UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 001-34220

3D SYSTEMS CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE (State or Other Jurisdiction of Incorporation or Organization)		95-4431352 (I.R.S. Employer Identification No.)
333 THREE D SYSTEMS CIRCLE
ROCK HILL, SOUTH CAROLINA		29730
(Address of Principal Executive Offices)		(Zip Code)

(803) 326-3900
(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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Shares of Common Stock, par value $0.001, outstanding as of July 22, 2010: 23,123,698

 

 

3D SYSTEMS CORPORATION

Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2010

TABLE OF CONTENTS

PART I. — FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			28
Item 4. Controls and Procedures			28
PART II. — OTHER INFORMATION			29
Item 1. Legal Proceedings			29
Item 1A. Risk Factors			29
Item 6. Exhibits			29
Exhibit 10.1
Exhibit 10.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. — FINANCIAL INFORMATION

Item 1.		Financial Statements.

3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

		June 30,				December 31,
(in thousands, except par value)		2010				2009
ASSETS
Current assets:
Cash and cash equivalents		$	25,878			$	24,913
Accounts receivable, net of allowance for doubtful accounts of $1,443 (2010) and $1,790 (2009)			22,893				23,759
Inventories, net of reserves of $2,406 (2010) and $2,693 (2009)			22,011				18,378
Prepaid expenses and other current assets			1,823				2,415
Deferred income tax assets			598				634
Restricted cash			54				54
Total current assets			73,257				70,153
Property and equipment, net			25,144				24,789
Intangible assets, net			6,710				3,634
Goodwill			48,858				48,730
Other assets, net			2,810				3,097
Total assets		$	156,779			$	150,403
LIABILITIES AND EQUITY
Current liabilities:
Current portion of capitalized lease obligations		$	219			$	213
Accounts payable			14,755				12,994
Accrued and other liabilities			9,683				11,114
Customer deposits			594				627
Deferred revenue			8,072				8,487
Total current liabilities			33,323				33,435
Long-term portion of capitalized lease obligations			8,145				8,254
Other liabilities			3,525				3,944
Total liabilities			44,993				45,633
Commitments and contingencies			—				—
3D Systems stockholders’ equity:
Preferred stock, authorized 5,000 shares, none issued			—				—
Common stock, $0.001 par value, authorized 60,000 shares; 23,124 (2010) and 22,774 (2009) issued			23				23
Additional paid-in capital			181,319				177,682
Treasury stock, at cost; 84 shares (2010) and 74 shares (2009)			(143	)			(134	)
Accumulated deficit			(72,736	)			(77,491	)
Accumulated other comprehensive income			3,323				4,617
Total 3D Systems stockholders’ equity			111,786				104,697
Non-controlling interest			—				73
Total equity			111,786				104,770
Total liabilities and equity		$	156,779			$	150,403

See accompanying notes to condensed consolidated financial statements.

3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Quarter Ended June 30,								Six Months Ended June 30,
(in thousands, except per share amounts)		2010				2009				2010				2009
Revenue:
Products		$	24,645			$	17,584			$	47,042			$	33,073
Services			10,499				7,121				19,729				15,663
Total revenue			35,144				24,705				66,771				48,736
Cost of sales:
Products			12,614				9,443				23,617				17,380
Services			6,574				4,432				12,877				10,047
Total cost of sales			19,188				13,875				36,494				27,427
Gross profit			15,956				10,830				30,277				21,309
Operating expenses:
Selling, general and administrative			9,776				8,818				18,934				18,006
Research and development			2,766				2,855				5,271				5,753
Total operating expenses			12,542				11,673				24,205				23,759
Income (loss) from operations			3,414				(843	)			6,072				(2,450	)
Interest and other expense, net			430				260				834				487
Income (loss) before income taxes			2,984				(1,103	)			5,238				(2,937	)
Provision for income taxes			247				210				483				460
Net income (loss)			2,737				(1,313	)			4,755				(3,397	)
Less: Net income attributable to non-controlling interest			—				4				—				4
Net income (loss) attributable to 3D Systems		$	2,737			$	(1,317	)		$	4,755			$	(3,401	)
Earnings (loss) per share — basic		$	0.12			$	(0.06	)		$	0.21			$	(0.15	)
Earnings (loss) per share — diluted		$	0.12			$	(0.06	)		$	0.20			$	(0.15	)

See accompanying notes to condensed consolidated financial statements.

3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Six Months Ended June 30,
(in thousands)		2010				2009
Cash flows from operating activities:
Net income (loss)		$	4,755			$	(3,397	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Deferred income taxes			37				140
Depreciation and amortization			3,429				3,019
Provision (benefit) for bad debts			(157	)			879
Stock-based compensation			789				731
Loss (gain) on the disposition of property and equipment			18				(21	)
Changes in operating accounts:
Accounts receivable			16				7,725
Inventories			(4,457	)			1,827
Prepaid expenses and other current assets			664				(144	)
Accounts payable			2,102				(5,335	)
Accrued liabilities			(96	)			(1,161	)
Customer deposits			1				(553	)
Deferred revenue			8				(1,448	)
Other operating assets and liabilities			329				55
Net cash provided by operating activities			7,438				2,317
Cash flows used in investing activities:
Purchases of property and equipment			(434	)			(654	)
Additions to license and patent costs			(192	)			(83	)
Proceeds from disposition of property and equipment			6				26
Acquisition of businesses			(5,600	)			—
Net cash used in investing activities			(6,220	)			(711	)
Cash flows provided by financing activities:
Stock option and restricted stock proceeds			238				232
Repayment of long-term debt			(105	)			(96	)
Repayment of short-term borrowings			—				(3,085	)
Restricted cash			—				3,204
Net cash provided by financing activities			133				255
Effect of exchange rate changes on cash			(386	)			4
Net increase in cash and cash equivalents			965				1,865
Cash and cash equivalents at the beginning of the period			24,913				22,164
Cash and cash equivalents at the end of the period		$	25,878			$	24,029
Supplemental Cash Flow Information:
Interest payments		$	297			$	324
Income tax payments (receipts)			275				(480	)
Non-cash items:
Transfer of equipment from inventory to property and equipment, net(a)			1,323				47
Transfer of equipment to inventory from property and equipment, net(b)			392				230
Stock issued for acquisitions of businesses			2,600				—

See accompanying notes to condensed consolidated financial statements.

3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)

		Equity Attributable to 3D Systems’ Stockholders
		Common Stock																								Accumulated				Total				Equity
						Par				Additional																Other				3D Systems’				Attributable to
						Value				Paid-in				Treasury Stock								Accumulated				Comprehensive				Stockholders’				Non-controlling				Total
(in thousands, except par value)		Shares				$0.001				Capital				Shares				Amount				Deficit				Income				Equity				Interest				Equity
Balance at December 31, 2009			22,774			$	23			$	177,682				74			$	(134	)		$	(77,491	)		$	4,617			$	104,697			$	73			$	104,770
Exercise of stock options			16				—	(a)			166				—				—				—				—				166				—				166
Issuance (repurchase) of restricted stock, net			81				—	(a)			82				10				(9	)			—				—				73				—				73
Stock-based compensation expense			18				—				789				—				—				—				—				789				—				789
Issuance of stock for acquisitions			235				—	(a)			2,600				—				—				—				—				2,600				—				2,600
Net income			—				—				—				—				—				4,755				—				4,755				—				4,755
Acquisition of non-controlling interest			—				—				—				—				—				—				—				—				(73	)			(73	)
Loss on pension plan — unrealized			—				—				—				—				—				—				(20	)			(20	)			—				(20	)
Foreign currency translation adjustment			—				—				—				—				—				—				(1,274	)			(1,274	)			—				(1,274	)
Balance at June 30, 2010			23,124			$	23			$	181,319				84			$	(143	)		$	(72,736	)		$	3,323			$	111,786			$	—			$	111,786

See accompanying notes to condensed consolidated financial statements.

3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

		Quarter Ended June 30,								Six Months Ended June 30,
(in thousands)		2010				2009				2010				2009
Net income (loss) attributable to 3D Systems		$	2,737			$	(1,317	)		$	4,755			$	(3,401	)
Net income attributable to non-controlling interest			—				4				—				4
Net income (loss)			2,737				(1,313	)			4,755				(3,397	)
Other comprehensive income (loss):
Unrealized gain (loss) on pension obligation			(13	)			10				(20	)			—
Foreign currency translation adjustments			(760	)			1,189				(1,274	)			(551	)
Comprehensive income (loss), net		$	1,964			$	(114	)		$	3,461			$	(3,948	)

See accompanying notes to condensed consolidated financial statements.

3D SYSTEMS CORPORATION
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 its subsidiaries (collectively, the “Company”). 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 of 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 (“Form 10-K”) for the year ended December 31, 2009.

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 and six months ended June 30, 2010 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 these estimates and assumptions.

Certain prior period amounts presented in the accompanying footnotes have been reclassified to conform to current year presentation.

All amounts presented in the accompanying footnotes are presented in thousands, except for per share information.

The Company has evaluated subsequent events from the date of the condensed consolidated balance sheet through the date the financial statements were issued. During this period, no material recognizable subsequent events were identified. See Note 15 for a description of subsequent events that are not significant to the Company’s financial statements.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU” or “Update”) 2009-13, “Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force,” to provide amendments to the criteria in Subtopic 609-24 of the Accounting Standards Codification (‘Codification”) for separating consideration into multiple-deliverable revenue arrangements. ASU 2009-13 establishes a selling price hierarchy for determining the selling price of each specific deliverable, which includes vendor-specific objective evidence (“VSOE”) if available, third party evidence if VSOE is not available or estimated selling price if neither VSOE nor third party evidence is available. ASU 2009-13 also eliminates the residual method for allocating revenue between the elements of an arrangement and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the arrangement proportionally to each deliverable on the basis of each deliverable’s selling price. This update expands the disclosure requirements regarding a vendor’s multiple-deliverable revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating the impact of ASU 2009-13 on its consolidated financial statements.

In October 2009, the FASB issued ASU 2009-14, “Certain Revenue Arrangements That Include Software Elements — a consensus of the FASB Emerging Issues Task Force.” This Update removes tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality from the scope of the software revenue guidance in Subtopic 985-605 of the Codification. Additionally, ASU 2009-14 provides guidance on how a vendor should allocate arrangement consideration to deliverables in an arrangement that includes both tangible products and software that is not essential to the product’s functionality. ASU 2009-14 requires the same expanded disclosures that are included within ASU 2009-13. ASU 2009-14 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. A company is required to adopt the amendments in both ASU 2009-13 and ASU 2009-14 in the same period using the same transition method. The Company is currently evaluating the impact of ASU 2009-14 on its consolidated financial statements.

(2) Acquisitions

On February 16, 2010, the Company acquired the assets of Moeller Design and Development, Inc. (“Moeller Design”) in Seattle, Washington, a provider of premium precision investment casting services and prototyping for aerospace and medical device applications. The Company acquired Moeller Design for its premium parts capabilities and to expand the geographic footprint of its 3Dproparts™ service to the west coast. Moeller Design has been integrated into the Company’s 3Dproparts™ service. The fair value of the consideration paid for this acquisition was $3,600 and was allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the acquisition date. Of the $3,600 consideration, $1,000 was paid in shares of the Company’s common stock. These shares were issued in a private transaction exempt from registration under the Securities Act of 1933.

In connection with the acquisition, the Company entered into a lease agreement with an entity whose managing member is the former owner of Moeller Design, pursuant to which the Company agreed to lease the facilities at which Moeller Design’s operations are conducted. The lease provides for an initial term of five years with renewal options for two successive five-year terms. The lease agreement includes an option for the Company to purchase the facility.

On April 6, 2010, the Company acquired the assets of Design Prototyping Technologies, Inc. (“DPT”) in Syracuse, New York, a provider of fast turnaround functional parts and prototypes. The Company acquired DPT to enhance its online offerings for its 3Dproparts™ service. DPT has been integrated into the Company’s 3Dproparts™ service. The fair value of the consideration paid for this acquisition was $3,600 and was allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the acquisition date. Of the $3,600 consideration, $600 was paid in shares of the Company’s common stock. These shares were issued in a private transaction exempt from registration under the Securities Act of 1933.

In connection with the DPT acquisition, the Company entered into a lease agreement with an entity whose managing members are the former owners of DPT, pursuant to which the Company agreed to lease the facilities at which DPT’s operations are conducted. The lease provides for an initial term of approximately two years with renewal options for two-year and one-year successive terms, respectively. The lease agreement includes an option to enable the Company to purchase the facility.

Amounts related to both these acquisitions included in the Company’s unaudited condensed consolidated balance sheet at June 30, 2010 were as follows:

(in thousands)		2010
Fixed assets		$	2,131
Intangible assets			4,388
Other assets, net of liabilities assumed			718
Gain from bargain purchase			(37	)
Net assets acquired		$	7,200

On July 7, 2010, the Company acquired the assets of CEP S.A. and its affiliate, Protometal S.A. (collectively “CEP”), rapid prototyping and rapid manufacturing services providers located in Joué l’Abbé, France. The Company acquired CEP to augment and expand its 3Dproparts™ business in Europe. The Company is in the process of integrating CEP into its 3Dproparts™ service. Due to the timing of this acquisition, at the time of this filing the Company is in the process of allocating the fair value of assets purchased and other intangibles identified as of the acquisition date, with any excess to be recorded as goodwill. Accordingly this transaction will be recorded in the third quarter of 2010.

(3) Inventories

Components of inventories, net at June 30, 2010 and December 31, 2009 were as follows:

(in thousands)		2010				2009
Raw materials		$	2,907			$	2,294
Work in process			201				253
Finished goods and parts			21,309				18,524
Total cost			24,417				21,071
Less: Reserves			(2,406	)			(2,693	)
Inventories, net		$	22,011			$	18,378

Property and equipment at June 30, 2010 and December 31, 2009 were as follows:

										Useful Life
(in thousands, except years)		2010				2009				(in years)
Land		$	152			$	152				N/A
Building			9,574				9,454				25
Machinery and equipment			25,174				23,418				3-7
Capitalized software — ERP			3,123				3,096				5
Office furniture and equipment			3,310				3,358				5
Leasehold improvements			5,434				4,941			Life of lease
Rental equipment			377				1,079				5
Construction in progress			1,133				1,243				N/A
Total property and equipment			48,277				46,741
Less: Accumulated depreciation and amortization			(23,133	)			(21,952	)
Total property and equipment, net		$	25,144			$	24,789

Depreciation and software amortization expense on property and equipment for the quarter and six months ended June 30, 2010 were $1,579 and $2,867, respectively, compared to $1,224 and $2,509 for the quarter and six months ended June 30, 2009.

(5) Intangible Assets

Intangible assets other than goodwill at June 30, 2010 and December 31, 2009 were as follows:

		2010												2009
						Accumulated												Accumulated
(in thousands)		Cost				Amortization				Net				Cost				Amortization				Net
Licenses		$	5,875			$	(5,834	)		$	41			$	5,875			$	(5,586	)		$	289
Patent costs			16,158				(13,489	)			2,669				16,069				(13,450	)			2,619
Internally developed software			10,176				(9,021	)			1,155				8,968				(8,968	)			—
Customer relationships			1,971				(79	)			1,892				561				(10	)			551
Non-compete agreements			1,308				(604	)			704				803				(652	)			151
Trade names			260				(34	)			226				30				(6	)			24
Other			855				(832	)			23				806				(806	)			—
Total		$	36,603			$	(29,893	)		$	6,710			$	33,112			$	(29,478	)		$	3,634

Amortization expense for intangible assets for quarter and six months ended June 30, 2010 was $339 and $562 respectively, compared to $188 and $510 for the quarter and six months ended June 30, 2009. Annual amortization expense for intangible assets for 2010, 2011, 2012, 2013 and 2014 is expected to be $2,763; $3,578; $2,940; $2,274 and $1,871, respectively.

For the six months ended June 30, 2010 and 2009, the Company capitalized $192 and $83, respectively, of costs incurred to acquire, develop and extend patents in the United States and various other countries.

(6) Accrued and Other Liabilities

Accrued liabilities at June 30, 2010 and December 31, 2009 were as follows:

(in thousands)		2010				2009
Compensation and benefits		$	3,907			$	3,680
Vendor accruals			1,207				1,197
Accrued professional fees			346				642
Accrued taxes			2,191				2,400
Royalties payable			187				244
Accrued interest			49				50
Contractual obligation due to acquisitions			1,329				2,224
Accrued other			467				677
Total		$	9,683			$	11,114

Other liabilities at June 30, 2010 and December 31, 2009 were as follows:

(in thousands)		2010				2009
Defined benefit pension obligation		$	2,803			$	3,237
Other long-term liabilities			722				707
Total		$	3,525			$	3,944

(7) Hedging Activities and Financial 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 not adopted hedge accounting under ASC 815, “Derivatives and Hedging,” and all gains and losses (realized or unrealized) are recognized in “Interest and other expense, net” in the condensed consolidated statements of operations. 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.

At June 30, 2010 and December 31, 2009, these contracts included contracts for the purchase of currencies other than the U.S. dollar. The dollar equivalents of the foreign currency contracts and the related fair values as of June 30, 2010 and December 31, 2009 were as follows:

		Foreign Currency
		Purchase Contracts
(in thousands)		2010				2009
Notional amount		$	922			$	1,587
Fair value			976				1,563
Net unrealized gain(loss)		$	54			$	(24	)

The foreign currency contracts outstanding at June 30, 2010 expire at various times between July 1, 2010 and July 21, 2010. The foreign currency contracts outstanding at December 31, 2009 expired at various times between January 6, 2010 and February 3, 2010.

The total impact of foreign currency items on the condensed consolidated statements of operations for the quarter and six months ended June 30, 2010 were losses of $217 and $541, respectively, compared to losses of $44 and $166, respectively, for the quarter and six months ended June 30, 2009.

(8) Stock-based Compensation Plans

The Company records stock-based compensation expense in selling, general and administrative expenses in the condensed consolidated statements of operations. Stock-based compensation expense for the quarter and six months ended June 30, 2010 and 2009 was as follows:

		Quarter Ended June 30,								Six Months Ended June 30,
(in thousands)		2010				2009				2010				2009
Restricted stock awards		$	522			$	342			$	789			$	731

The number of shares of restricted common stock awarded and the weighted average fair value per share during the quarter and six months ended June 30, 2010 and 2009 were as follows:

		Quarter Ended June 30,
		2010								2009
						Weighted Average								Weighted Average
(in thousands, except per share amounts)		Shares Awarded				Fair Value				Shares Awarded				Fair Value
Restricted stock awards:
Granted under the 2004 Incentive Stock Plan			42			$	14.28				4			$	6.97
Granted under the 2004 Restricted Stock Plan for Non-Employee Directors			18				14.29				21				6.97
Total restricted stock awards			60			$	14.28				25			$	6.97

		Six Months Ended June 30,
		2010								2009
						Weighted Average								Weighted Average
(in thousands, except per share amounts)		Shares Awarded				Fair Value				Shares Awarded				Fair Value
Restricted stock awards:
Granted under the 2004 Incentive Stock Plan			52			$	13.91				182			$	6.81
Granted under the 2004 Restricted Stock Plan for Non-Employee Directors			18				14.29				21				6.97
Total restricted stock awards			70			$	14.01				203			$	6.83

Of the 52 shares of restricted stock awards granted in the six months ended June 30, 2010 pursuant to the Company’s 2004 Incentive Stock Plan, none were awarded to executive officers of the Company. Additionally, 42 shares were granted in the second quarter of 2010 under the 2004 Incentive Stock Plan, but remained subject to acceptance at June 30, 2010. In the first six months of 2009, the Company granted restricted stock awards covering 182 shares of common stock pursuant to the Company’s 2004 Incentive Stock Plan, including 100 shares awarded to executive officers of the Company.

In the second quarter of 2010 the Company issued a total of 18 shares of common stock pursuant to the Company’s 2004 Restricted Stock Plan for Non-Employee Directors. Stock compensation expense for directors totaled $257 for the quarter and six months ended June 30, 2010, compared to $146 for the quarter and six months ended June 30, 2009.

(9) International Retirement Plan

The following table shows the components of net periodic benefit costs and other amounts recognized in the condensed consolidated statements of operations for the quarter and six months ended June 30, 2010 and 2009:

		Quarter Ended June 30,								Six Months Ended June 30,
(in thousands)		2010				2009				2010				2009
Service cost		$	27			$	23			$	50			$	47
Interest cost			26				22				48				44
Total		$	53			$	45			$	98			$	91

The Company presents basic and diluted earnings (loss) per share (“EPS”) amounts. Basic EPS is calculated by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the applicable period. Diluted EPS is calculated by dividing 3D Systems net income (loss) by the weighted average number of common and common equivalent shares outstanding during the applicable period. The following table reconciles basic weighted average outstanding shares to diluted weighted average outstanding shares for the quarters and six months ended June 30, 2010 and 2009:

		Quarter Ended June 30,								Six Months Ended June 30,
(in thousands, except per share amounts)		2010				2009				2010				2009
Numerator:
3D Systems net income (loss) — numerator for basic net earnings (loss) per share		$	2,737			$	(1,317	)		$	4,755			$	(3,401	)
Add: Effect of dilutive securities
Stock options and other equity compensation			—				—				—				—
Numerator for dilutive earnings (loss) per share		$	2,737			$	(1,317	)		$	4,755			$	(3,401	)
Denominator:
Weighted average shares — denominator for basic net earnings (loss) per share			23,035				22,515				22,940				22,442
Add: Effect of dilutive securities
Stock options and other equity compensation			301				—				290				—
Denominator for dilutive earnings (loss) per share			23,336				22,515				23,230				22,442
Earnings (loss) per share
Basic		$	0.12			$	(0.06	)		$	0.21			$	(0.15	)
Diluted		$	0.12			$	(0.06	)		$	0.20			$	(0.15	)

For the three months and six months ended June 30, 2010, the average outstanding diluted shares calculation excludes options with an exercise price that exceeds the average market price of shares during the period. Stock options excluded from the average outstanding diluted shares calculation were 280 for the three months and six months ended June 30, 2010.

For the three months and six months ended June 30, 2009, no dilutive securities were included in the diluted weighted average shares since the Company reported a net loss for these periods. The effect of their inclusion would have been anti-dilutive resulting in reduction to the net loss per share. Stock options excluded from the average outstanding diluted shares calculation were 870 for the three months and six months ended June 30, 2009.

For the six months ended June 30, 2010, average common shares for basic and diluted earnings per share was 22.9 million and 23.2 million, respectively, and basic and diluted earnings per share were $0.21 and $0.20, respectively.

For the six months ended June 30, 2009, average common shares for basic and diluted earnings per share was 22.4 million, and basic and diluted earnings per share were ($0.15).

(11) Fair Value Measurements

ASC 820, “Fair Value Measurements,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of 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.

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, this statement applies to cash equivalents and foreign exchange contracts. 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 June 30, 2010
(in thousands)		Level 1				Level 2				Level 3				Total
Description
Cash equivalents		$	19,977			$	—			$	—			$	19,977
Currency derivative contracts(1)			976				—				—				976
Total		$	20,953			$	—			$	—			$	20,953

The Company did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during the quarter or six months ended June 30, 2010. The Company did not have any significant non-financial assets or non-financial liabilities that would be recognized or disclosed at fair value on a recurring basis as of June 30, 2010 or December 31, 2009.

(12) Income Taxes

The Company used effective tax rates of 8.3% and 9.2% for the quarter and six months ended June 30, 2010, respectively, compared to (19.1%) and (15.7%) for the quarter and six months ended June 30, 2009. Tax expense relates primarily to income from non-U.S. operations.

Tax years 2006 to 2009 remain subject to examination by the U.S. Internal Revenue Service. Should the Company utilize any of its remaining U.S. loss carry-forwards, which date from 1997, these would be subject to examination. The Company files income tax returns (which are open to examination beginning in the year shown in parentheses) in France (2004), Germany (2006), Japan (2004), Italy (2004), Switzerland (2004) and the United Kingdom (2006).

(13) Segment Information

The Company operates in one reportable business segment in which it develops, manufactures and markets worldwide 3-D printing, rapid prototyping and manufacturing systems designed to reduce the time it takes to produce three-dimensional objects. The Company conducts its business through subsidiaries in the United States, a subsidiary in Switzerland that operates a research and production facility, sales and service offices operated by subsidiaries in the European Community (France, Germany, the United Kingdom and Italy) and Japan, and a branch office in Hong Kong. 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.”

Summarized financial information concerning the Company’s geographical operations is shown in the following tables:

		Quarter Ended June 30,								Six Months Ended June 30,
(in thousands)		2010				2009				2010				2009
Revenue from unaffiliated customers:
United States		$	17,399			$	11,455			$	31,544			$	22,210
Germany			5,811				5,556				11,318				10,991
Other Europe			7,461				5,186				14,823				9,749
Asia Pacific			4,473				2,508				9,086				5,786
Total		$	35,144			$	24,705			$	66,771			$	48,736

The Company’s revenues from unaffiliated customers by type are as follows:

		Quarter Ended June 30,								Six Months Ended June 30,
(in thousands)		2010				2009				2010				2009
Systems and other products		$	10,672			$	5,882			$	19,455			$	10,741
Materials			13,973				11,702				27,587				22,332
Services			10,499				7,121				19,729				15,663
Total revenue		$	35,144			$	24,705			$	66,771			$	48,736

Intercompany sales are as follows:

		Quarter Ended June 30, 2010
		Intercompany Sales to
		United								Other				Asia
(in thousands)		States				Germany				Europe				Pacific				Total
United States		$	—			$	3,120			$	2,238			$	709			$	6,067
Germany			124				—				1,387				—				1,511
Other Europe			2,072				216				—				—				2,288
Asia Pacific			34				—				—				—				34
Total		$	2,230			$	3,336			$	3,625			$	709			$	9,900

		Quarter Ended June 30, 2009
		Intercompany Sales to
		United								Other				Asia
(in thousands)		States				Germany				Europe				Pacific				Total
United States		$	—			$	2,547			$	1,489			$	109			$	4,145
Germany			—				—				1,059				—				1,059
Other Europe			1,708				308				—				—				2,016
Asia Pacific			—				—				—				—				—
Total		$	1,708			$	2,855			$	2,548			$	109			$	7,220

		Six Months Ended June 30, 2010
		Intercompany Sales to
		United								Other				Asia
(in thousands)		States				Germany				Europe				Pacific				Total
United States		$	—			$	7,145			$	4,379			$	1,384			$	12,908
Germany			234				—				2,237				—				2,471
Other Europe			4,164				248				—				—				4,412
Asia Pacific			34				—				—				—				34
Total		$	4,432			$	7,393			$	6,616			$	1,384			$	19,825

		Six Months Ended June 30, 2009
		Intercompany Sales to
		United								Other				Asia
(in thousands)		States				Germany				Europe				Pacific				Total
United States		$	—			$	5,751			$	3,383			$	1,566			$	10,700
Germany			3				—				1,772				—				1,775
Other Europe			3,213				446				—				—				3,659
Asia Pacific			—				—				—				—				—
Total		$	3,216			$	6,197			$	5,155			$	1,566			$	16,134

All revenue between geographic areas is recorded at prices that provide for an allocation of profit (loss) between entities. Income (loss) from operations and assets for each geographic area are as follows:

		Quarter Ended June 30,								Six Months Ended June 30,
(in thousands)		2010				2009				2010				2009
Income (loss) from operations:
United States		$	1,233			$	(2,286	)		$	1,789			$	(5,230	)
Germany			520				262				833				370
Other Europe			578				288				1,024				707
Asia Pacific			958				364				2,255				1,307
Subtotal			3,289				(1,372	)			5,901				(2,846	)
Inter-segment elimination			125				529				171				396
Total		$	3,414			$	(843	)		$	6,072			$	(2,450	)

		June 30,				December 31,
(in thousands)		2010				2009
Assets:
United States		$	98,469			$	93,595
Germany			18,326				16,690
Other Europe			28,185				28,383
Asia Pacific			11,799				11,735
Total		$	156,779			$	150,403

(14) Contingencies

On March 14, 2008, DSM Desotech Inc. filed a complaint, in an action titled DSM Desotech Inc. v. 3D Systems Corporation in the United States District Court for the Northern District of Illinois (Eastern Division) asserting that the Company engaged in anticompetitive behavior with respect to resins used in large-frame stereolithography machines. The complaint further asserted that the Company is infringing on two of DSM Desotech’s patents relating to stereolithography machines. The Company understands that DSM Desotech estimates the damages associated with its claims to be in excess of $40,000.

Following a decision of the Court on the Company’s motion to dismiss the non-patent causes of the action, DSM Desotech filed a second amended complaint on March 2, 2009 in which it reasserted causes of action previously dismissed by the Court. The Company filed an answer to the second amended complaint on March 19, 2009 in which, among other things, it denied the material allegations of the second amended complaint. Discovery is proceeding on the claims pending in this case.

The Company intends to continue vigorously contesting all the claims asserted by DSM Desotech.

The Company is also involved in various other legal matters incidental to its business. The Company’s management believes, after consulting with counsel, that the disposition of these other legal matters will not have a material effect on the Company’s consolidated results of operations or consolidated financial position.

(15) Subsequent Events

On July 7, 2010, the Company acquired the assets of CEP S.A. and its affiliate, Protometal S.A (collectively “CEP”). The acquisition is not significant to the Company’s financial statements. Future revenue from the acquisition will be reported as services revenue. See Note 2.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q (“Form 10-Q”).

We are subject to a number of risks and uncertainties that may affect our future performance that are discussed in greater detail in the sections entitled “Forward-Looking Statements” and “Cautionary Statements and Risk Factors” at the end of this Item 2 and that are discussed or referred to in Item 1A of Part II of this Form 10-Q.

Business Overview

We design, develop, manufacture, market and service 3-D printing, rapid manufacturing, and prototyping systems and related products and materials that enable complex three-dimensional objects to be produced directly from computer data without tooling, greatly reducing the time and cost required to produce prototypes or customized production parts. We also operate 3Dproparts™, a comprehensive service bureau that offers our customers rapid prototyping and manufacturing services for the production of precision parts.

Our consolidated revenue is derived primarily from the sale of our systems, the sale of the related materials used by the systems to produce solid objects and the provision of services to our customers.

Recent Developments

We have continued to execute on our strategy to grow our 3Dproparts™ service, through additional strategic acquisitions and by further expanding our distribution channel of 3-D printing reseller partners. We also announced the introduction of new materials, which were not material to our operating results.

In April 2010, we acquired the assets of Design Prototyping Technologies, Inc. (“DPT”) in Syracuse, New York. DPT is an online provider of fast turnaround, high quality functional parts and prototypes. The DPT acquisition enables us to enhance our online offerings for our 3Dproparts™ service.

In April 2010 we introduced our Accura^® CeraMAX™ material for our iPro™ and Viper™ SLA^® systems. Accura^® CeraMAX™ is an engineered white plastic composite designed for use in applications that require extreme thermal stability, rigidity and excessive wear resistance.

In May 2010, we introduced our Accura^® PEAK™ Plastic, an engineered SLA^® plastic designed for performance, accuracy and stability during prolonged exposure to elevated temperature and humidity. Accura^® PEAK™ Plastic is ideal for use in automotive, aerospace and motorsports applications.

In July 2010, we made our first 3Dproparts™ European acquisition, acquiring the assets of CEP S.A. and its affiliate, Protometal S.A. (collectively “CEP”), rapid prototyping and rapid manufacturing services providers located in Joué l’Abbé, France. The Company acquired CEP to augment and expand its 3Dproparts™ business in Europe.

Results of Operations

Summary of 2010 financial results

We generated $1.0 million of net cash in the first six months of 2010 and finished the period with $25.9 million of unrestricted cash compared to $24.9 million of unrestricted cash at December 31, 2009.

As discussed in greater detail below, revenue for the second quarter of 2010 improved by 42% to $35.1 million from $24.7 million for the second quarter of 2009, due to improved global demand. Revenue increased across all classes of products and services. Revenue for the six months ended June 30, 2010 increased 37% to $66.8 million from $48.7 million in 2009, for primarily the same reasons.

Materials sales for the second quarter of 2010 rose by $2.3 million from the second quarter of 2009 as revenue from materials was favorably impacted by the higher large-frame systems sales, which are typically accompanied by significant initial materials purchases to charge up new systems and commence production, and increased demand due to the improving global economy.

We are encouraged by the improved trend in systems and materials sales during the second quarter of 2010, which increased by $4.8 million, or 81%, and $2.3 million, or 19%, respectively, from second quarter 2009 levels.

Revenue from services improved by $3.4 million to $10.5 million in the second quarter of 2010 from $7.1 million in the second quarter of 2009. Services revenue grew by $1.3 million in the second quarter of 2010 from $9.2 million in the first quarter of 2010.

For the second quarter of 2010 healthcare revenue made up 14% of our total revenue compared to 12% in the first quarter of 2010 and includes sales of systems, materials and services for the following applications:

•

hearing aid,

•

dental,

•

medical device and

•

other health-related.

Although system sales into these marketplaces can fluctuate from period to period due to timing, 73% of revenue from healthcare applications was from recurring revenue in the second quarter of 2010 compared to 68% in the first quarter of 2010.

Our higher gross profit in the second quarter and first six months of 2010 arose primarily from our higher level of revenue. Our gross profit margin increased to 45.4% in the second quarter of 2010 from 43.8% in the second quarter of 2009 due to product mix and improvements in our cost structure.

Our operating expenses increased by $0.8 million in the second quarter of 2010 to $12.5 million from $11.7 million in the 2009 quarter. The increase reflected higher selling, general and administrative expenses primarily related to the integration and operation of the acquisitions. We expect our SG&A expenses for the remainder of 2010 to be in the range of $19.0 to $21.5 million, and our research and development expenses to be in the range of $5.0 million to $6.0 million.

Results of Operations — Second Quarter Comparisons

Second quarter comparison of revenue by class of product and service

Table 1 sets forth our change in revenue by class of product and service for the second quarter of 2010 compared to the second quarter of 2009:

Table 1

		Systems and
		Other
(Dollars in thousands)		Products								Materials								Services								Totals
Revenue — 2nd quarter 2009		$	5,882				23.8	%		$	11,702				47.4	%		$	7,121				28.8	%		$	24,705				100	%
Change in revenue:
Volume
Core products and services			1,290				21.9				3,265				27.9				2,661				37.3				7,216				29.2
New products and services			3,362				57.1				(352	)			(3.0	)			883				12.4				3,893				15.8
Price/Mix			481				8.2				(293	)			(2.5	)			—				—				188				0.8
Foreign currency translation			(343	)			(5.8	)			(349	)			(3.0	)			(166	)			(2.3	)			(858	)			(3.5	)
Net change			4,790				81.4				2,271				19.4				3,378				47.4				10,439				42.3
Revenue — 2nd quarter 2010		$	10,672				30.3	%		$	13,973				39.8	%		$	10,499				29.9	%		$	35,144				100	%

We earn revenues from the sale of systems and other products, materials and services. On a consolidated basis, revenue for the second quarter of 2010 increased by $10.4 million, or 42.3%, compared to the second quarter of 2009 as a result of improvements in each revenue category.

The increase in revenue from systems and other products that is due to volume for the second quarter of 2010 compared to the same quarter of 2009 was the result of higher sales of large frame systems and 3-D printers. Revenue from systems and other products consisted of:

•

Large-frame systems, which represented 35% of total systems revenue for the second quarter of 2010, compared to 15% for the second quarter of 2009;

•

Mid-frame systems, which accounted for 23% of total systems revenue for the 2010 period, compared to 45% for the same period in 2009; and

•

3-D printers, which made up the remaining 42% in the second quarter of 2010, compared to 40% in the second quarter of 2009.

Due to the relatively high list price of certain systems, our customers’ purchasing decisions may have a long lead time; combined with the overall low unit volume of systems sales in any particular period, the acceleration or delay of orders and shipments of a small number of systems from one period to another can significantly affect revenue reported for our systems sales for the period involved. Revenue reported for systems sales in any particular period is also affected by revenue recognition rules prescribed by generally accepted accounting principles.

Revenue from materials was also helped by the improvement in large-frame systems sales, which are typically accompanied by significant initial materials purchases to charge up new systems and commence production. Sales of integrated materials represented 35% of total materials revenue in the second quarter of 2010 compared to 30% in the second quarter of 2009.

The increase in services revenue reflects revenue from our 3Dproparts™ service, which was introduced in the fourth quarter of 2009 to expand our paid parts offerings.

Production and delivery of our systems is generally not characterized by long lead times, and backlog is therefore generally not a material factor in our business. At June 30, 2010 our backlog was approximately $5.2 million, compared to backlogs of $1.4 million at December 31, 2009 and $1.6 million at June 30, 2009, respectively. The increase in backlog this period resulted from the timing of the receipt of completed orders and customers requesting delivery after quarter end.

In addition to changes in sales volumes, there are two other primary drivers of changes in revenues from one period to another: the combined effect of changes in product mix and average selling prices, sometimes referred to as price and mix effects, and the impact of fluctuations in foreign currencies.

As used in this Management’s Discussion and Analysis, the combined effect of changes in product mix and average selling prices, relates to changes in revenue that are not able to be specifically related to changes in unit volume. Among these changes are changes in the product mix of our materials and our systems as the trend toward smaller, more economical systems has continued and the influence of new systems and materials on our operating results has grown. Our reporting systems are not currently configured to produce more quantitative information regarding the effect of price and mix changes on revenue.

Change in second quarter revenue by geographic region

Each geographic region contributed to our higher level of revenue in the second quarter of 2010. Table 2 sets forth the change in revenue by geographic area for the second quarter of 2010 compared to the second quarter of 2009:

Table 2

(Dollars in thousands)		U.S.								Europe								Asia-Pacific								Totals
Revenue — 2nd quarter 2009		$	11,455				46.3	%		$	10,742				43.5	%		$	2,508				10.2	%		$	24,705				100	%
Change in revenue:
Volume			5,557				48.5				3,808				35.5				1,745				69.6				11,109				45.0
Price/Mix			387				3.4				(311	)			(2.9	)			111				4.4				188				0.8
Foreign currency translation			—				—				(967	)			(9.0	)			109				4.3				(858	)			(3.5	)
Net change			5,944				51.9				2,530				23.6				1,965				78.3				10,439				42.3
Revenue — 2nd quarter 2010		$	17,399				49.5	%		$	13,272				37.8	%		$	4,473				12.7	%		$	35,144				100	%