NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of 3D Systems Corporation and
all majority-owned subsidiaries and entities in which a controlling interest is maintained (the “Company”). A non-controlling interest in a subsidiary is considered an ownership interest in a majority-owned subsidiary that is not attributable to the parent. The Company includes noncontrolling interests as a component of total equity in the condensed consolidated balance sheets and the net income attributable to noncontrolling interests are presented as an adjustment from net loss used to arrive at net loss attributable to 3D Systems Corporation in the condensed consolidated statements of operations and comprehensive loss. All significant intercompany transactions and balances have been eliminated in consolidation.
The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim reports. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements and should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”).
In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments, consisting of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results of operations for the quarter ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results may differ from those estimates and assumptions. Certain prior period amounts presented in the condensed consolidated financial statements and accompanying footnotes have been reclassified to conform to current year presentation.
All dollar amounts presented in the accompanying footnotes are presented in thousands, except for per share information.
Recently Adopted Accounting Standards
On January 1, 2019, the Company adopted the Financial Accounting Standards Board ("FASB") ASU No. 2016-02, “Leases (Topic 842),” which requires the recognition of right-of-use ("ROU") assets and related operating and finance lease liabilities on the balance sheet. The Company adopted ASU 2016-02 effective January 1, 2019 using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented.
As permitted under ASU 2016-02, the Company applied practical expedients that allowed it to not (1) reassess historical lease classifications, (2) recognize short-term leases on the balance sheet, nor (3) separate lease and non-lease components for its real estate leases.
As a result of the adoption of ASU 2016-02 on January 1, 2019, the Company recorded operating lease liabilities and ROU assets of $38,415. The adoption of ASU 2016-02 had an immaterial impact on the Company's condensed consolidated statement of operations and condensed consolidated statement of cash flows for the nine months ended September 30, 2019. For additional information about leases, see Note 3.
Accounting Standards Issued But Not Yet Adopted
In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)," which aligns the requirements for capitalizing implementation costs incurred in a service contract hosting arrangement with those of developing or obtaining internal-use software. This standard is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company is evaluating the impact the new standard will have on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which eliminates the performance of Step 2 from the goodwill impairment test. In performing its annual or interim impairment testing, an entity will instead compare the fair value of the reporting unit with its carrying amount and recognize any impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The standard is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual impairment tests performed on testing dates after January 1, 2017. The Company has elected not to adopt the provisions of this standard early but will re-evaluate as part of performing its 2019 impairment analysis.
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), which provides guidance regarding the measurement of credit losses for financial assets and certain other instruments that are not accounted for at fair value through net income, including trade and other receivables, debt securities, net investment in leases, and off-balance sheet credit exposures. The new guidance requires companies to replace the current incurred loss impairment methodology with a methodology that measures all expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance expands the disclosure requirements regarding credit losses, including the credit loss methodology and credit quality indicators. In May 2019, the FASB issued ASU 2019-05, "Financial Instruments—Credit Losses (Topic 326)," which provides transition relief to entities adopting ASU 2016-13 by allowing entities to elect the fair value option on certain financial instruments. ASU 2016-13 will be effective for annual reporting periods, including interim reporting within those periods, beginning after December 15, 2019. Early adoption is permitted for annual reporting periods, including interim periods after December 15, 2018 and will be applied using a modified retrospective approach. The Company is evaluating the impact of adoption of this standard on its consolidated financial statements.
No other new accounting pronouncements, issued or effective during 2019, have had or are expected to have a significant impact on the Company’s consolidated financial statements.
(2) Revenue
The Company accounts for revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers,” which it adopted on January 1, 2018, using the modified-retrospective method.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
At September 30, 2019, the Company had $107,486 of outstanding performance obligations. The Company expects to recognize approximately 93 percent of its remaining performance obligations as revenue within the next twelve months, an additional 3 percent by the end of 2020 and the balance thereafter.
Revenue Recognition
Revenue is recognized when control of the promised products or services is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Many of its contracts with customers include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative stand-alone selling price (“SSP”). Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. The amount of consideration received and revenue recognized may vary based on changes in marketing incentive programs offered to our customers. The Company's marketing incentive programs take many forms, including volume discounts, trade-in allowances, rebates and other discounts.
A majority of the Company’s revenue is recognized at the point in time when products are shipped or services are delivered to customers. Please see below for further discussion.
Hardware and Materials
Revenue from hardware and material sales is recognized when control has transferred to the customer which typically occurs when the goods have been shipped to the customer, risk of loss has transferred to the customer and the Company has a present right to payment for the hardware. In limited circumstances when a printer or other hardware sales include substantive customer acceptance provisions, revenue is recognized either when customer acceptance has been obtained, customer acceptance provisions have lapsed, or the Company has objective evidence that the criteria specified in the customer acceptance provisions have been satisfied.
Software
The Company also markets and sells software tools that enable our customers to capture and customize content using our printers, design optimization and simulation software, and reverse engineering and inspection software. Software does not require significant modification or customization and the license provides the customer with a right to use the software as it exists when made available. Revenue from these software licenses is recognized either upon delivery of the product or of a key code which allows the customer to download the software. Customers may purchase post-sale support. Generally, the first year is included but subsequent years are optional. This optional support is considered a separate obligation from the software and is deferred at the time of sale and subsequently recognized ratably over future periods.
Services
The Company offers training, installation and non-contract maintenance services for its products. Additionally, the Company offers maintenance contracts customers can purchase at their option. For maintenance contracts, revenue is deferred at the time of sale based on the stand-alone selling prices of these services and costs are expensed as incurred. Deferred revenue is recognized ratably over the term of the maintenance period on a straight-line basis. Revenue from training, installation and non-contract maintenance services is recognized at the time of performance of the service.
On demand manufacturing and healthcare service sales are included within services revenue and revenue is recognized upon shipment or delivery of the parts or performance of the service, based on the terms of the arrangement.
Terms of sale
Shipping and handling activities are treated as fulfillment costs rather than as an additional promised service. The Company accrues the costs of shipping and handling when the related revenue is recognized. Costs incurred by the Company associated with shipping and handling are included in product cost of sales.
Credit is extended, and creditworthiness is determined, based on an evaluation of each customer’s financial condition. New customers are generally required to complete a credit application and provide references and bank information to facilitate an analysis of creditworthiness. Customers with a favorable profile may receive credit terms that differ from the Company’s general credit terms. Creditworthiness is considered, among other things, in evaluating the Company’s relationship with customers with past due balances.
The Company’s terms of sale generally provide payment terms that are customary in the countries where it transacts business. To reduce credit risk in connection with certain sales, the Company may, depending upon the circumstances, require significant deposits or payment in full prior to shipment. For maintenance services, the Company either bills customers on a time-and-materials basis or sells maintenance contracts that provide for payment in advance on either an annual or other periodic basis.
See Note 12 for additional information related to revenue by reportable segment and major lines of business.
Significant Judgments
The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. For such arrangements, the Company allocates revenues to each performance obligation based on its relative SSP.
Judgment is required to determine the SSP for each distinct performance obligation in a contract. For the majority of items, the Company estimates SSP using historical transaction data. The Company uses a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when the product or service is not sold separately, the Company determines the SSP using information that may include market conditions and other observable inputs.
In some circumstances, the Company has more than one SSP for individual products and services due to the stratification of those products and services by customers, geographic region or other factors. In these instances, it may use information such as the size of the customer and geographic region in determining the SSP.
The determination of SSP is an ongoing process and information is reviewed regularly in order to ensure SSP reflects the most current information or trends.
The nature of the Company’s marketing incentives may lead to consideration that is variable. Judgment is exercised at contract inception to determine the most likely outcome of the contract and resulting transaction price. Ongoing assessments are performed to determine if updates are needed to the original estimates.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer deposits and deferred revenues (contract liabilities) on the consolidated balance sheets. Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records a receivable when revenue is recognized at the time of invoicing, or unbilled receivables when revenue is recognized prior to invoicing. For most of the Company’s contracts, customers are invoiced when products are shipped or when services are performed resulting in billed accounts receivables for the remainder of the owed contract price. Unbilled receivables generally result from items being shipped where the customer has not been charged, but for which revenue had been recognized. In the Company’s on demand manufacturing business, customers may be required to pay in full before work begins on their orders, resulting in customer deposits. The Company typically bills in advance for installation, training and maintenance contracts as well as extended warranties, resulting in deferred revenue. Changes in contract asset and liability balances were not materially impacted by any other factors for the period ended September 30, 2019.
Through September 30, 2019, the Company recognized revenue of $24,072 related to our contract liabilities at January 1, 2019.
Practical Expedients and Exemptions
The Company generally expenses sales commissions when incurred because the amortization period would be one year or less. These costs are recorded within selling, general and administrative expenses.
(3) Leases
The Company has various lease agreements for its facilities, equipment and vehicles with remaining lease terms ranging from one to seventeen years. The Company determines if an arrangement contains a lease at inception. Some leases include the options to purchase, terminate or extend for one or more years; these options are included in the ROU asset and liability lease term when it is reasonably certain an option will be exercised. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.
Most of the Company’s leases do not provide an implicit rate, therefore the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of the future lease payments.
Certain of the Company’s leases include variable costs. Variable costs include non-lease components that were incurred based upon actual terms rather than contractually fixed amounts. In addition, variable costs are incurred for lease payments that are indexed to a change in rate or index. Because the right of use asset recorded on the balance sheet was determined based upon factors considered at the commencement date, subsequent changes in the rate or index that were not contemplated in the right of use asset balances recorded on the balance sheet result in variable expenses being incurred when paid during the lease term.
Components of lease cost (income) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Quarter ended September 30, 2019
|
|
Nine Months Ended September 30, 2019
|
|
Operating lease cost
|
|
$
|
3,646
|
|
|
$
|
11,110
|
|
|
Finance lease cost - amortization expense
|
|
174
|
|
|
592
|
|
|
Finance lease cost - interest expense
|
|
114
|
|
|
344
|
|
|
Short-term lease cost
|
|
30
|
|
|
80
|
|
|
Variable lease cost
|
|
102
|
|
|
137
|
|
|
Sublease income
|
|
(33)
|
|
|
(33)
|
|
|
Total
|
|
$
|
4,033
|
|
|
$
|
12,230
|
|
Balance sheet classifications at September 30, 2019 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
(in thousands)
|
|
Right of use assets
|
|
Current right of use liabilities
|
|
Long-term right of use liabilities
|
|
Operating Leases
|
|
$
|
30,786
|
|
|
$
|
10,092
|
|
|
$
|
26,488
|
|
|
Finance Leases
|
|
4,242
|
|
|
705
|
|
|
6,179
|
|
|
Total
|
|
$
|
35,028
|
|
|
$
|
10,797
|
|
|
$
|
32,667
|
|
The Company’s future minimum lease payments as of September 30, 2019 under operating lease and finance leases, with initial or remaining lease terms in excess of one year, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
(in thousands)
|
|
Operating Leases
|
|
Finance Leases
|
|
Years ending September 30:
|
|
|
|
|
|
2020
|
|
$
|
3,785
|
|
|
$
|
292
|
|
|
2021
|
|
10,514
|
|
|
1,103
|
|
|
2022
|
|
7,486
|
|
|
829
|
|
|
2023
|
|
6,227
|
|
|
832
|
|
|
2024
|
|
5,406
|
|
|
828
|
|
|
Thereafter
|
|
10,398
|
|
|
6,021
|
|
|
Total lease payments
|
|
43,816
|
|
|
9,905
|
|
|
Less: imputed interest
|
|
(7,236)
|
|
|
(3,021)
|
|
|
Present value of lease liabilities
|
|
$
|
36,580
|
|
|
$
|
6,884
|
|
Supplemental cash flow information related to our operating leases for the period ending September 30, 2019, was as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash outflow from operating leases
|
|
$
|
11,657
|
|
|
Operating cash outflow from finance leases
|
|
$
|
343
|
|
|
Financing cash outflow from finance leases
|
|
$
|
513
|
|
Weighted-average remaining lease terms and discount rate for our operating leases for the period ending September 30, 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
Operating
|
|
Financing
|
|
Weighted-average remaining lease term
|
|
5.2 years
|
|
10.9 years
|
|
Weighted-average discount rate
|
|
6.47
|
%
|
|
6.74
|
%
|
(4) Inventories
Components of inventories at September 30, 2019 and December 31, 2018 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2019
|
|
2018
|
|
Raw materials
|
$
|
49,130
|
|
|
$
|
49,624
|
|
|
Work in process
|
5,941
|
|
|
2,969
|
|
|
Finished goods and parts
|
67,635
|
|
|
80,568
|
|
|
Inventories
|
$
|
122,706
|
|
|
$
|
133,161
|
|
(5) Intangible Assets
Intangible assets, net, other than goodwill, at September 30, 2019 and December 31, 2018 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
(in thousands)
|
Gross (a)
|
|
Accumulated Amortization
|
|
Net
|
|
Gross (a)
|
|
Accumulated Amortization
|
|
Net
|
|
Weighted Average Useful Life Remaining (in years)
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
102,023
|
|
|
$
|
(74,349)
|
|
|
$
|
27,674
|
|
|
$
|
103,332
|
|
|
$
|
(67,129)
|
|
|
$
|
36,203
|
|
|
5
|
|
Acquired technology
|
54,067
|
|
|
(51,241)
|
|
|
2,826
|
|
|
52,691
|
|
|
(47,546)
|
|
|
5,145
|
|
|
2
|
|
Trade names
|
23,668
|
|
|
(18,402)
|
|
|
5,266
|
|
|
25,096
|
|
|
(17,669)
|
|
|
7,427
|
|
|
5
|
|
Patent costs
|
11,678
|
|
|
(9,079)
|
|
|
2,599
|
|
|
11,032
|
|
|
(8,382)
|
|
|
2,650
|
|
|
14
|
|
Trade secrets
|
19,296
|
|
|
(15,076)
|
|
|
4,220
|
|
|
19,374
|
|
|
(13,574)
|
|
|
5,800
|
|
|
3
|
|
Acquired patents
|
16,184
|
|
|
(14,340)
|
|
|
1,844
|
|
|
16,212
|
|
|
(13,160)
|
|
|
3,052
|
|
|
7
|
|
Other
|
25,712
|
|
|
(18,888)
|
|
|
6,824
|
|
|
26,551
|
|
|
(18,553)
|
|
|
7,998
|
|
|
1
|
|
Total intangible assets
|
$
|
252,628
|
|
|
$
|
(201,375)
|
|
|
$
|
51,253
|
|
|
$
|
254,288
|
|
|
$
|
(186,013)
|
|
|
$
|
68,275
|
|
|
5
|
(a) Change in gross carrying amounts consists primarily of charges for license and patent costs and foreign currency translation.
Amortization expense related to intangible assets was $5,287 and $16,525 for the quarter and nine months ended September 30, 2019, respectively, compared to $7,811 and $23,714 for the quarter and nine months ended September 30, 2018, respectively.
(6) Accrued and Other Liabilities
Accrued liabilities at September 30, 2019 and December 31, 2018 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2019
|
|
2018
|
|
Compensation and benefits
|
$
|
19,648
|
|
|
$
|
23,787
|
|
|
Accrued taxes
|
19,500
|
|
|
17,246
|
|
|
Vendor accruals
|
12,033
|
|
|
6,895
|
|
|
Product warranty liability
|
2,985
|
|
|
3,788
|
|
|
Arbitration awards
|
4,406
|
|
|
2,256
|
|
|
Accrued professional fees
|
2,116
|
|
|
1,657
|
|
|
Accrued other
|
779
|
|
|
2,219
|
|
|
Royalties payable
|
1,234
|
|
|
1,417
|
|
|
Total
|
$
|
62,701
|
|
|
$
|
59,265
|
|
Other liabilities at September 30, 2019 and December 31, 2018 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2019
|
|
2018
|
|
Long term employee indemnity
|
$
|
14,105
|
|
|
$
|
13,609
|
|
|
Long term tax liability
|
3,246
|
|
|
4,168
|
|
|
Defined benefit pension obligation
|
8,083
|
|
|
8,518
|
|
|
Long term deferred revenue
|
6,804
|
|
|
8,121
|
|
|
Other long term liabilities
|
8,940
|
|
|
4,915
|
|
|
Total
|
$
|
41,178
|
|
|
$
|
39,331
|
|
(7) Borrowings
Credit Facility
On February 27, 2019, the Company, as borrower, and certain of its subsidiaries, as guarantors, entered into a 5-year $100,000 senior secured term loan facility (the “Term Facility”) and a 5-year $100,000 senior secured revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facility”). The Senior Credit Facility replaced the Company's prior $150,000 5-year revolving, unsecured credit facility (the “Prior Credit Agreement”), which was terminated on February 27, 2019 in connection with the entry into the Senior Credit Facility. The proceeds of the Senior Credit Facility were used to refinance existing indebtedness of $25,000 outstanding under the Prior Credit Agreement and will be used to support working capital and for general corporate purposes. Subject to certain terms and conditions contained in the Revolving Facility, the Company has the right to request up to four increases to the amount of the Revolving Facility in an aggregate amount not to exceed $100,000. The Senior Credit Facility is scheduled to mature on February 26, 2024, at which time all amounts outstanding thereunder will be due and payable. However, the maturity date of the Revolving Facility may be extended at the election of the Company with the consent of the lenders subject to the terms set forth in the Senior Credit Facility.
Pursuant to the Senior Credit Facility, the guarantors guarantee, among other things, all of the obligations of the Company and each other guarantor under the Senior Credit Facility. From time to time, the Company may be required to cause additional domestic subsidiaries to become guarantors under the Senior Credit Facility.
The Senior Credit Facility contains customary covenants, some of which require the Company to maintain certain financial ratios that determine the amounts available and terms of borrowings and events of default. The Company was in compliance with all covenants at September 30, 2019.
The payment of dividends on the Company’s common stock is restricted under provisions of the Senior Credit Facility, which limits the amount of cash dividends that the Company may pay in any one fiscal year to $30,000. The Company currently does not pay, and has not paid, any dividends on its common stock, and currently intends to retain any future earnings for use in its business.
The Company had a balance of $58,987 outstanding on the Term Facility at September 30, 2019 at an interest rate of 4.0%, with $3,025 in principal payments due in the next twelve months.
(8) Hedging Activities and Financial Instruments
Derivatives Designated as Hedging Instruments
On July 8, 2019, the Company entered into an interest rate swap contract, designated as a cash flow hedge, to minimize the risk associated with the variability of cash flows in interest payments from variable-rate debt due to fluctuations in the one-month USD-LIBOR, subject to a 0% floor, through February 26, 2024. Changes in the interest rate swap are expected to offset the changes in cash flows attributable to fluctuations of the one-month USD-LIBOR for the interest payments associated with the Company's variable-rate debt.
The notional amount and fair value of the derivative on our balance sheet at September 30, 2019 are disclosed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Balance Sheet location
|
Notional amount
|
Fair value
|
|
Interest rate swap contract
|
Other liabilities
|
$
|
50,000
|
|
$
|
(798)
|
|
Amounts released from Accumulated Other Comprehensive Loss (AOCL) and reclassified into “Interest and other expense, net” did not have a material impact on our condensed consolidated statements of operations and comprehensive loss for the quarter and nine months ended September 30, 2019. The net amount of AOCL expected to be reclassified to earnings in the next 12 months is not expected to have material impact on our condensed consolidated statements of operations and comprehensive loss.
Derivatives Not Designated as Hedging Instruments
The Company conducts business in various countries using both the functional currencies of those countries and other currencies to effect cross border transactions. As a result, the Company is subject to the risk that fluctuations in foreign exchange rates between the dates that those transactions are entered into and their respective settlement dates will result in a foreign exchange gain or loss. When practicable, the Company endeavors to match assets and liabilities in the same currency on its balance sheet and those of its subsidiaries in order to reduce these risks. When appropriate, the Company enters into foreign currency contracts to hedge exposures arising from those transactions. The Company has elected not to prepare and maintain the documentation to qualify for hedge accounting treatment under ASC 815, “Derivatives and Hedging,” and therefore, all gains and losses (realized or unrealized) are recognized in “Interest and other expense, net” in the condensed consolidated statements of operations and comprehensive loss. Depending on their fair value at the end of the reporting period, derivatives are recorded either in prepaid expenses and other current assets or in accrued liabilities on the condensed consolidated balance sheet.
The Company had $105,923 and $75,304 in notional foreign exchange contracts outstanding as of September 30, 2019 and December 31, 2018, respectively. The fair values of these contracts were not material.
The Company translates foreign currency balance sheets from each international businesses’ functional currency (generally the respective local currency) to U.S. dollars at end-of-period exchange rates, and statements of earnings at average exchange rates for each period. The resulting foreign currency translation adjustments are a component of other comprehensive income (loss).
The Company does not hedge the fluctuation in reported revenue and earnings resulting from the translation of these international operations' results into U.S. dollars.
(9) Net Loss Per Share
The Company computes basic loss per share using net loss attributable to 3D Systems Corporation and the weighted average number of common shares outstanding during the applicable period. Diluted loss per share incorporates the additional shares issuable upon assumed exercise of stock options and the release of restricted stock and restricted stock units, except in such case when their inclusion would be anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
(in thousands, except per share amounts)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Numerator for basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
Net loss attributable to 3D Systems Corporation
|
$
|
(16,843)
|
|
|
$
|
(11,550)
|
|
|
$
|
(65,167)
|
|
|
$
|
(41,369)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
Weighted average shares
|
114,053
|
|
|
112,534
|
|
|
113,587
|
|
|
112,095
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
$
|
(0.15)
|
|
|
$
|
(0.10)
|
|
|
$
|
(0.57)
|
|
|
$
|
(0.37)
|
|
For the quarters ended September 30, 2019 and September 30, 2018, the effect of dilutive securities, including non-vested stock options and restricted stock awards/units, was excluded from the denominator for the calculation of diluted net loss per share because the Company recognized a net loss for the period and their inclusion would be anti-dilutive. Dilutive securities excluded for the quarter and nine months ended September 30, 2019 were 5,786 compared to 5,770 and 5,455, respectively, for the quarter ended and nine months ended September 30, 2018.
(10) Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities;
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
For the Company, the above standard applies to cash equivalents, Israeli severance funds and derivatives. The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of September 30, 2019
|
|
|
|
|
|
|
|
(in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Description
|
|
|
|
|
|
|
|
|
Cash equivalents (a)
|
$
|
20,780
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,780
|
|
|
Israeli severance funds (b)
|
$
|
—
|
|
|
$
|
7,394
|
|
|
$
|
—
|
|
|
$
|
7,394
|
|
|
Derivative financial instruments(c)
|
$
|
—
|
|
|
$
|
(798)
|
|
|
$
|
—
|
|
|
$
|
(798)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2018
|
|
|
|
|
|
|
|
(in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Description
|
|
|
|
|
|
|
|
|
Cash equivalents (a)
|
$
|
6,141
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,141
|
|
|
Israeli severance funds (b)
|
$
|
—
|
|
|
$
|
6,822
|
|
|
$
|
—
|
|
|
$
|
6,822
|
|
(a)Cash equivalents include funds held in money market instruments and are reported at their current carrying value, which approximates fair value due to the short-term nature of these instruments and are included in cash and cash equivalents in the consolidated balance sheet.
(b)The Company partially funds the liability for its Israeli severance requirement through monthly deposits into fund accounts, the value of these contributions are recorded to non-current assets on the consolidated balance sheet.
(c)See Note 8 for additional information on the Company's derivative financial instruments.
The Company did not have any transfers of assets and liabilities between Level 1, Level 2 and Level 3 of the fair value measurement hierarchy during the quarter and nine months ended September 30, 2019.
In addition to the assets and liabilities included in the above table, certain of our assets and liabilities are to be initially measured at fair value on a non-recurring basis. This includes goodwill and other intangible assets measured at fair value for impairment assessment, in addition to redeemable noncontrolling interests. For additional discussion, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Estimates” in the 2018 Form 10-K.
(11) Income Taxes
For the quarter and nine months ended September 30, 2019, the Company recorded expense of $2,010 and $5,793, resulting in effective tax rates of 13.6% and 9.8%, respectively. For the quarter and nine months ended September 30, 2018, the Company recorded expense of $1,593 and $6,086, resulting in effective tax rates of 16.0% and 17.4%, respectively. The difference between the statutory rate and the effective tax rate in 2019 is mainly driven by the Company recording a valuation allowance on one of its foreign subsidiaries in China, withholding tax expense, release of a liability for uncertain tax positions related to a German tax audit and expiration of statute of limitations for U.S. federal income tax purposes, foreign rate differential between the U.S. tax rate and foreign tax rates, as well as the impact of the change in valuation allowances that the Company has recorded in the U.S. and other foreign jurisdictions. In 2018 the impact was mainly driven by the change in valuation allowance that the Company has recorded in the U.S. and other foreign jurisdictions, foreign rate differential between the U.S. tax rate and foreign tax rates, and the completion of an audit in France.
Due to the one time transition tax, the majority of the Company’s previously unremitted earnings have now been subjected to U.S. federal income tax, although, other additional taxes such as withholding tax could be applicable. The Company continues to assert that its foreign earnings are indefinitely reinvested in our overseas operations. As such, it has not provided for any additional taxes on approximately $106,933 of unremitted earnings. The Company estimates the unrecognized deferred tax liability related to these earnings is approximately $16,000.
Tax years 2013 and 2014 remain subject to examination by the U.S. Internal Revenue Service ("IRS") for certain credit carryforwards, while tax years 2015 through 2017 remain open to examination by the IRS. State income tax returns are generally subject to examination for a period of three to four years after filing the respective tax returns. The Company files income tax returns (which are open to examination beginning in the year shown in parentheses) in Australia (2015), Belgium (2016), Brazil (2013), China (2016), France (2016), Germany (2015), India (2014), Israel (2014), Italy (2013), Japan (2014), Korea (2013), Mexico (2013), Netherlands (2014), Switzerland (2013), the United Kingdom (2017) and Uruguay (2014).
(12) Segment Information
The Company operates as one segment and conducts its business through various offices and facilities located throughout the Americas region (United States, Canada, Brazil, Mexico and Uruguay), EMEA region (Belgium, France, Germany, Israel, Italy, the Netherlands, Switzerland and the United Kingdom), and Asia Pacific region (Australia, China, India, Japan and Korea). The Company has historically disclosed summarized financial information for the geographic areas of operations as if they were segments in accordance with ASC 280, “Segment Reporting.” Financial information concerning the Company’s geographical locations is based on the location of the selling entity. Such summarized financial information concerning the Company’s geographical operations is shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Revenue from unaffiliated customers:
|
|
|
|
|
|
|
|
|
United States
|
$
|
75,578
|
|
|
$
|
81,282
|
|
|
$
|
227,392
|
|
|
$
|
250,023
|
|
|
Other Americas
|
2,248
|
|
|
873
|
|
|
6,949
|
|
|
4,918
|
|
|
EMEA
|
60,356
|
|
|
55,020
|
|
|
175,776
|
|
|
169,300
|
|
|
Asia Pacific
|
17,090
|
|
|
27,336
|
|
|
54,407
|
|
|
82,707
|
|
|
Total revenue
|
$
|
155,272
|
|
|
$
|
164,511
|
|
|
$
|
464,524
|
|
|
$
|
506,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Revenue by class of product and service:
|
|
|
|
|
|
|
|
|
Products
|
$
|
53,117
|
|
|
$
|
59,648
|
|
|
$
|
156,564
|
|
|
$
|
188,016
|
|
|
Materials
|
41,389
|
|
|
40,274
|
|
|
124,047
|
|
|
128,137
|
|
|
Services
|
60,766
|
|
|
64,589
|
|
|
183,913
|
|
|
190,795
|
|
|
Total revenue
|
$
|
155,272
|
|
|
$
|
164,511
|
|
|
$
|
464,524
|
|
|
$
|
506,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended September 30, 2019
|
|
|
|
|
|
|
|
|
Intercompany Sales to
|
|
|
|
|
|
|
|
(in thousands)
|
Americas
|
|
EMEA
|
|
Asia Pacific
|
|
Total
|
|
Americas
|
$
|
371
|
|
|
$
|
7,730
|
|
|
$
|
4,731
|
|
|
$
|
12,832
|
|
|
EMEA
|
14,001
|
|
|
12,067
|
|
|
1,522
|
|
|
27,590
|
|
|
Asia Pacific
|
1,731
|
|
|
810
|
|
|
813
|
|
|
3,354
|
|
|
Total intercompany sales
|
$
|
16,103
|
|
|
$
|
20,607
|
|
|
$
|
7,066
|
|
|
$
|
43,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended September 30, 2018
|
|
|
|
|
|
|
|
|
Intercompany Sales to
|
|
|
|
|
|
|
|
(in thousands)
|
Americas
|
|
EMEA
|
|
Asia Pacific
|
|
Total
|
|
Americas
|
$
|
499
|
|
|
$
|
15,540
|
|
|
$
|
4,888
|
|
|
$
|
20,927
|
|
|
EMEA
|
18,259
|
|
|
6,939
|
|
|
1,551
|
|
|
26,749
|
|
|
Asia Pacific
|
1,134
|
|
|
15
|
|
|
923
|
|
|
2,072
|
|
|
Total intercompany sales
|
$
|
19,892
|
|
|
$
|
22,494
|
|
|
$
|
7,362
|
|
|
$
|
49,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
Intercompany Sales to
|
|
|
|
|
|
|
|
(in thousands)
|
Americas
|
|
EMEA
|
|
Asia Pacific
|
|
Total
|
|
Americas
|
$
|
1,361
|
|
|
$
|
33,193
|
|
|
$
|
13,188
|
|
|
$
|
47,742
|
|
|
EMEA
|
49,438
|
|
|
33,923
|
|
|
3,848
|
|
|
87,209
|
|
|
Asia Pacific
|
3,176
|
|
|
849
|
|
|
2,301
|
|
|
6,326
|
|
|
Total intercompany sales
|
$
|
53,975
|
|
|
$
|
67,965
|
|
|
$
|
19,337
|
|
|
$
|
141,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
Intercompany Sales to
|
|
|
|
|
|
|
|
(in thousands)
|
Americas
|
|
EMEA
|
|
Asia Pacific
|
|
Total
|
|
Americas
|
$
|
1,521
|
|
|
$
|
45,764
|
|
|
$
|
17,303
|
|
|
$
|
64,588
|
|
|
EMEA
|
51,471
|
|
|
18,691
|
|
|
4,687
|
|
|
74,849
|
|
|
Asia Pacific
|
3,779
|
|
|
16
|
|
|
2,696
|
|
|
6,491
|
|
|
Total intercompany sales
|
$
|
56,771
|
|
|
$
|
64,471
|
|
|
$
|
24,686
|
|
|
$
|
145,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(Loss) income from operations:
|
|
|
|
|
|
|
|
|
Americas
|
$
|
(21,183)
|
|
|
$
|
(16,599)
|
|
|
$
|
(72,039)
|
|
|
$
|
(50,122)
|
|
|
EMEA
|
7,105
|
|
|
386
|
|
|
13,499
|
|
|
(2,948)
|
|
|
Asia Pacific
|
2,144
|
|
|
5,229
|
|
|
6,135
|
|
|
16,898
|
|
|
Total
|
$
|
(11,934)
|
|
|
$
|
(10,984)
|
|
|
$
|
(52,405)
|
|
|
$
|
(36,172)
|
|
(13) Commitments and Contingencies
Put Options
Owners of interests in a certain subsidiary have the right in certain circumstances to require the Company to acquire either a portion of or all of the remaining ownership interests held by them. The owners’ ability to exercise any such “put option” right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise. In addition, these rights cannot be exercised prior to a specified exercise date. The exercise of these rights at their earliest contractual date would result in obligations of the Company to fund the related amounts in 2019.
Management estimates, assuming that the subsidiary owned by the Company at September 30, 2019, performs over the relevant future periods at its forecasted earnings levels, that these rights, if exercised, could require the Company, in future periods, to pay approximately $8,872 to the owners of such rights to acquire such ownership interests in the relevant subsidiary. This amount has been recorded as redeemable noncontrolling interests on the Consolidated Balance Sheet at September 30, 2019 and December 31, 2018. The ultimate amount payable relating to this transaction will vary because it is dependent on the future results of operations of the subject business.
Litigation
Derivative Litigation
Nine related derivative complaints have been filed by purported Company stockholders against certain of the Company’s former executive officers and members of its Board of Directors. The Company is named as a nominal defendant in all nine actions. The derivative complaints are styled as follows: (1) Steyn v. Reichental, et al., Case No. 2015-CP-46-2225, filed on July 27, 2015 in the Court of Common Pleas for the 16th Judicial Circuit, County of York, South Carolina (“Steyn”); (2) Piguing v. Reichental, et al., Case No. 2015-CP-46-2396, filed on August 7, 2015 in the Court of Common Pleas for the 16th Judicial Circuit, County of York, South Carolina (“Piguing”); (3)Booth v. Reichental, et al., Case No. 15-692-RGA, filed on August 6, 2015 in the United States District Court for the District of Delaware; (4) Nally v. Reichental, et al., Case No. 15-cv-03756-MGL, filed on September 18, 2015 in the United States District Court for the District of South Carolina (“Nally”); (5) Gee v. Hull, et al., Case No. BC-610319, filed on February 17, 2016 in the Superior Court for the State of California, County of Los Angeles (“Gee”); (6) Foster v. Reichental, et al., Case No. 0:16-cv-01016-MGL, filed on April 1, 2016 in the United States District Court for the District of South Carolina (“Foster”); (7) Lu v. Hull, et al., Case No. BC629730, filed on August 5, 2016 in the Superior Court for the State of California, County of Los Angeles (“Lu”); (8) Howes v. Reichental, et al., Case No. 0:16-cv-2810-MGL, filed on August 11, 2016 in the United States District Court for the District of South Carolina (“Howes”); and (9) Ameduri v. Reichental, et al., Case No. 0:16-cv-02995-MGL, filed on September 1, 2016 in the United States District Court for the District of South Carolina (“Ameduri”). Steyn and Piguing were consolidated into one action styled as In re 3D Systems Corp. Shareholder Derivative Litig., Lead Case No. 2015-CP-46-2225 in the Court of Common Pleas for the 16th Judicial Circuit, County of York, South Carolina. Gee and Lu were consolidated into one action styled as Gee v. Hull, et al., Case No. BC610319 in the Superior Court for the State of California, County of Los Angeles. Nally, Foster, Howes, and Ameduri were consolidated into one action in the United States District Court for the District of South Carolina with Nally as the lead consolidated case.
The derivative complaints allege claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment and seek, among other things, monetary damages and certain corporate governance actions. All of the derivative complaints listed above have been stayed.
Following negotiations with the assistance of a mediator, on September 20, 2019, the parties to the derivative actions listed above entered into a Stipulation of Settlement to resolve all nine related previously disclosed stockholder derivative complaints. On September 20, 2019, the plaintiffs filed a motion to seek approval of the global settlement in the derivative action captioned Nally v. Reichental, et al., Docket No. 0:15-cv-03756-MGL (D.S.C. Sept. 18, 2015), pending before Hon. Mary Geiger Lewis of the U.S. District Court for the District of South Carolina (the “Court”).
On October 2, 2019, the Court issued an order granting preliminary approval of the settlement, which consists of various corporate governance reforms and plaintiffs’ attorneys’ fees in the amount of $2,150. A hearing to determine whether the Court should issue an order finally approving the proposed settlement has been scheduled for December 19, 2019. If the settlement is approved by the Court, the Company’s insurance carrier will fund the entire monetary aspect of the settlement. A current liability of $2,150 was recorded for the preliminary approval amount and an offsetting receivable of $2,150 was recorded for related insurance proceeds.
Ronald Barranco and Print3D Corporation v. 3D Systems Corporation, et. al.
On August 23, 2013, Ronald Barranco, a former Company employee, filed two lawsuits against the Company and certain officers in the United States District Court for the District of Hawaii. The first lawsuit (“Barranco I”) is captioned Ronald Barranco and Print3D Corporation v. 3D Systems Corporation, 3D Systems, Inc., and Damon Gregoire, Case No. CV 13-411 LEK RLP, and alleges seven causes of action relating to the Company’s acquisition of Print3D Corporation (of which Mr. Barranco was a 50% shareholder) and the subsequent employment of Mr. Barranco by the Company. The second lawsuit (“Barranco II”) is captioned Ronald Barranco v. 3D Systems Corporation, 3D Systems, Inc., Abraham Reichental, and Damon Gregoire, Case No. CV 13-412 LEK RLP, and alleges the same seven causes of action relating to the Company’s acquisition of certain website domains from Mr. Barranco and the subsequent employment of Mr. Barranco by the Company. Both Barranco I and Barranco II allege the Company breached certain purchase agreements in order to avoid paying Mr. Barranco additional monies pursuant to royalty and earn out provisions in the agreements.
With regard to Barranco I, the Hawaii district court, on February 28, 2014, denied the Company’s motion to dismiss and its motion to transfer venue to South Carolina for the convenience of the parties. However, the Hawaii court recognized that Barranco’s claims were all subject to mandatory and binding arbitration in Charlotte, North Carolina. The parties selected an arbitrator and arbitration took place in September 2015 in Charlotte, North Carolina.
On September 28, 2015, the arbitrator issued a final award in favor of Barranco with respect to two alleged breaches of contract and implied covenants arising out of the contract. The arbitrator found that the Company did not commit fraud or make any negligent misrepresentations to Barranco. Pursuant to the award, the Company was directed to pay approximately $11,282, which includes alleged actual damages of $7,254, fees and expenses of $2,318 and prejudgment interest of $1,710.
On August 3, 2018, following an unsuccessful appeal to the federal court in the Western District of North Carolina and the United States Court of Appeals for the Fourth Circuit, the Company paid $9,127 of the Barranco I judgment, net setoff. On September 28, 2018, the parties filed a Consent Stipulation Resolving Motion for Setoff of Judgment, stipulating that subject only to vacatur or amendment reducing the Barranco II judgment in Barranco’s appeal to the Ninth Circuit related to the Barranco II action discussed below, the Barranco II judgment in the amount of $2,182 was setoff against the Barranco I judgment (“Stipulated Setoff”). The Company paid Barranco the $101 balance remaining due after the Stipulated Setoff.
With regard to Barranco II, the case was tried to a jury in Hawaii district court in May 2016, and on May 27, 2016 the jury found that the Company was not liable for either breach of contract or breach of the implied covenant of good faith and fair dealing. Additionally, the jury found in favor of the Company on its counterclaim against Barranco and determined that Barranco violated his non-competition covenant with the Company. On March 30, 2018, the court entered Findings of Fact and Conclusions of Law and Order requiring Barranco to disgorge, and the Company recover, $523, representing all but four months of the full amount paid to Barranco as salary during his employment with the Company as well as a portion of the up front and buyout payments made to Barranco in connection with the purchase of certain web domains. In addition, the court ordered Barranco to pay pre-judgment interest to the Company to be calculated beginning as of his first breach of the non-competition covenant in August 2011. Judgment was entered thereafter on April 2, 2018.
On September 13, 2018, the Hawaii district court entered its Amended Judgment in a Civil Case, awarding the Company a final amended judgment of $2,182. On September 19, 2018, Barranco filed an Amended Notice of Appeal. On January 13, 2019, Barranco filed Appellant’s Opening Brief in the Ninth Circuit. On March 15, 2019, the Company filed its Answering Brief. On April 14, 2019, Barranco filed his Reply Brief. Oral Arguments took place on October 24, 2019. The Company intends to defend the appeal.
Export Controls and Government Contracts Compliance Matter
In October 2017 the Company received an administrative subpoena from the Bureau of Industry and Security of the Department of Commerce (“BIS”) requesting the production of records in connection with possible violations of U.S. export control laws, including with regard to the On Demand manufacturing business done by our subsidiary, Quickparts.com, Inc. In addition, while collecting information responsive to the above-referenced subpoena, the Company identified potential violations of the International Traffic in Arms Regulations (“ITAR”) administered by the Directorate of Defense Trade Controls of the Department of State (“DDTC”) and potential violations of the Export Administration Regulations administered by the BIS.
On June 8, 2018 and thereafter, the Company submitted voluntary disclosures to BIS and DDTC identifying numerous potentially unauthorized exports of technical data, which supplemented an initial notice of voluntary disclosure that the Company submitted to DDTC in February 2018. The Company has and will continue to implement compliance enhancements to export controls, trade sanctions, and government contracting compliance to address the issues identified through its internal investigation and cooperate with DDTC and BIS, as well as the U.S. Departments of Justice, Defense, and Homeland Security, in their reviews of these matters.
In addition, on July 19, 2019, the Company received a notice of immediate suspension of federal contracting from the United States Air Force, pending the outcome of an ongoing investigation. The suspension applied to 3D Systems, its subsidiaries and affiliates, and was related to the potential export controls violations involving the Company’s On Demand manufacturing business described above. Under the suspension, the Company was generally prohibited from receiving new federal government contracts or subcontracts from any executive branch agency as described in the provisions of 48 C.F.R Subpart 9.4 of the Federal Acquisition Regulation. The suspension allowed the Company to continue to perform current federal contracts, and also to receive awards of new subcontracts for items under $35 and for items considered commercially available off-the-shelf items. The Air Force lifted the suspension on September 6, 2019 following the execution of a two-year Administrative Agreement with the Company. The Company is now eligible to obtain and perform U.S. government contracts and subcontracts without restrictions. Under the Administrative Agreement, the Company will be monitored and evaluated by independent monitors who will report to the Air Force on the Company’s compliance with the terms of the Company’s Ethics & Compliance Program, including its overall culture, government contracting compliance program, and export controls compliance program.
Although the Company cannot predict the ultimate resolution of these matters, the Company has incurred and expects to continue to incur significant legal costs and other expenses in connection with responding to the U.S. government agencies.
Other
The Company is involved in various other legal matters incidental to its business. Although the Company cannot predict the results of the litigation with certainty, the Company believes that the disposition of all these various other legal matters will not have a material adverse effect, individually or in the aggregate, on its consolidated results of operations, consolidated cash flows or consolidated financial position.
(14) Accumulated Other Comprehensive Loss
The changes in the balances of accumulated other comprehensive loss by component are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Foreign currency translation adjustment
|
|
Defined benefit pension plan
|
|
Derivative financial instruments
|
|
Liquidation of non-US entity and purchase of non-controlling interests
|
|
Total
|
|
Balance at December 31, 2018
|
$
|
(36,669)
|
|
|
$
|
(2,647)
|
|
|
$
|
—
|
|
|
$
|
338
|
|
|
$
|
(38,978)
|
|
|
Other comprehensive income (loss)
|
(6,787)
|
|
|
207
|
|
|
(798)
|
|
|
256
|
|
|
(7,122)
|
|
|
Balance at September 30, 2019
|
$
|
(43,456)
|
|
|
$
|
(2,440)
|
|
|
$
|
(798)
|
|
|
$
|
594
|
|
|
$
|
(46,100)
|
|
The amounts presented in the table above are in other comprehensive loss and are net of taxes. For additional information about foreign currency translation, see Note 8.
(15) Noncontrolling Interests
As of September 30, 2019, the Company owned approximately 70% of the capital and voting rights of Robtec, a service bureau and distributor of 3D printing and scanning products in Brazil. Robtec was acquired on November 25, 2014.
As of September 30, 2019, the Company owned 100% of the capital and voting rights of Easyway, a service bureau and distributor of 3D printing and scanning products in China. Approximately 65% of the capital and voting rights of Easyway were acquired on April 2, 2015, and an additional 5% of the capital and voting rights of Easyway were acquired on July 19, 2017 for $2,300. The remaining 30% of the capital and voting rights of Easyway were acquired on January 21, 2019 for $13,500 to be paid in installments over four years, with the first installment of $2,500 paid in March 2019.