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 26, 1997
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)
(805) 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, 1997:
11,433,786 shares
Page 1 of 17
3D SYSTEMS CORPORATION
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION Number
------
ITEM 1. Financial Statements
Consolidated Balance Sheets,
December 31, 1996 and September 26, 1997. . . . . . . . . . . 3
Consolidated Statements of Operations
For the Three and Nine Month Periods Ended
September 27, 1996 and September 26, 1997 . . . . . . . . . . 4
Consolidated Statements of Cash Flows
for the Three and Nine Month Periods Ended
September 27, 1996 and September 26, 1997 . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 16
Page 2 of 17
3D SYSTEMS CORPORATION
Consolidated Balance Sheets
(Unaudited)
December 31, 1996 September 26, 1997
----------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 24,356,441 $ 12,152,612
Restricted cash 722,000 625,000
Short-term investments 3,759,492 1,997,422
Accounts receivable, less allowances for
doubtful accounts $406,178 (1996) and $282,835 (1997) 19,601,383 24,179,010
Current portion of lease receivables 987,362 1,131,797
Inventories 12,309,588 14,660,774
Deferred tax assets 2,958,227 3,401,670
Prepaid expenses and other current assets 2,332,337 3,131,339
------------ ------------
Total current assets 67,026,830 61,279,624
Property and equipment, net 14,452,504 17,782,283
Licenses and patent costs, net 3,660,568 5,212,879
Deferred tax assets 1,821,000 1,821,000
Lease receivables, less current portion and allowance for
doubtful accounts of $150,000 (1997) 3,773,573 3,499,916
Other assets 1,504,382 2,300,286
------------ ------------
$ 92,238,857 $ 91,895,988
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,805,930 $ 4,542,068
Accrued liabilities 6,890,343 8,350,143
Current portion of long-term debt 100,000 95,000
Customer deposits 894,111 563,321
Deferred revenues 5,572,892 6,139,515
------------ ------------
Total current liabilities 17,263,276 19,690,047
Other liabilities 1,472,991 1,425,988
Long-term debt, less current portion 4,800,000 4,705,000
------------ ------------
23,536,267 25,821,035
------------ ------------
Stockholders' equity:
Preferred stock, $.001 par value. Authorized
5,000,000 shares; none issued
Common stock, $.001 par value. Authorized
25,000,000 shares; issued and outstanding
11,358,892 (1996) and issued 11,415,022 (1997) 11,359 11,415
Capital in excess of par value 72,527,768 73,508,998
Retained earnings (deficit) (4,308,471) (6,335,365)
Cumulative translation adjustment 471,934 (945,157)
Treasury stock, at cost, 25,000 shares --- (164,938)
------------ ------------
Total stockholders' equity 68,702,590 66,074,953
------------ ------------
$ 92,238,857 $ 91,895,988
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
Page 3 of 17
3D SYSTEMS CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Month Periods Ended Nine Month Periods Ended
-------------------------------------- --------------------------------------
September 27, 1996 September 26, 1997 September 27, 1996 September 26, 1997
------------------ ------------------ ------------------ ------------------
Sales:
Products $ 12,594,576 $ 14,615,138 $ 38,194,461 $ 42,324,460
Services 7,195,039 7,678,718 19,317,066 23,231,653
------------ ------------ ------------ ------------
Total sales 19,789,615 22,293,856 57,511,527 65,556,113
------------ ------------ ------------ ------------
Cost of sales:
Products 5,888,696 8,637,195 17,472,167 23,636,439
Services 4,403,358 5,231,937 12,071,149 16,370,620
------------ ------------ ------------ ------------
Total cost of sales 10,292,054 13,869,132 29,543,316 40,007,059
------------ ------------ ------------ ------------
Gross profit 9,497,561 8,424,724 27,968,211 25,549,054
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative 6,077,601 7,320,339 18,505,355 20,881,633
Research and development 2,220,936 4,658,723 5,872,443 8,600,450
------------ ------------ ------------ ------------
Total operating expenses 8,298,537 11,979,062 24,377,798 29,482,083
------------ ------------ ------------ ------------
Income (loss) from operations 1,199,024 (3,554,338) 3,590,413 (3,933,029)
Interest income 361,794 308,663 1,194,088 994,333
Interest expense (34,753) (101,123) (46,251) (228,326)
------------ ------------ ------------ ------------
Income (loss) before provision
for income taxes 1,526,065 (3,346,798) 4,738,250 (3,167,022)
Provision for income taxes (benefit) 510,661 (1,212,039) 1,800,535 (1,140,128)
------------ ------------ ------------ ------------
Net income (loss) $ 1,015,404 $ (2,134,759) $ 2,937,715 $ (2,026,894)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income (loss) per share $ 0.09 $ (0.19) $ 0.25 $ (0.18)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number of
common and common equivalent
shares outstanding during the period 11,696,778 11,410,734 11,762,742 11,382,533
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements.
Page 4 of 17
3D SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
For the Nine Month Periods Ended September 27, 1996 and September 26, 1997
Unaudited
1996 1997
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 2,937,715 $ (2,026,894)
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Deferred income taxes 1,590,000 442,725
Depreciation of property and equipment 1,725,277 2,827,025
Amortization of licenses and patent costs 428,101 491,461
Amortization of software development costs 366,752 373,312
Changes in operating assets and liabilities:
Accounts receivables (3,721,706) (5,406,498)
Lease receivables (1,727,588) 129,222
Inventories (5,154,647) (2,488,518)
Prepaid expenses and other current assets (254,286) (846,881)
Other assets (863,989) (1,205,370)
Accounts payable (2,141,105) 870,342
Accrued liabilities 224,353 1,667,405
Customer deposits 6,251 (330,790)
Deferred revenues 907,513 680,410
Other liabilities (47,565) (5,318)
------------ ------------
Net cash used for operating activities (5,724,924) (4,828,367)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (8,882,502) (7,408,205)
Disposition of property and equipment 1,198,316 1,464,585
Increase in licenses and patent costs (476,907) (2,028,695)
Proceeds of short term investments --- 3,759,492
Purchase of short term investments --- (1,997,422)
------------ ------------
Net cash used for investing activities (8,161,093) (6,210,245)
------------ ------------
Cash flows from financing activities:
Exercise of stock options and warrants 371,486 251,445
Proceeds from long-term debt 4,900,000 ---
Payment of long term debt --- (100,000)
Purchase of treasury shares --- (164,938)
------------ ------------
Net cash provided by (used for) financing activities 5,271,486 (13,493)
Effect of exchange rate changes on cash 101,163 (1,151,724)
------------ ------------
Net decrease in cash and cash equivalents (8,513,368) (12,203,829)
Cash and cash equivalents at the beginning of the period 38,258,927 24,356,441
------------ ------------
Cash and cash equivalents at the end of the period $ 29,745,559 $ 12,152,612
------------ ------------
------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 37,052 $ 204,108
------------ ------------
------------ ------------
Income taxes $ 1,544,273 $ 229,549
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
Page 5 of 17
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and September 26, 1997
(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, 1996.
The results of the nine month period ended September 26, 1997 are not
necessarily indicative of the results to be expected for the full year.
(2) Inventories.
December 31, 1996 September 26, 1997
----------------- ------------------
Raw materials $ 4,517,981 $ 5,291,021
Work in progress 1,226,627 3,106,696
Finished goods 6,564,980 6,263,057
----------------- ------------------
$ 12,309,588 $ 14,660,774
----------------- ------------------
----------------- ------------------
(3) Property and Equipment.
December 31, 1996 September 26, 1997
----------------- ------------------
Land and building $ 4,613,051 $ 4,613,051
Machinery and equipment 12,477,147 15,657,825
Office furniture and equipment 2,302,613 2,616,042
Leasehold improvements 1,809,169 2,115,139
Rental equipment 676,669 848,527
Construction in progress 461,010 1,315,977
----------------- ------------------
22,339,659 27,166,561
Less accumulated depreciation
and amortization (7,887,155) (9,384,278)
----------------- ------------------
$ 14,452,504 $ 17,782,283
----------------- ------------------
----------------- ------------------
Page 6 of 17
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and September 26, 1997
(Unaudited)
(4) Statement of Financial Accounting Standards Not Yet Adopted.
(a) In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share". This statement requires dual presentation of newly defined basic and
diluted earnings per share ("EPS") on the face of the income statement for
all entities with complex capital structures. The accounting standard is
effective for both interim and annual periods ending after December 15,
1997 and requires restatement of all prior period EPS data presented.
Earlier application is not permitted. However, disclosure of proforma EPS
amounts computed using SFAS No. 128 in the notes to the financial
statements is permitted in the periods prior to required adoption.
Accordingly the pro forma EPS data for the three and nine month periods
ended September 27, 1996 and September 26, 1997 are as follows (shares in
thousands):
Three Month Periods Ended
September 27, 1996 September 26, 1997
------------------ ------------------
Shares EPS Shares EPS
------------------ ------------------
Basic EPS 11,336 $ .09 11,411 $ (.19)
Diluted EPS 11,697 .09 11,411 (.19)
Nine Month Periods Ended
September 27, 1996 September 26, 1997
------------------ ------------------
Shares EPS Shares EPS
------------------ ------------------
Basic EPS 11,314 $ .26 11,383 $ (.18)
Diluted EPS 11,763 .25 11,383 (.18)
(b) On June 30, 1997, the Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income". This statement
establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997 and requires restatement of earlier periods presented.
Management is currently evaluating the requirements of SFAS 130.
Page 7 of 17
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements (Continued)
December 31, 1996 and September 26, 1997
(Unaudited)
(c) On June 30, 1997, the Financial Accounting Standards Board issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for the way that a
public enterprise reports information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued
to shareholders. SFAS 131 is effective for fiscal years beginning after
December 15, 1997 and requires restatement of earlier periods presented.
Management is currently evaluating the requirements of SFAS 131.
(5) EOS Acquisition.
On September 22, 1997, the Company completed the acquisition of the
rapid prototyping "Stereos" product line assets and business from
EOS GmbH of Germany, formerly 3D's major European competitor. The
acquisition is expected to enhance the Company's competitive global
market position, particularly in Europe. Under the terms of the
agreement, 3D is obligated to pay $3.25 million dollars, subject to
certain adjustments based on final determination of the value of
the assets acquired, issue a warrant to buy 150,000 of 3D's common
shares at $8.00 per share exercisable within the three year period
following the closing (valued at $727,000), and granted EOS exclusive
licenses to 3D patents related to laser sintering. Additionally,
the Company agreed to settle all pending patent infringement and
unfair competition lawsuits brought against EOS and an EOS customer.
In accordance with the purchase method of accounting, the purchase price
has been allocated to the underlying assets and liabilities based on their
respective fair values at the date of acquisition. Such allocation has been
based on preliminary estimates which may be revised at a later date. The
total purchase price, including transaction costs, was allocated to
goodwill and other intangibles of $1.2 million, working capital and fixed
assets of $.5 million and in process research and development of $2.1
million. The in process research and development was expensed in the
quarter ended September 26, 1997 as a nonrecurring cost after
determining that it had not reached technological feasibility and for
which there is no alternative future use.
Page 8 of 17
3D SYSTEMS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains trend analysis and other forward looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended and Section 21A of the Securities Act of 1933, as amended.
Actual results could differ from those projected in the forward looking
statements as a result of the cautionary statements and risk factors set forth
below and in Item 1 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
RESULTS OF OPERATIONS
The Company's revenues are generated by product and service sales.
Product sales are comprised of the sale of Stereolithography Apparatus
("SLA") systems and related equipment, Actua 2100's, resins, software, and
other component parts, as well as rentals of SLA systems. Service sales
include revenues from maintenance, services provided by the Company's Tooling
Centers, and customer training.
The following table sets forth certain operating amounts and ratios as a
percentage of total sales except as otherwise indicated:
Three Month Periods Ended Nine Month Periods Ended
-------------------------------------- --------------------------------------
September 27, 1996 September 26, 1997 September 27, 1996 September 26, 1997
------------------ ------------------ ------------------ ------------------
(in thousands)
Sales:
Products $ 12,595 $ 14,615 $ 38,195 $ 42,324
Services 7,195 7,679 19,317 23,232
--------------- --------------- --------------- ---------------
Total sales 19,790 22,294 57,512 65,556
--------------- --------------- --------------- ---------------
Cost of sales:
Products 5,889 8,637 17,473 23,636
Services 4,403 5,232 12,071 16,371
--------------- --------------- --------------- ---------------
Total cost of sales 10,292 13,869 29,544 40,007
--------------- --------------- --------------- ---------------
Total gross profit 9,498 8,425 27,968 25,549
% of total sales 48.0% 37.8% 48.6% 39.0%
Gross profit - products 6,706 5,978 20,722 18,688
% of total product sales 53.2% 40.9% 54.3% 44.2%
Gross profit - services 2,792 2,447 7,246 6,861
% of total service sales 38.8% 31.9% 37.5% 29.5%
Selling, general and administrative
expenses 6,078 7,320 18,505 20,882
% of total sales 30.7% 32.8% 32.2% 31.9%
Research and development expenses 2,221 4,659 5,873 8,600
% of total sales 11.2% 20.9% 10.2% 13.1%
--------------- --------------- --------------- ---------------
Income (loss) from operations 1,199 (3,554) 3,590 (3,933)
% of total sales 6.1% (15.9%) 6.2% (6.0%)
Interest income, net 327 207 1,148 766
% of total sales 1.6% 0.9% 2.0% 1.2%
Provision for income taxes (benefit) 511 (1,212) 1,800 (1,140)
% of total sales 2.6% (5.4%) 3.1% (1.7%)
--------------- --------------- --------------- ---------------
Net income (loss) 1,015 (2,135) 2,938 (2,027)
% of total sales 5.1% (9.6%) 5.1% (3.1%)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Page 9 of 17
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 Nine Month Periods Ended
-------------------------------------- --------------------------------------
September 27, 1996 September 26, 1997 September 27, 1996 September 26, 1997
------------------ ------------------ ------------------ ------------------
(in thousands)
Products:
SLA and Actua systems, and related
equipment $ 9,355 $ 9,770 $ 27,275 $ 29,282
Resins 2,503 3,829 7,581 9,761
Software, other components parts
and rentals 737 1,016 3,339 3,281
--------------- --------------- --------------- ---------------
Total products 12,595 14,615 38,195 42,324
--------------- --------------- --------------- ---------------
Services:
Maintenance 5,808 6,207 15,482 18,720
Tooling Centers 1,107 1,092 3,167 3,556
Training 280 380 668 956
--------------- --------------- --------------- ---------------
Total services 7,195 7,679 19,317 23,232
--------------- --------------- --------------- ---------------
Total sales $ 19,790 $ 22,294 $ 57,512 $ 65,556
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Products:
SLA and Actua systems, and related
equipment 47.3% 43.8% 47.4% 44.7%
Resins 12.6 17.2 13.2 14.9
Software, other components parts
and rentals 3.7 4.6 5.8 5.0
--------------- --------------- --------------- ---------------
Total products 63.6 65.6 66.4 64.6
--------------- --------------- --------------- ---------------
Services:
Maintenance 29.4 27.8 26.9 28.5
Tooling Centers 5.6 4.9 5.5 5.4
Training 1.4 1.7 1.2 1.5
--------------- --------------- --------------- ---------------
Total services 36.4 34.4 33.6 35.4
--------------- --------------- --------------- ---------------
Total sales 100.0% 100.0% 100.0% 100.0%
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Page 10 of 17
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
THREE MONTH PERIOD ENDED SEPTEMBER 26, 1997 COMPARED TO THE THREE MONTH PERIOD
ENDED SEPTEMBER 27, 1996.
SALES. Sales during the three month period ended September 26, 1997 (the "third
quarter of 1997") were $22.3 million, an increase of 13% over the $19.8 million
recorded during the three month period ended September 27, 1996 (the "third
quarter of 1996").
Product sales during the third quarter of 1997 ($14.6 million) increased $2.0
million, compared to $12.6 million in the third quarter of 1996. The Company
sold a total of 42 SLA systems in the third quarter of 1997. During the third
quarter of 1996, the Company sold 34 SLAs. In addition, during the third
quarter of 1997, the Company sold a total of 14 Actua 2100's, the Company's
low-priced office modeler (which uses a different technology than
stereolithography), designed for operation in engineering and design offices.
Orders for the Company's SLA systems increased substantially in the third
quarter of 1997 as compared to the third quarter of 1996; however, total SLA
backlog at the end of the third quarter of 1997 was substantially lower than the
backlog at the end of the third quarter of 1996. The Company believes that the
increase in orders in the third quarter of 1997 (when compared to the third
quarter of 1996) was due primarily to the increased sales and marketing efforts
in Europe and Asia Pacific along with increased productivity from our direct
U.S. sales force.
The Company believes that SLA system sales may fluctuate on a quarterly basis as
a result of a number of factors, including the status of world economic
conditions, fluctuations in foreign currency exchange rates and the timing of
product shipments (the current U.S. list price of an SLA-5000, for example, is
$490,000; thus the acceleration or delay of a small number of shipments from one
quarter to another can significantly affect the results of operations for the
quarters involved).
Service sales during the third quarter of 1997 increased $.5 million or 7%
compared to the third quarter of 1996, primarily as a result of increased
maintenance revenues due to the larger installed base of SLA systems in the U.S.
and Europe.
COST OF SALES. Cost of sales increased to $13.9 million or 62% of sales in the
third quarter of 1997 from $10.3 million or 52% of sales in the third quarter of
1996.
Product cost of sales as a percentage of product sales increased to 59 % during
the third quarter of 1997 compared to 47% during the third quarter of 1996. The
increase in 1997 was primarily the result of greater discounting of European SLA
system sales in 1997 due to competition; sales of the lower margin SLA 250/30A
and Actua 2100 office modeler; greater domestic discounting due to competitive
pricing pressures; price reductions to the SLA-250 Series 40 and Series 50
effected by the Company in January 1997; increased manufacturing overhead as a
result of the transition of the Company's manufacturing activities from
Valencia, California to a new and larger manufacturing facility in Grand
Junction, Colorado; inventory adjustments primarily associated with the
transition to our new generation of products announced earlier in the quarter;
and the stronger U.S. dollar in the third quarter of 1997, as compared to the
third quarter of 1996.
These factors were partially offset by substantially reduced commission
payments to agents as a result of the termination of domestic sales agents
that occurred during the third quarter of 1996. The Company's gross profit
margins on product sales are affected by several factors including, among
others, sales mix, distribution channels and fluctuations in foreign currency
exchange rates
Page 11 of 17
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
and, therefore, may vary in future periods from those experienced during the
third quarter of 1997. Additionally, the Company anticipates that the gross
margins related to the Actua 2100 system will be lower than margins on its SLA
systems and, if revenues from the sales of Actua 2100 represent a material
portion of the Company's product sales, gross margins from product sales would
be reduced.
Service cost of sales as a percentage of service sales increased to 68% during
the third quarter of 1997 compared to 61% during the third quarter of 1996,
primarily as a result of increased parts costs under the Company's field
maintenance contracts, lower revenue in the Tooling Centers and the effect of
certain inefficiencies attributable to the Company's Keltool operations which
were acquired in September 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("S,G&A") expenses increased approximately $1,242,000 or 20% in
the third quarter of 1997 compared to the third quarter of 1996, primarily as a
result of approximately $500,000 of non-recurring expense for severance
benefits related to a restructuring plan designed to reduce costs and improve
operating results and to the expanded sales and marketing programs in both
Europe and the U.S. The Company currently anticipates that if its revenues
continue to grow, S,G&A expenses as a percentage of total sales in future
quarters should begin to decline, primarily as a result of economies of
scale. However, this is a forward looking statement and, as with other such
statements, is subject to uncertainties. For example, if sales do not
continue to grow over the period, it is less likely that S,G&A expenses as a
percentage of total sales would decline.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development ("R&D") expenses
during the third quarter of 1997 increased approximately $2,438,000 or 110%
compared to the third quarter of 1996. The increase in R&D expenses in 1997 was
primarily the result of the write-off during the third quarter of 1997 of
acquired in-process technology valued at $2,100,000 in connection with the EOS
acquisition (see note 5 of Notes to Consolidated Financial Statements) as well
as increased personnel costs and experimental material related to certain
development projects. Based on the Company's historical expenditures related to
research and development and its current development goals, the Company
anticipates for the foreseeable future, research and development expenses will
be equal to approximately 8% to 10% of sales. However, 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 do not meet the anticipated sales of the Company for that period,
research and development expenses as a percentage of sales may exceed the 8% to
10% level.
OPERATING INCOME(LOSS). Operating loss for the third quarter of 1997 was 15.9%
of total sales compared to operating income of 6.1% of total sales in the third
quarter of 1996. The decrease in the percentage of operating income to total
sales in 1997 was primarily attributable to the increases in cost of sales (both
products and services) in 1997 and the non-recurring expenses relating to
acquired in-process technology and severance benefits, described above.
OTHER INCOME AND EXPENSES. Interest income decreased to $308,663 during the
third quarter of 1997 from $361,794 during the third quarter of 1996, primarily
as a result of the lower investment balances due to cash used for operating
activities and investment activities since the third quarter of 1996 partially
offset by interest income from lease receivables.
Interest expense increased to $101,123 during the third quarter of 1997 from
$34,753 in the third quarter of 1996 primarily as a result of the Company's
financing of its Colorado facility which was effected in August 1996.
PROVISION FOR INCOME TAXES(BENEFIT). For the third quarter of 1997, the
Company's tax benefit was ($1,212,039) or 36% of pre-tax loss compared to tax
expense of $510,661 or 33% of pre-tax income for the third quarter of 1996.
The Company's anticipated tax rate for the remainder of 1997 is expected to
approximate 40%.
Page 12 of 17
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
NINE MONTH PERIOD ENDED SEPTEMBER 26, 1997 COMPARED TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 27, 1996.
SALES. Sales during the nine month period ended September 26, 1997 (the "first
nine months of 1997") were $65.6 million, an increase of 14% over the $57.5
million recorded during the nine month period ended September 27, 1996 (the
"first nine months of 1996").
Product sales during the first nine months of 1997 ($42.3 million) increased
$4.1 million or 11%, compared to $38.2 million in the first nine months of 1996.
The Company sold a total of 116 SLA systems and a total of 73 Actua 2100's in
the first nine months of 1997. During the first nine months of 1996, the
Company sold 107 SLAs.
Orders for the Company's SLA systems in the first nine months of 1997 (compared
to the first nine months of 1996) increased in both Europe and the Asia-Pacific
markets but declined in the U.S. market. The Company believes that the decline
in U.S. orders in the first nine months of 1997 (when compared to the first nine
months of 1996) was due primarily to the inefficiencies caused by the recent
changes in the domestic sales organization from a strategy of utilizing
independent sales representatives (primarily in the machine tool industry) to a
direct sales force. Between September 1, 1996, and December 31, 1996, the
Company completed the hiring of additional sales personnel. Because of the
long cycle for SLA systems sales, the Company believed that the additions to its
internal sales organization did not have a significant impact on domestic orders
until the third quarter of 1997.
Service sales during the first nine months of 1997 increased $3.9 million or 20%
compared to the first nine months of 1996, primarily as a result of increased
maintenance revenues due to the larger installed base of SLA systems in the U.S.
and Europe.
COST OF SALES. Cost of sales increased to $40.0 million or 61% of sales in the
first nine months of 1997 from $29.5 million or 51% of sales in the first nine
months of 1996.
Product cost of sales as a percentage of product sales increased to 56 % during
the first nine months of 1997 compared to 46% during the first nine months of
1996. The increase in 1997 was primarily the result of greater discounting of
European SLA system sales in 1997 due to competition; sales of the lower margin
SLA 250/30A and Actua 2100 office modeler; greater domestic discounting due to
competitive pricing pressures; price reductions to the SLA-250 Series 40 and
Series 50 effected by the Company in January 1997; increased manufacturing
overhead as a result of the transition of the Company's manufacturing
activities from Valencia, California, to a new and larger manufacturing facility
in Grand Junction, Colorado; inventory adjustments primarily associated with
the transition to our new generation of products announced earlier in the
quarter; and the stronger U.S. dollar in the first nine months of 1997, as
compared to the first nine months of 1996. These factors were partially offset
by substantially reduced commission payments to agents as a result of the
termination of domestic sales agents described above.
Service cost of sales as a percentage of service sales increased to 70% during
the first nine months of 1997 compared to 62% during the first nine months of
1996, primarily as a result of certain hardware upgrades afforded SLA-500
customers with software maintenance contracts due to the Company's new NT
version system software, increased parts costs under the Company's field
maintenance contracts, lower revenue in the Tooling Centers and the effect of
certain inefficiencies attributable to the Company's Keltool operations which
were acquired in September 1996.
Page 13 of 17
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("S,G&A") expenses increased approximately $2,376,000 or 13% in
the first nine months of 1997 compared to the first nine months of 1996,
primarily as a result of approximately $1,000,000 of non-recurring expense for
severance benefits related to restructuring plans designed to reduce costs and
improve operating results and to the expanded sales and marketing programs in
Europe and the U.S.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development ("R&D") expenses
during the first nine months of 1997 increased approximately $2,728,000 or 46%
compared to the first nine months of 1996. The increase in R&D expenses in 1997
was primarily the result of the write-off during the third quarter of 1997 of
acquired in-process technology valued at $2,100,000 in connection with the EOS
acquisition (see note 5 of Notes to Consolidated Financial Statements) and
increased personnel costs and experimental material related to certain
development projects.
OPERATING INCOME (LOSS). Operating loss for the first nine months of 1997 was
6.0% of total sales compared to operating income of 6.2% of total sales in the
first nine months of 1996. The decrease in the percentage of operating income to
total sales in 1997 was primarily attributable to the increases in cost of sales
(both products and services) in 1997 , the increase in S,G&A expenses and the
increased R&D expenses described above.
OTHER INCOME AND EXPENSES. Interest income decreased to $994,333 during the
first nine months of 1997 from $1,194,088 during the first nine months of 1996,
primarily as a result of the lower investment balances due to cash used for
operating activities and investment activities since the third quarter of 1996
partially offset by interest income from lease receivables.
Interest expense increased to $228,326 during the first nine months of 1997 from
$46,251 in the first nine months of 1996 primarily as a result of the Company's
financing of its Colorado facility which was effected in August 1996.
PROVISION FOR INCOME TAXES(BENEFIT). For the first nine months of 1997, the
Company's tax benefit was $1,140,128 or 36% of pre-tax income compared to tax
expense of $1,800,535 or 38% of pre-tax income for the first nine months of
1996. The Company's anticipated tax rate for the remainder of 1997 is expected
to approximate 40%.
Page 14 of 17
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
December 31,1996 September 26, 1997
---------------- ------------------
Cash and cash equivalents (1) $ 25,078,441 $ 12,777,612
Short-term investments 3,759,492 1,997,422
Working capital (1) 49,763,554 41,589,577
Nine Month Periods Ended
-------------------------------------------
September 27, 1996 September 26, 1997
------------------ ------------------
Cash used for operating activities $ (5,724,924) $ (4,828,367)
Cash used for investing activities (8,161,093) (6,210,245)
Cash provided by (used for)
financing activities 5,271,486 (13,493)
- --------------------------
(1) Includes $722,000 and $625,000 of restricted cash at December 31, 1996 and
September 26, 1997, respectively.
Net cash used for operating activities during the first nine months of 1997
was $4.8 million. The negative cash flow from operations during the first
nine months of 1997, comprised primarily of increases in accounts receivable
($5.4 million), inventory ($2.5 million) as a result of an increase in SLA
finished goods and raw materials (both Actua 2100 and SLA) and other assets
($1.2 million) mainly as a result of the EOS acquisition all of which were
partially offset by non cash depreciation and amortization ($3.7 million), an
increase in accrued liabilities ($1.7 million) and accounts payable ($.9
million).
Net cash used for investing activities during the first nine months of 1997
totaled $6.2 million and was primarily the result of expenditures related to
SLA equipment manufactured for use as demonstration equipment ($3.7 million),
the purchase of computers and manufacturing equipment ($1.9 million) due to
an increase in personnel and increased production capacity and the increase
in licenses and patent costs ($2.0 million) which was substantially offset
by the net of the liquidation and purchase of short-term investments ($1.8
million).
Net cash used for financing activities during the first nine months of 1997
was primarily the result of the Company's purchase of treasury stock and the
repayment of a portion of the principal related to the $4.9 million
tax-exempt industrial revenue development bond financing effected in August
1996 in conjunction with the transition of the Company's manufacturing
activities from Valencia, California to Grand Junction, Colorado offset by
the exercise of stock options.
The Company believes that funds generated from operations, existing working
capital and its current line of credit will be sufficient to satisfy its
anticipated operating requirements for at least the next twelve months.
Page 15 of 17
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11. Computation of per share earnings.
27. Financial data schedule.
(b) Reports on Form 8-K
Current report on Form 8-K dated July 24, 1997 containing item 5
disclosure.
Current report on Form 8-K dated September 22, 1997 containing item 5
disclosure.
Page 16 of 17
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/ Edward C. Ferrier 11/10/97
- ---------------------------------------- -------------
Edward C. Ferrier Date
Corporate Controller and Acting
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
Page 17 of 17