3D Systems Reports Record Revenue/Earnings

               Revenue By Class of Product and Service
                           ($ in millions)

                            Fourth Quarter           Full Year
   Product or Service     2005  2004 % Change    2005   2004 % Change
Systems and other
 products                $21.7 $15.3       41%  $55.7  $46.0       21%
Materials                $12.8 $11.6       11%  $44.6  $38.0       18%
Services                  $9.7 $11.4     (15%)  $39.3  $41.4      (5%)
   Total                 $44.1 $38.3       15% $139.7 $125.4       11%

"Fourth-quarter revenue was bolstered by our growing 3-D Printing business and shipments of our new Sinterstation(R) Pro and Viper(TM) Pro systems introduced in the latter half of 2005. Some 50% of our systems' sales in the fourth quarter were for Rapid Manufacturing applications, supporting our emphasis on developing and offering systems that effectively serve higher-growth rapid manufacturing applications," continued Reichental. "Materials' revenue grew as a result of certain tactical marketing initiatives to benefit our customers and produce favorable margins."

                         Gross Profit Margins
                           ($ in millions)

                             Fourth Quarter           Full Year
                          2005   2004 % Change   2005   2004 % Change
Products                 $18.0  $13.1           $50.4  $40.1
   % Revenue                52%    49%      38%    50%    48%      26%
Services                  $3.0   $4.6           $12.7  $16.0
    % Revenue               31%    41%    (36%)    32%    39%    (21%)
   Total                 $20.9  $17.7           $63.1  $56.1
       % Revenue            47%    46%      18%    45%    45%      13%

"Gross profit margin rose modestly in both the fourth quarter and full-year 2005, benefiting from higher product margins that were only partially offset by the lower margins we derived from our services."

"Product margins benefited from higher unit sales of new systems and materials, lower costs from our outsourcing activities and favorable price/mix effects. But, we did not realize the full benefit of those improvements because of unabsorbed manufacturing overhead arising from our outsourcing activities, additional costs associated with the rollout of two major new systems in 2005 and adverse foreign exchange transaction effects," continued Reichental.

"Service margins declined due to lower sales of upgrades for older legacy systems, higher training and field service activity and a special compensation-related charge. While we are disappointed with the absence of a noticeable improvement in profit margins in 2005, the factors that adversely affected them resulted primarily from deliberate strategic decisions we have made for long-term gain, and we expect to see additional margin improvements going forward," said Reichental.

While operating expenses increased $3.1 million in the fourth quarter and $3.3 million for the full year, as a percentage of revenue, they declined to 39% of revenue in the 2005 year from 40% in 2004. The increase in operating expenses for the year included $1.7 million of strategic and tactical R&D expenditures, which increased by 16% to $12.2 million for the full year, reflecting our accelerated pace of new product development and introductions.

The year's increase in operating expenses also included $1.2 million of severance and restructuring costs that, as mentioned above, we incurred in the fourth quarter 2005 in connection with our previously announced plans to relocate our corporate headquarters, principal R&D activities and corporate support functions to Rock Hill, South Carolina during 2006. These $1.2 million of costs were generally in line with our previously disclosed expectations.

Reflecting on these relocation costs, we estimate that, during 2006, the additional expenses to complete our relocation should be in the range of $6.4 million to $8.1 million. This amount includes an estimated $6.2 million of moving costs and other costs related to personnel, relocation and recruiting and $0.2 million to $1.9 million of facility exit costs. Included in the range of facility exit costs is an estimate of costs that we may incur if we encounter delays in disposing of our Grand Junction and Valencia facilities.

We continue to believe that, in addition to other significant operational and strategic improvements that we expect to achieve from our relocation project, we should realize facilities' and operating-cost savings in excess of $2.5 million per year beginning in 2007, the first full year of our planned operations in the Charlotte area.

Selling, general and administrative expenses increased 13% for the quarter, primarily reflecting our higher commissions on higher quarterly revenue. For the year, the $1.0 million increase in SG&A expenses resulted primarily from lower legal expenses that were more than offset by higher sales and marketing costs related to our higher revenue and by the absence in 2005 of the benefit of $1.5 million of healthcare cost and bad debt accrual reductions that reduced SG&A expenses in 2004.

"We are pleased that our profitability and continued favorable outlook permitted us to reduce the allowance on our deferred tax assets established in 2002 when we were suffering severe losses and realization of the benefit of our tax loss carry-forwards was uncertain. The $2.5 million allowance reduction is a non-cash tax benefit for U.S. taxes. We expect to reduce the allowance further in future periods as our outlook continues to improve, which would produce additional non-cash tax benefits. Aggregate gross deferred tax assets at the end of 2005 totaled $31.4 million, of which some $29.6 million are related to U.S. taxes and associated with $66.3 million of net operating loss carry-forwards in the U.S. Although we have now commenced recording U.S. tax provisions for financial reporting purposes, we do not expect to pay federal income taxes in the U.S. for several years until we have used the deferred tax assets associated with our U.S. loss carry-forwards.

"Because of our significant investments in working capital during 2005 to support sales, unrestricted cash declined by $2.2 million during the year to $24.1 million at year-end 2005. We expect that the unusually high accounts receivable occasioned by the concentration of fourth-quarter sales late in the quarter will reach normalized levels in the course of the first quarter. We also anticipate that progress payments to outsource assemblers should decline significantly over the course of 2006.

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