3D Systems Releases Restated Financial Statements


NM= Not Meaningful

The company ended the third quarter with an approximately $13 million order backlog, primarily for systems and materials, a majority of which it expected to ship during the remainder of 2006.
               Revenue By Class of Product and Service
                           ($ in millions)
----------------------------------------------------------------------
                          Third Quarter          First Nine Months
                    ------------------------- ------------------------
                             2005                     2005
 Product or Service  2006  Restated % Change   2006 Restated % Change
-------------------------- -------- --------- -------------- ---------
Systems and other
 products           $ 9.3    $12.0      (22)% $29.2   $33.6      (13)%
-------------------------- -------- --------- -------------- ---------
Materials           $13.4    $10.9        23% $36.8   $31.9        15%
-------------------------- -------- --------- -------------- ---------
Services            $ 8.7    $ 9.3       (6)% $26.3   $29.6      (11)%
-------------------------- -------- --------- -------------- ---------
       Total        $31.5    $32.2       (2)% $92.2   $95.0       (3)%
-------------------------- -------- --------- -------------- ---------


Note: Columns may not add due to rounding.

The residual business disruptions that the company continued to experience during the third quarter adversely impacted revenue from systems and services, with significant reductions in unit sales volume in each of those product and service classes. The company experienced continued revenue growth from its engineered materials and composites, which were less susceptible to the ERP and supply chain disruptions, reflecting the relative simplicity of the sourcing and logistics for these products and the positive traction that the company is already getting from its implementation of integrated materials' packaging and delivery systems into its new class of systems.

The company also reported that, on a geographic basis, the revenue decline for the first nine months of 2006 was due to a decline in European revenue, with revenue from the U.S. and Asia-Pacific areas being essentially even with 2005 revenue as restated.

The decline in gross profit for the third quarter and first nine months of 2006 was due primarily to the combined effects of lower revenue and ERP system, supply chain and logistics disruptions that the company encountered.

During the third quarter of 2006, the company continued to extend special accommodations to certain customers whose orders for products, services or repairs to systems were delayed by the disruptions that the company encountered with its ERP system and logistics activities or who encountered stability issues with their equipment installations that the company was not able to quickly address as a result of resource and training constraints on its service organization. These accommodations adversely affected gross profit during the quarter. The impact of equipment stability and related resource training constraints eased toward the end of the third quarter of 2006, as the company made significant progress in its training and quality remediation efforts and corrective action plan. The company believes that its progress in remediating its new systems' teething problems and training gaps resulted in greater market acceptance of its new systems as reflected in its backlog at the end of the third quarter.
                         Gross Profit Margins
                           ($ in millions)
----------------------------------------------------------------------
                         Third Quarter           First Nine Months
                   ------------------------- -------------------------
                            2005                      2005
                    2006  Restated % Change   2006  Restated % Change
------------------------- -------- --------- ------ -------- ---------
Products            $9.4    $11.9            $25.1    $32.0
% Revenue             41%      52%   (21%)      38%      49%   (22%)
------------------------- -------- --------- ------ -------- ---------
Services            $1.4     $2.7             $5.1     $9.7
% Revenue             16%      29%   (50%)      19%      33%   (47%)
------------------------- -------- --------- ------ -------- ---------
Total              $10.7    $14.7            $30.2    $41.7
% Revenue             34%      46%   (27%)      33%      44%   (28%)
------------------------- -------- --------- ------ -------- ---------


Note: Columns may not add due to rounding.

Gross profit margin on products decreased to 41% in the third quarter of 2006 from 52% for the third quarter of 2005 as restated. Gross profit margin for products sold in the first nine months of 2006 decreased to 38% from 49% for the first nine months of 2005 as restated. The decrease in margins primarily reflects $1.4 million of inventory write-offs or adjustments resulting from various inventory reconciliation procedures as well as higher warranty expense as a result of items previously discussed, special customer accommodations and higher freight costs.

Gross profit margin on services decreased to 16% of consolidated service revenue for the third quarter of 2006 from 29% of consolidated service revenue for the third quarter of 2005 as restated. Gross profit margin on services decreased to 19% of consolidated service revenue for the first nine months of 2006 from 33% of consolidated service revenue for the first nine months of 2005 as restated. During the third quarter, service margins continued to be impacted by spare parts' shortages as a result of the ERP and supply-chain interruptions as well as the strains on resources related to installation, service and training mentioned above that resulted in foregone service income from time and materials service activities. Service margins were also impacted by the absence of legacy system upgrade sales, which the company has previously announced that it would no longer support.
                          Operating Expenses
                           ($ in millions)
----------------------------------------------------------------------
                          Third Quarter          First Nine Months
                                       -------------------------  ------------------------
                                                          2005                                          2005
                                          2006    Restated  %  Change      2006  Restated  %  Change
--------------------------  --------  ---------  --------------  ---------
SG&A                                $13.8        $10.0          39%        $34.8      $28.6          22%
--------------------------  --------  ---------  --------------  ---------
R&D                                  $  3.9        $  3.4          12%        $10.1      $  8.8          15%
--------------------------  --------  ---------  --------------  ---------
Severance  and
  restructuring            $  1.7              NM          NM          $  5.7            NM          NM
--------------------------  --------  ---------  --------------  ---------
Total                              $19.4        $13.4          45%        $50.5      $37.5          35%
--------------------------  --------  ---------  --------------  ---------
 


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