196) $ (2,808)
Cash used for investing activities (2,363) (4,064)
Cash provided by financing activities 3,378 105
The use of cash for operating activities in the first nine months of 2000 of
$1.2 million primarily results from net income of $5.8 million, non-cash
depreciation and amortization charges of $4.9 million, an increase in deferred
revenues of $3.1 million and the decrease in deferred income taxes of $2.4
million, which is partially offset by an increase in inventory related to
finished goods of $6.6 million, an increase in accounts receivable of $5.3
million, an increase in prepaid expenses of $1.5 million, a decrease in accounts
payable of $1.0 million, an increase in lease receivables of $1.2 million, and
the net effect of changes in various other current asset and current liability
accounts.
Operating activities in the first nine months of 1999 had a net use of cash of
$2.8 million. This is primarily the result of the net loss of $7.2 million,
increased inventories of finished goods and service parts in Europe, and a
reduction in deferred revenues due to lower shipments of large frame SLA
industrial systems, partially offset by a decrease in lease receivables of $4.9
million primarily due to the Company's decision to sell $2.2 million in its
lease portfolio.
Net cash used for investing activities during the first nine months of 2000
totaled $2.4 million and was primarily the result of net additions to property
and equipment and additions to licenses and patents. Net cash used for investing
activities in the first nine months of 1999 totaled $4.1 million and resulted
from the net additions to property and equipment, additions to licenses and
patents, and the net proceeds from short-term investments.
Net cash provided by financing activities during the first nine months of 2000
and 1999 totaled $3.4 million and $0.1 million, respectively, and was primarily
the result of the exercise of stock options.
On August 8, 2000, 3D Systems, Inc., a subsidiary of 3D Systems Corporation
entered into a Revolving Line of Credit agreement (Line of Credit) which allows
3D Systems, Inc. to borrow up to $10.0 million subject to limits based on a
percentage of eligible (as defined) accounts receivable and inventory held by 3D
Systems, Inc. The interest on borrowings under the Line of Credit is at variable
rates which float with the Chase Manhattan Bank Prime Rate or the London
Interbank Offered Rates ("LIBOR"), plus an applicable margin ranging from 0.25%
to 2.25% over the stated rates. Commencing with the first quarter of 2001, the
margins will be based on 3D Systems, Inc.'s EBITDA and will range from 1.75% to
2.5% for LIBOR and 0% to 0.5% for Chase Bank Rate. As of September 29, 2000,
there were no material balances outstanding. 3D Systems, Inc. also pays a
commitment fee of 0.25% per annum on the unused amount of the Line of Credit.
The Line of Credit has an initial term of three years with automatic annual
renewals thereafter 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 Line of
Credit 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.
Page 17 of 19
3D SYSTEMS CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of interest rate changes and foreign currency
fluctuations.
INTEREST RATE RISK. The information required to be disclosed related to interest
rate risk 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 here.
FOREIGN CURRENCY RISK. International sales are made primarily from our foreign
sales subsidiaries in their respective countries and are denominated in United
States dollars or the local currency of each country. Our exposure to foreign
exchange rate fluctuations arises in part from inter-company accounts in which
costs incurred in the United States are charged to our foreign sales
subsidiaries. These inter-company accounts are denominated in United States
dollars. The duration of these exposures is minimized through our use of an
inter-company netting and settlement system that settles all of our
inter-company trading obligations once per month. In addition, selected
exposures are managed by financial market transactions in the form of forward
foreign exchange and put option contracts. We do not enter into derivative
contracts for speculative purposes. We do not hedge our foreign currency
exposure in a manner that would entirely eliminate the effects of changes in
foreign exchange rates on our consolidated net income.
At September 29, 2000, the amounts covered by all of our open forward foreign
exchange and put option contracts were $3.7 million related to transactions
denominated in Euros and pounds sterling, with settlement dates in October and
November 2000. There were no open forward foreign exchange contracts or put
options as of the comparable period in 1999.
As of September 29, 2000 we had investments in foreign operations that are
sensitive to foreign currency exchange rates, including non-functional currency
denominated receivables and payables. The net amount that is exposed in foreign
currency when subjected to a 10% change in the value of the functional currency
versus the non-functional currency would produce an immaterial change in our
balance sheet as of September 29, 2000.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment to Regent Pacific Management Agreement
10.2 CIT Revolving Line of Credit Agreement
27. Financial data schedule.
(b) Reports on Form 8-K
Current Report on Form 8-K, Items 4 and 7, filed on September 11, 2000.
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
- --------------------------------------------------
H. Michael Hogan III Date: November 9, 2000
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
(Duly authorized to sign on behalf of Registrant)
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