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

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

Commission File No. 001-34220

3D SYSTEMS CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE		95-4431352
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
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 þ 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 (Do not check if smaller reporting company)		Smaller reporting company o

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 October 21, 2011: 50,538,610

 

 

3D SYSTEMS CORPORATION

Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2011

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			29
Item 4. Controls and Procedures			29
PART II — OTHER INFORMATION			30
Item 1. Legal Proceedings			30
Item 1A. Risk Factors			30
Item 6. Exhibits			30
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. — FINANCIAL INFORMATION

Item 1.		Financial Statements.

3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

		September 30,				December 31,
(in thousands, except par value)		2011				2010
ASSETS
Current assets:
Cash and cash equivalents		$	72,617			$	37,349
Accounts receivable, net of allowance for doubtful accounts of $2,733 (2011) and $2,017 (2010)			42,576				35,800
Inventories, net of reserves of $2,165 (2011) and $2,205 (2010)			27,841				23,811
Prepaid expenses and other current assets			2,434				1,295
Current deferred income taxes			2,975				1,874
Restricted cash			214				11
Total current assets			148,657				100,140
Property and equipment, net			28,704				27,669
Intangible assets, net			39,658				18,275
Goodwill			82,076				58,978
Long-term deferred income taxes			4,002				—
Other assets, net			3,833				3,738
Total assets		$	306,930			$	208,800
LIABILITIES AND EQUITY
Current liabilities:
Current portion of capitalized lease obligations		$	155			$	224
Accounts payable			25,457				26,556
Accrued and other liabilities			19,565				17,969
Customer deposits			3,183				2,298
Deferred revenue			11,189				10,618
Total current liabilities			59,549				57,665
Long-term portion of capitalized lease obligations			7,585				8,055
Other liabilities			10,233				9,961
Total liabilities			77,367				75,681
Commitments and contingencies			—				—
Shareholders’ equity:
Preferred stock, authorized 5,000 shares, none issued			—				—
Common stock, $0.001 par value, authorized 60,000 shares; 50,842 (2011) and 46,948 (2010) issued			51				23
Additional paid-in capital			255,555				186,252
Treasury stock, at cost; 324 shares (2011) and 268 shares (2010)			(215	)			(189	)
Accumulated deficit			(30,536	)			(57,925	)
Accumulated other comprehensive income			4,708				4,958
Total equity			229,563				133,119
Total liabilities and equity		$	306,930			$	208,800

See accompanying notes to condensed consolidated financial statements.

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

		Quarter Ended September 30,								Nine months Ended September 30,
(in thousands, except per share amounts)		2011				2010				2011				2010
Revenue:
Products		$	33,248			$	28,742			$	95,002			$	75,783
Services			24,290				12,761				65,561				32,490
Total revenue			57,538				41,503				160,563				108,273
Cost of sales:
Products			16,010				14,765				45,732				38,381
Services			13,765				7,910				38,667				20,787
Total cost of sales			29,775				22,675				84,399				59,168
Gross profit			27,763				18,828				76,164				49,105
Operating expenses:
Selling, general and administrative			15,100				10,960				42,224				29,894
Research and development			3,872				2,708				9,737				7,979
Total operating expenses			18,972				13,668				51,961				37,873
Income from operations			8,791				5,160				24,203				11,232
Interest and other expense (income), net			654				(492	)			465				342
Income before income taxes			8,137				5,652				23,738				10,890
Provision for (benefit of) income taxes			917				284				(3,677	)			767
Net income		$	7,220			$	5,368			$	27,415			$	10,123
Other comprehensive income
Unrealized gain (loss) on pension obligation		$	(5	)		$	14			$	—			$	(6	)
Foreign currency translation gain (loss)			(2,873	)			1,831				(250	)			557
Comprehensive income		$	4,342			$	7,213			$	27,165			$	10,674
Net income per share — basic		$	0.14			$	0.12			$	0.55			$	0.22
Net income per share — diluted		$	0.14			$	0.11			$	0.54			$	0.22

See accompanying notes to condensed consolidated financial statements.

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

		Nine Months Ended September 30,
(in thousands)		2011				2010
Cash flows from operating activities:
Net income		$	27,415			$	10,123
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (benefit of) deferred income taxes			(4,833	)			212
Depreciation and amortization			7,402				5,355
Provision for (recovery of) bad debts			929				(118	)
Share-based compensation			1,827				1,057
Loss on the disposition of property and equipment			82				49
Changes in operating accounts:
Accounts receivable			(2,568	)			(155	)
Inventories			(5,000	)			(2,160	)
Prepaid expenses and other current assets			(293	)			920
Accounts payable			(4,777	)			(1,308	)
Accrued liabilities			37				1,892
Customer deposits			608				1,973
Deferred revenue			(1,106	)			317
Other operating assets and liabilities			(940	)			315
Net cash provided by operating activities			18,783				18,472
Cash flows from investing activities:
Purchases of property and equipment			(2,295	)			(1,019	)
Additions to license and patent costs			(305	)			(243	)
Proceeds from disposition of property and equipment			—				6
Cash paid for acquisitions, net of cash assumed			(44,830	)			(9,086	)
Net cash used in investing activities			(47,430	)			(10,342	)
Cash flows from financing activities:
Proceeds from issuance of common stock			62,054				—
Proceeds from exercise of stock options and restricted stock			2,378				262
Repayment of capital lease obligations			(172	)			(159	)
Restricted cash			(189	)			—
Net cash provided by financing activities			64,071				103
Effect of exchange rate changes on cash			(156	)			665
Net increase in cash and cash equivalents			35,268				8,898
Cash and cash equivalents at the beginning of the period			37,349				24,913
Cash and cash equivalents at the end of the period		$	72,617			$	33,811
Supplemental Cash Flow Information:
Interest payments		$	418			$	442
Income tax payments			994				274
Non-cash items:
Transfer of equipment from inventory to property and equipment, net(a)			2,721				1,419
Transfer of equipment to inventory from property and equipment, net(b)			779				392
Stock issued for acquisitions of businesses			3,042				3,915

See accompanying notes to condensed consolidated financial statements.

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

		Common Stock												Treasury Stock												Accumulated
						Par				Additional																Other				Total
						Value				Paid-in												Accumulated				Comprehensive				Shareholders’
(in thousands, except par value)		Shares				$0.001				Capital				Shares				Amount				Deficit				Income				Equity
Balance at December 31, 2010			23,474			$	23			$	186,252				134			$	(189	)		$	(57,925	)		$	4,958			$	133,119
Exercise of stock options			200				—	(a)			2,154				—				—				—				—				2,154
Issuance (repurchase) of restricted stock, net			227				—	(a)			228				190				(26	)			—				—				202
Share-based compensation expense			8				—				1,827				—				—				—				—				1,827
Issuance of common stock			1,495				2				62,052				—				—				—								62,054
Issuance of stock for acquisitions			110				—	(a)			3,042				—				—				—				—				3,042
Common stock dividend			25,328				26				—				—				—				(26	)			—				—
Net income			—				—				—				—				—				27,415				—				27,415
Foreign currency translation adjustment			—				—				—				—				—				—				(250	)			(250	)
Balance at September 30, 2011			50,842			$	51			$	255,555				324			$	(215	)		$	(30,536	)		$	4,708			$	229,563

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 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, 2010.

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 nine months ended September 30, 2011 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.

The Company’s Board of Directors approved a two-for-one stock split, effected in the form of a 100% stock dividend, which was paid on May 18, 2011 to stockholders of record at the close of business on May 9, 2011. The Company’s stockholders received one additional share of common stock for each share of common stock owned. This did not change the proportionate interest that a stockholder maintained in the Company. All share and per share amounts set forth in this report, including earnings per share and the weighted average number of shares outstanding for basic and diluted earnings per share, for each respective period have been adjusted to reflect the two-for-one stock split.

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 of the filing of this Form 10-Q. During this period, no material recognizable subsequent events were identified. See Note 2 and Note 15 for a description of subsequent events that are not significant to the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011-8 (“ASU 2011-8), “Intangibles — Goodwill and Other (Topic 350).” ASU 2011-8 is intended to simplify the testing of goodwill for impairment by permitting an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. ASU 2011-8 will become effective for fiscal years beginning after December 15, 2011, with early adoption permitted in limited circumstances. The standard will become effective for the Company in January 2012 and the adoption is not expected to have a significant impact on the Company’s consolidated financial statements.

No other new accounting pronouncements issued or effective during the third quarter of 2011 have had or are expected to have an impact on the Company’s consolidated financial statements.

(2) Acquisitions

In addition to the acquisitions previously disclosed, the Company completed acquisitions in the third quarter of 2011, which are discussed below.

On July 19, 2011, the Company acquired the assets of Alibre Inc. (“Alibre”), a provider of design productivity solutions. Alibre’s operations have been integrated into the Company and future revenue will be included in printers and other products and services revenue. The fair value of the consideration paid for this acquisition was $3,800, all of which was paid in cash and was allocated to the assets purchased and liabilities assumed based on the estimated fair values at the date of acquisition, and is included in the table below which summarizes third quarter 2011 acquisitions.

On August 9, 2011, the Company acquired certain assets of Content Media, Inc. related to the Botmill printer (“Botmill”). Botmill is a manufacturer of desktop 3D printers, kits, materials and accessories. Botmill’s operations have been integrated into the Company and future revenue will be included in printers and other products revenue. The fair value of the consideration paid for this acquisition was $17, all of which was paid in cash, and was allocated to the assets purchased based on the estimated fair values at the date of acquisition, and is included in the table below which summarizes third quarter 2011 acquisitions.

Subject to the terms and conditions of the acquisition agreement, the sellers have the right to earn an additional amount up to a maximum of $1,000, pursuant to an earn-out formula set forth in the acquisition agreement, for a period of three years, which commenced on September 1, 2011. As of September 30, 2011, no accrued liability was recorded for the earnout. The Company will re-evaluate the earnout in future periods to determine if a liability is to be accrued.

On September 20, 2011, the Company acquired the shares of Formero Pty, Ltd. and its wholly-owned subsidiary XYZ Innovation (“Formero”). Formero, based in Australia, with an office in China, is a provider of on-demand custom parts services and a distributor of 3D printers. Formero’s operations have been integrated into the Company and included in services revenue and printers and other products revenue. The fair value of the consideration paid for this acquisition, net of cash acquired, was $5,838, all of which was paid in cash and was allocated to the assets purchased and liabilities assumed based on the estimated fair values at the date of acquisition, and is included in the table below which summarizes third quarter 2011 acquisitions.

Subject to the terms and conditions of the acquisition agreement, the sellers have the right to earn an additional amount of up to a maximum of approximately $2,012, based on the exchange rate at the date of acquisition, pursuant to an earn-out formula set forth in the acquisition agreement, for a period of three years, which commenced on October 1, 2011. As of September 30, 2011, an accrued liability of approximately $1,862, based on the exchange rate at the date of acquisition, was recorded for the earnout. The earnout was determined to be acquisition consideration and therefore is reflected as part of goodwill.

The amounts related to the acquisitions of these businesses were allocated to the assets acquired and the liabilities assumed and included in the Company’s condensed consolidated balance sheet at September 30, 2011 as follows:

(in thousands)		2011
Fixed assets		$	1,100
Intangible assets			11,144
Other assets, net of cash acquired and liabilities assumed			(2,589	)
Net assets acquired		$	9,655

These acquisitions were not significant, either individually or in aggregate; therefore, no pro-forma financial information is provided for these acquisitions.

Subsequent acquisition

On October 4, 2011, the Company acquired the shares of Kemo Modelmakerij B.V. (“Kemo”). Kemo, based in The Netherlands, is a provider of on-demand custom parts services. The Company is in the process of integrating Kemo. The fair value of the consideration paid for this acquisition, net of cash acquired, was approximately $4,006, based on the exchange rate at the date of acquisition, all of which was paid in cash, and will be allocated to the assets purchased and liabilities assumed based on the estimated fair values at the date of acquisition. Due to the timing of this acquisition, at the time of this filing the Company is in the process of allocating the fair values of the assets purchased, liabilities assumed, and other intangibles identified as of the acquisition date, with any excess to be recorded as goodwill. Future revenue from this acquisition will be reported in services revenue. The Kemo acquisition is not significant to the Company’s consolidated financial statements.

(3) Inventories

Components of inventories, net at September 30, 2011 and December 31, 2010 were as follows:

(in thousands)		2011				2010
Raw materials		$	7,848			$	6,742
Work in process			631				195
Finished goods and parts			21,527				19,079
Total			30,006				26,016
Less: Reserves			(2,165	)			(2,205	)
Inventories, net		$	27,841			$	23,811

(4) Property and Equipment

Property and equipment, net at September 30, 2011 and December 31, 2010 were as follows:

										Useful Life
(in thousands, except years)		2011				2010				(in years)
Land		$	541			$	152				N/A
Building			9,204				9,574				25
Machinery and equipment			34,235				30,460				3-7
Capitalized software — ERP			3,143				3,143				5
Office furniture and equipment			3,152				3,051				5
Leasehold improvements			5,855				5,504			Life of lease
Rental equipment			58				506				5
Construction in progress			1,893				980				N/A
Total property and equipment			58,081				53,370
Less: Accumulated depreciation and amortization			(29,377	)			(25,701	)
Total property and equipment, net		$	28,704			$	27,669

Depreciation and amortization expense on property and equipment for the quarter and nine months ended September 30, 2011 was $1,547 and $4,596, respectively, compared to $1,644 and $4,511 for the quarter and nine months ended September 30, 2010.

(5) Intangible Assets

Intangible assets other than goodwill at September 30, 2011 and December 31, 2010 were as follows:

		2011												2010
						Accumulated												Accumulated
(in thousands)		Cost				Amortization				Net				Cost				Amortization				Net
Licenses		$	5,875			$	(5,875	)		$	—			$	5,875			$	(5,875	)		$	—
Patent costs			16,311				(13,806	)			2,505				16,296				(13,632	)			2,664
Acquired technology			11,064				(10,367	)			697				11,064				(10,304	)			760
Internally developed software			17,847				(9,588	)			8,259				9,984				(8,936	)			1,048
Customer relationships			17,115				(1,110	)			16,005				10,253				(300	)			9,953
Non-compete agreements			8,552				(1,575	)			6,977				3,875				(840	)			3,035
Trade names			4,657				(137	)			4,520				883				(68	)			815
Other			1,923				(1,228	)			695				974				(974	)			—
Total		$	83,344			$	(43,686	)		$	39,658			$	59,204			$	(40,929	)		$	18,275

For the nine months ended September 30, 2011 and 2010, the Company capitalized $305 and $243, respectively, of costs incurred to acquire, develop and extend patents in the United States and various other countries.

Amortization expense for intangible assets for the quarter and nine months ended September 30, 2011 was $855 and $2,806, respectively, compared to $282 and $844 for the quarter and nine months ended September 30, 2010.

Annual amortization expense for intangible assets for 2011, 2012, 2013, 2014 and 2015 is expected to be $4,002; $4,643; $4,622; $4,604 and $4,445, respectively.

(6) Accrued and Other Liabilities

Accrued liabilities at September 30, 2011 and December 31, 2010 were as follows:

(in thousands)		2011				2010
Compensation and benefits		$	6,134			$	6,786
Vendor accruals			2,262				2,259
Accrued professional fees			356				451
Accrued taxes			3,607				3,102
Royalties payable			260				439
Accrued interest			45				48
Non-contractual obligation to repurchase			—				27
Contractual obligation due to acquisitions			6,197				4,356
Accrued other			704				501
Total		$	19,565			$	17,969

Other liabilities at September 30, 2011 and December 31, 2010 were as follows:

(in thousands)		2011				2010
Defined benefit pension obligation		$	3,386			$	3,394
Long-term tax liability			804				756
Earnouts related to acquisitions			2,681				2,660
Deferred tax liability			3,189				3,134
Other long-term liabilities			173				17
Total		$	10,233			$	9,961

(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 elected not to prepare and maintain the documentation to qualify for hedge accounting treatment under ASC 815, “Derivatives and Hedging,” therefore, all gains and losses (realized or unrealized) are recognized in “Interest and other expense (income), net” in the condensed consolidated statements of operations and comprehensive income. 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 and other liabilities on the condensed consolidated balance sheet.

There were no foreign currency contracts outstanding at September 30, 2011 or December 31, 2010.

The total foreign currency impact on the condensed consolidated statements of operations and comprehensive income for the quarter and nine months ended September 30, 2011 was a loss of $575 and a gain of $36, respectively, compared to gains of $681 and $140, respectively, for the quarter and nine months ended September 30, 2010.

(8) Share-based Compensation Plans

The Company records share-based compensation expense in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income. The 2010 data below has been adjusted to reflect the two-for-one stock split, in the nature of a stock dividend, that the Company completed during the second quarter of 2011.

Share-based compensation expense for the quarter and nine months ended September 30, 2011 and 2010 was as follows:

		Quarter Ended September 30,								Nine months Ended September 30,
(in thousands)		2011				2010				2011				2010
Restricted stock awards		$	593			$	268			$	1,827			$	1,057

The number of shares of restricted common stock awarded and the weighted average fair value per share during the quarter and nine months ended September 30, 2011 and 2010 were as follows:

		Quarter Ended September 30,
		2011								2010
						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			46			$	22.65				40			$	6.58
Granted under the 2004 Restricted Stock Plan for Non-Employee Directors			—				—				—				—
Total restricted stock awards			46			$	22.65				40			$	6.58

		Nine months Ended September 30,
		2011								2010
						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			198			$	20.49				144			$	6.85
Granted under the 2004 Restricted Stock Plan for Non-Employee Directors			16				18.23				36				7.15
Total restricted stock awards			214			$	20.32				180			$	6.91

In the nine months ended September 30, 2011, the Company granted restricted stock awards covering 198 shares of common stock pursuant to the Company’s 2004 Incentive Stock Plan. Of the 198 shares granted in the nine months ended September 30, 2011, 10 shares were awarded to executive officers of the Company. Additionally, of the 46 shares granted in the third quarter of 2011, 15 remained subject to acceptance at September 30, 2011. In the first nine months of 2010, the Company granted restricted stock awards covering 144 shares of common stock pursuant to the Company’s 2004 Incentive Stock Plan, none of which were awarded to executive officers of the Company.

In the third quarters of 2011 and 2010, the Company did not issue any shares of common stock pursuant to the Company’s 2004 Restricted Stock Plan for Non-Employee Directors. Stock compensation expense for directors totaled $0 and $300 for the quarter and nine months ended September 30, 2011, compared to $0 and $257 for the quarter and nine months ended September 30, 2010.

Effective April 1, 2011, the Board of Directors amended the 2004 Restricted Stock Plan for Non-Employee Directors to limit the value of any award of shares made to an eligible director to $50, valued on the date of the award.

(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 and comprehensive income for the quarter and nine months ended September 30, 2011 and 2010:

		Quarter Ended September 30,								Nine months Ended September 30,
(in thousands)		2011				2010				2011				2010
Service cost		$	28			$	24			$	85			$	74
Interest cost			31				22				95				70
Total		$	59			$	46			$	180			$	144

(10) Earnings Per Share

The Company presents basic and diluted earnings per share (“EPS”) amounts. Basic EPS is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the applicable period. Diluted EPS is calculated by dividing net income 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 quarter and nine months ended September 30, 2011 and 2010:

		Quarter Ended September 30,								Nine months Ended September 30,
(in thousands, except per share amounts)		2011				2010				2011				2010
Numerator:
Net income — numerator for basic net earnings per share		$	7,220			$	5,368			$	27,415			$	10,123
Add: Effect of dilutive securities
Stock options and other equity compensation			—				—				—				—
Numerator for dilutive earnings per share		$	7,220			$	5,368			$	27,415			$	10,123
Denominator:
Weighted average shares — denominator for basic net earnings per share			50,450				46,294				49,455				46,020
Add: Effect of dilutive securities
Stock options and other equity compensation			952				588				1,020				584
Denominator for dilutive earnings per share			51,402				46,882				50,475				46,604
Earnings per share
Basic		$	0.14			$	0.12			$	0.55			$	0.22
Diluted		$	0.14			$	0.11			$	0.54			$	0.22
Unexercised employee stock options excluded from diluted earnings per share (1)			—				280				—				266

(11) 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 which 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 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 September 30, 2011
(in thousands)		Level 1				Level 2				Level 3				Total
Cash equivalents (1)		$	37,692			$	—			$	—			$	37,692

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 nine months ended September 30, 2011.

In addition to the financial assets included in the above table, certain of our non-financial assets and liabilities are to be initially measured at fair value on a non-recurring basis. This includes items such as non-financial assets and liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent periods) and non-financial, long-lived assets measured at fair value for an impairment assessment. In general, non-financial assets and liabilities including goodwill, other intangible assets and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when impairment is recognized. The Company has not recorded any impairments related to such assets and has had no other significant non-financial assets or non-financial liabilities requiring adjustments or write-downs to fair value as of September 30, 2011 or December 31, 2010.

(12) Income Taxes

The Company’s effective tax rates were 11.3% and (15.5)% for the quarter and nine months ended September 30, 2011, respectively, compared to 5.0% and 7.0% for the quarter and nine months ended September 30, 2010, respectively.

In conjunction with the Company’s ongoing review of its actual results and anticipated future earnings, the Company assesses the possibility of releasing the valuation allowance remaining on its U.S. net deferred tax assets. During the second quarter of 2011, based upon recent results of operations and expected profitability in the future, the Company concluded that is more likely than not that a portion of the U.S. net deferred tax assets will be realized. As a result, in accordance with ASC 740, the Company reversed $17,000 of the valuation allowance applied to U.S. net deferred tax assets. The reversal of the valuation allowance resulted in a non-cash income tax benefit of $6,221. There were no releases during the quarter ended September 30, 2011. As of September 30, 2011, the Company has a valuation allowance remaining on its U.S. net deferred tax assets of $17,098.

Tax years 2007 to 2010 remain subject to examination by the U.S. Internal Revenue Service. The Company has utilized a portion of its U.S. loss carryforwards covering the years 1997 through 2003. Should the Company utilize any of its remaining losses, which date back to 2003, 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 (2005), Germany (2006), Japan (2005), Italy (2005), Switzerland (2005) and the United Kingdom (2007).

(13) Segment Information

The Company operates in one reportable business segment. The Company conducts its business through subsidiaries in the United States, a subsidiary in Switzerland that operates a research and production facility, and sales and services offices, including custom parts services, operated by subsidiaries in Europe (France, Germany, Italy, The Netherlands and the United Kingdom) and in Asia-Pacific (Australia, China and Japan). 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 September 30,								Nine months Ended September 30,
(in thousands)		2011				2010				2011				2010
Revenue from unaffiliated customers:
United States		$	31,679			$	18,146			$	83,165			$	49,690
Germany			8,288				5,773				23,330				17,091
Other Europe			12,061				11,037				33,701				25,860
Asia Pacific			5,510				6,547				20,367				15,632
Total		$	57,538			$	41,503			$	160,563			$	108,273

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

		Quarter Ended September 30,								Nine months Ended September 30,
(in thousands)		2011				2010				2011				2010
Printers and other products		$	14,791			$	14,506			$	44,519			$	33,961
Print materials			18,457				14,236				50,483				41,822
Services			24,290				12,761				65,561				32,490
Total revenue		$	57,538			$	41,503			$	160,563			$	108,273

Intercompany sales are as follows:

		Quarter Ended September 30, 2011
		Intercompany Sales to
		United								Other				Asia
(in thousands)		States				Germany				Europe				Pacific				Total
United States		$	—			$	3,968			$	2,270			$	681			$	6,919
Germany			8				—				1,063				—				1,071
Other Europe			3,524				—				7				—				3,531
Asia Pacific			—				—				—				—				—
Total		$	3,532			$	3,968			$	3,340			$	681			$	11,521

		Quarter Ended September 30, 2010
		Intercompany Sales to
		United								Other				Asia
(in thousands)		States				Germany				Europe				Pacific				Total
United States		$	—			$	2,526			$	3,917			$	598			$	7,041
Germany			29				—				540				—				569
Other Europe			2,079				(169	)			(26	)			—				1,884
Asia Pacific			—				—				—				—				—
Total		$	2,108			$	2,357			$	4,431			$	598			$	9,494

		Nine months Ended September 30, 2011
		Intercompany Sales to
		United								Other				Asia
(in thousands)		States				Germany				Europe				Pacific				Total
United States		$	—			$	11,265			$	6,222			$	2,812			$	20,299
Germany			118				—				2,466				—				2,584
Other Europe			9,396				1				19				—				9,416
Asia Pacific			—				—				—				—				—
Total		$	9,514			$	11,266			$	8,707			$	2,812			$	32,299

		Nine months Ended September 30, 2010
		Intercompany Sales to
		United								Other				Asia
(in thousands)		States				Germany				Europe				Pacific				Total
United States		$	—			$	9,671			$	8,296			$	1,982			$	19,949
Germany			263				—				2,777				—				3,040
Other Europe			6,243				52				1				—				6,296
Asia Pacific			34				—				—				—				34
Total		$	6,540			$	9,723			$	11,074			$	1,982			$	29,319

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

		Quarter Ended September 30,								Nine months Ended September 30,
(in thousands)		2011				2010				2011				2010
Income from operations:
United States		$	5,840			$	2,295			$	12,975			$	4,413
Germany			158				190				985				691
Other Europe			1,247				378				3,880				1,280
Asia Pacific			1,556				2,101				6,327				4,481
Subtotal			8,801				4,964				24,167				10,865
Inter-segment elimination			(10	)			196				36				367
Total		$	8,791			$	5,160			$	24,203			$	11,232

		September 30,				December 31,
(in thousands)		2011				2010
Assets:
United States		$	197,506			$	113,249
Germany			14,624				17,231
Other Europe			71,814				67,790
Asia Pacific			22,986				10,530
Total		$	306,930			$	208,800

(14) Commitments and Contingencies

The Company leases office space and certain furniture and fixtures under various non-cancelable operating leases. Rent expense under operating leases was $652 and $1,921 for the quarter and nine months ended September 30, 2011, respectively, compared to $203 and $584 for the quarter and nine months ended September 30, 2010, respectively.

As of September 30, 2011, the Company has supply commitments with third party assemblers for printer assemblies for 2011 that total $9,146.

For certain of our recent acquisitions, the Company is obligated for the payment of deferred purchase price totaling $3,720, based upon the exchange rate at the date of acquisition, all of which is due in 2011. As of September 2010, the Company had obligations for the payment of deferred purchase price for certain acquisitions totaling $315. Certain of these acquisitions also contain earnout provisions under which the sellers of the acquired businesses can earn additional amounts. The total liabilities recorded for these earnouts as of September 30, 2011 was $5,158 and is included in other liabilities. As of September 30, 2010, the Company had no liabilities recorded for earnouts related to acquisitions. See Note 2 for details of acquisitions and related commitments.

Litigation

On March 14, 2008, DSM Desotech Inc. filed a complaint, in an action titled DSM Desotech Inc. v. 3D Systems Corporation and 3D Systems, Inc. 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 certain stereolithography machines. The complaint further asserted that the Company is infringing on two of DSM Desotech’s patents relating to stereolithography machines. DSM Desotech subsequently filed two amendments to its complaint in which it reasserted its original causes of action or asserted additional causes of action. The Company filed answers to DSM Desotech’s complaints in which, among other things, it denied the material allegations of the complaints. On July 20, 2010, the Court issued a decision relating to the construction of the claims of the patents-in-suit following the Markman hearing held on September 16, 2009. In that decision, the Court generally adopted the claim constructions proposed by the Company.

Fact discovery regarding the claims pending in this case concluded January 31, 2011, and this case remains in the pre-trial stage.

The Company understands that DSM Desotech estimates the damages associated with its claims to be in excess of $40,000. The Company intends to continue vigorously contesting all the claims asserted by DSM Desotech.

The Company has been pursuing patent infringement litigation against EnvisionTec, Inc. and certain of its related companies since 2005. In this litigation, the Company asserted that EnvisionTec infringed the Company’s patents covering various three-dimensional solid imaging products and methods for creating physical three-dimensional models of an object and has sought injunctive relief and damages. EnvisionTec’s Perfactory machine and Vanquish machine (the Vanquish is now marketed as the PerfactoryXede and PerfactoryXtreme) are the two products accused of patent infringement.

A jury trial was held in September 2010. Following that trial, the jury issued a verdict to the effect that EnvisionTec’s Vanquish machines infringe one of the Company’s patents, and the Court entered judgment on that verdict on October 7, 2010. On March 10, 2011, the Court issued a second amended judgment to the effect that EnvisionTec’s Perfactory and Vanquish machines infringe one patent and its Vanquish machines infringe a second patent.

On April 7, 2011, EnvisionTec filed a Notice of Appeal with the United States Court of Appeals for the Federal Circuit, which granted the Company’s motion to dismiss that appeal on August 17, 2011. On October 6, 2011, the Court entered a third amended judgment declaring that the judgment of infringement referred to above is a final judgment. On October 13, 2011, the Court denied Envisiontec’s motion to stay damages discovery, and damages discovery is underway. The Company intends to pursue claims for damages against EnvisionTec.

On July 14, 2010, MSK K.K., a Japanese company, filed a complaint against the Company’s Japanese subsidiary in the Tokyo District Court asserting, among other things, that the Company’s subsidiary failed to satisfy certain alleged performance guarantees associated with the use of certain materials in two printers purchased from the Company in 2007.

The plaintiff is seeking damages in excess of $1,600. The Company intends to continue to vigorously contest the claims asserted by MSK K.K.

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 matters will not have a material effect on the Company’s consolidated results of operations or consolidated financial position.

(15) Subsequent Events

On October 4, 2011, the Company acquired Kemo Modelmakerij B.V. (“Kemo”). Future revenue from this acquisition will be reported in services revenue. The Kemo acquisition is not significant to the Company’s financial statements. See Note 2.

In October, the Company held a Special Meeting of Stockholders of 3D Systems Corporation. At the special meeting stockholders approved an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of Common Stock from 60,000 shares to 120,000 shares. The newly authorized shares of Common Stock would be issuable for any proper corporate purpose, including future acquisitions, capital-raising or financing transactions involving Common Stock, convertible securities or other equity securities, stock splits, stock dividends and current or future equity compensation plans. These additional shares will provide the Company the flexibility to issue shares for future corporate needs without potential expense or delay incident to obtaining stockholder approval for any particular issuance.

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 are a global provider of three-dimensional (“3D”) content-to-print solutions including personal, professional and production 3D printers, print materials, on-demand custom parts services and creative content development, design productivity tools and curation services and downloads. Our integrated solutions enable complex three-dimensional objects to be produced directly from 3D digital data without tooling, greatly reducing the time and cost required to produce prototypes or customized production parts. Through our custom parts services, which consist of our 3Dproparts™ and Quickparts^® brands, we supply a wide variety of custom-made plastic and metal parts as well as assembly and production jigs, fixtures and casting patterns in different finishes and colors through a growing network of custom parts service locations.

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

Recent Developments

In 2011, we have continued to execute on our strategic initiatives, including growing our custom parts services, through additional acquisitions and organic growth, accelerating personal and professional 3D printer penetration by expanding our distribution channel of reseller partners, and growing healthcare solutions revenue. We also began to execute on our initiative to build 3D consumer content products and services through acquisitions and organic growth.

In July, we acquired Alibre, Inc., a provider of 3D design productivity solutions, including a suite of parametric CAD solutions that are easy to own and simple to use for makers and designers.

In August, we acquired certain assets of Content Media Inc., related to Botmill printers (“Botmill”). Botmill is a maker of affordable personal 3D printers and printer kits that print real plastic parts.

In September, we acquired Formero Pty, Ltd. and its wholly owned subsidiary XYZ Innovation. Formero, based in Melbourne, Australia, is a provider of on-demand custom parts services and a distributor of 3D printers. In addition, Fomero has an office located in China to support procurement for its custom parts services.

In September, we introduced two new personal 3D printers: the 3DTouch™ and the ProJet™ 1500. The 3DTouch™ features multiple print heads for color and material choices, an intuitive touchscreen and USB storage. The ProJet™ 1500 is an affordable, high resolution personal 3D printer that prints plastic parts in six different colors and is network ready with email notification capabilities and a web browser interface.

In October, we acquired Kemo Modelmakerij B.V. (“Kemo”). Kemo, based in Budel, The Netherlands, is a provider of custom parts services.

In October, we held a Special Meeting of Stockholders of 3D Systems Corporation. At the special meeting stockholders approved an amendment to our Certificate of Incorporation to increase the number of authorized shares of Common Stock from 60 million shares to 120 million shares. The newly authorized shares of Common Stock would be issuable for any proper corporate purpose, including future acquisitions, capital-raising or financing transactions involving Common Stock, convertible securities or other equity securities, stock splits, stock dividends and current or future equity compensation plans. These additional shares will provide us the flexibility to issue shares for future corporate needs without potential expense or delay incident to obtaining stockholder approval for any particular issuance.

In October, we introduced Visijet^® clear print material that meets the requirements of USP class VI for plastics and is designed for advanced medical and dental applications.

Results of Operations

Summary of 2011 financial results

Our operating activities generated $18.8 million of net cash in the first nine months of 2011, which is discussed in greater detail below. We used $47.4 million to fund our strategic investing activities, including acquisitions of businesses. Financing activities during the nine months ended September 30, 2011 provided $64.1 million of cash, including $62.1 million from our common stock offering. We finished the period with $72.6 million of unrestricted cash compared to $37.3 million of unrestricted cash at December 31, 2010.

During the third quarter of 2011 we reported increases in revenue and profit compared to the third quarter of 2010 as our worldwide business continued to expand. Revenue for the third quarter of 2011 improved by 38.6% to $57.5 million from $41.5 million for the third quarter of 2010. Revenue increased across all classes of products and services, led by a $10.3 million, or 194.6%, increase in custom parts services revenue and a $4.2 million or 29.6% increase in materials revenue. Higher revenue, coupled with improved gross profit margins, enabled us to achieve net income of $7.2 million for the third quarter of 2011, compared to $5.4 million in the same period of 2010. Revenue for the nine months ended September 30, 2011 increased 48.3% to $160.6 million from $108.3 million in 2010, and net income increased 170.8% to $27.4 million from $10.1 million for 2010 for primarily the same reasons.

Printer revenue rose by $0.3 million from $14.5 million in the third quarter of 2010 to $14.8 million in the third quarter of 2011. The increase in printer revenue reflects a continued shift in printer mix toward personal and professional printer sales.

Print materials sales for the third quarter of 2011 rose by $4.2 million from the third quarter of 2010 from continued expansion of printers installed over past periods and increased revenue from integrated materials.

Revenue from services improved by $11.5 million to $24.3 million in the third quarter of 2011 from $12.8 million in the third quarter of 2010. This increase in services revenue reflects revenue from our custom parts services and increased revenue from printer service components, both from organic growth and acquisitions. Service revenue from custom parts services was $15.6 million, or 64.4%, of total services revenue for the third quarter of 2011.

For the third quarter of 2011, healthcare revenue was $7.2 million, or 13%, of our total revenue, compared to $6.0 million, or 14%, in the third quarter of 2010. Healthcare solutions revenue includes sales of printers, print materials, and services for hearing aid, dental, medical device and other health-related applications. Printer sales into these marketplaces can fluctuate from period to period due to timing; 59% of revenue from healthcare applications was from recurring revenue in the third quarter of 2011 compared to 60% in the third quarter of 2010.

Our higher gross profit in the third quarter and first nine months of 2011 arose primarily from our higher level of revenue coupled with cost containment. Our gross profit margin increased to 48.3% in the third quarter of 2011 from 45.4% in the third quarter of 2010 due to increased revenue and overhead absorption, partially offset by lower margin personal and professional printers making up a higher percentage of printer sales, an unfavorable mix of production printers and custom parts services making up a higher percentage of revenue at a lower margin.

Our total operating expenses increased by $5.3 million in the third quarter of 2011 to $19.0 million from $13.7 million in the third quarter of 2010. The increase reflected higher selling, general and administrative expenses primarily related to higher commissions, staffing from our acquisitions and increased legal expenses associated with litigation and acquisitions. The increase also reflected a $1.2 million increase in research and development expenses related to new product launches and spending related to our 3D content and consumer solutions development. We expect to continue to manage expenses and drive down our costs where possible without impairing our ability to operate and service our customers. We expect our SG&A expenses for the remainder of 2011 to be in the range of $15.5 to $16.5 million, and our research and development expenses to be in the range of $3.5 million to $4.0 million.

Our operating income for the third quarter of 2011 increased to $8.8 million from $5.2 million in the third quarter of 2010. This improvement in operating income resulted from higher revenues and gross profit, partially offset by higher operating expenses, as further discussed below.

Results of Operations — Third Quarter Comparisons

Third 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 third quarter of 2011 compared to the third quarter of 2010:

Table 1

		Printers and
		Other
(Dollars in thousands)		Products								Print Materials								Services								Totals
Revenue — 3rd quarter 2010		$	14,506				35.0	%		$	14,236				34.3	%		$	12,761				30.7	%		$	41,503				100	%
Change in revenue:
Volume
Core products and services			(236	)			(1.6	)			3,048				21.4				10,459				82.0				13,271				32.0
New products and services			1,547				10.7				114				0.8				473				3.7				2,134				5.1
Price/Mix			(1,292	)			(8.9	)			312				2.2				—				—				(980	)			(2.4	)
Foreign currency translation			266				1.8				747				5.2				597				4.7				1,610				3.9
Net change			285				2.0				4,221				29.6				11,529				90.4				16,035				38.6
Revenue — 3rd quarter 2011		$	14,791				25.7	%		$	18,457				32.1	%		$	24,290				42.2	%		$	57,538				100	%

We earn revenues from the sale of printers and other products, print materials and services. On a consolidated basis, revenue for the third quarter of 2011 increased by $16.0 million, or 38.6%, compared to the third quarter of 2010 as a result of the factors discussed below. Our organic growth rate was 11.7% for the third quarter of 2011.

The increase in revenue from printers and other products that is due to volume for the third quarter of 2011 compared to the third quarter of 2010 was the result of higher sales of personal and professional printers, partially offset by lower production printer revenue. Revenue from printers and other products consisted of:

•

Production printers, which represented $7.8 million, or 53%, of total printers revenue for the third quarter of 2011, compared to $9.0 million, or 62%, for the third quarter of 2010;

•

Personal and professional printers, which made up the remaining $7.0 million, or 47%, in the third quarter of 2011, compared to $5.5 million, or 38%, in the third quarter of 2010.

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

Revenue from print materials was higher as a result of continued expansion of printers installed over past periods and a 112.8% increase in integrated print materials revenue. Sales of integrated print materials represented 53% of total materials revenue in the third quarter of 2011 compared to 32% in the third quarter of 2010.

The increase in services revenue reflects revenue from our custom parts services and increased revenue from printer service components, both from organic growth and acquisitions. Service revenue from custom parts services was $15.6 million, or 64.4%, of total service revenue for the third quarter of 2011.

At September 30, 2011 our backlog was $11.3 million, compared to backlogs of $7.6 million at December 31, 2010 and $7.0 million at September 30, 2010. Production and delivery of our printers is generally not characterized by long lead times. The higher backlog at September 30, 2011 includes an order for multiple printers for future delivery. Additionally, custom parts services lead time and backlog depend on whether orders are for rapid prototyping or longer-range production runs. The backlog at September 30, 2011 includes $6.3 million of custom parts services orders.

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 price and mix effects relate 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 printers as the trend toward smaller, lower-priced printers has continued and the influence of new printers and print materials on our operating results has grown.

Change in third quarter revenue by geographic region

Each geographic region contributed to our higher level of revenue in the third quarter of 2011. Table 2 sets forth the change in revenue by geographic area for the third quarter of 2011 compared to the third quarter of 2010:

Table 2

(Dollars in thousands)		U.S.								Europe								Asia-Pacific								Totals
Revenue — 3rd quarter 2010		$	18,146				43.7	%		$	16,810				40.5	%		$	6,547				15.8	%		$	41,503				100	%
Change in revenue:
Volume			14,353				79.1				635				3.8				417				6.4				15,405				37.1
Price/Mix			(820	)			(4.5	)			1,510				9.0				(1,671	)			(25.5	)			(981	)			(2.4	)
Foreign currency translation			—				—				1,394				8.3				217				3.3				1,611				3.9
Net change			13,533				74.6				3,539				21.1				(1,037	)			(15.8	)			16,035				38.6
Revenue — 3rd quarter 2011		$	31,679				55.0	%		$	20,349				35.4	%		$	5,510				9.6	%		$	57,538				100	%

Revenue from U.S. operations increased by $13.6 million, or 74.6%, to $31.7 million in 2011 from $18.1 million in the third quarter of 2010. The increase was due to higher volume partially offset by the unfavorable combined effect of price and mix due to the higher proportion of sales from personal and professional printers.

Revenue from non-U.S. operations for the third quarter of 2011 increased by $2.5 million, or 10.7%, to $25.9 million from $23.4 million for the third quarter of 2010. Revenue from non-U.S. operations as a percent of total revenue was 45.0% and 56.3%, respectively, for the third quarters of 2011 and 2010. The increase in non-U.S. revenue, excluding the effect of foreign currency translation, was 3.8% in the third quarter of 2011.

Revenue from European operations increased by $3.5 million, or 21.1%, to $20.3 million from $16.8 million in the prior year period. This increase was due to a $0.6 million increase in volume, a $1.4 million favorable impact of foreign currency translation and a $1.5 million favorable combined effect of price and mix.

Revenue from Asia-Pacific operations decreased by $1.0 million, or 15.8%, to $5.5 million from $6.5 million in the prior year period. This decrease was due to a $1.7 million unfavorable combined effect of price and mix, partially offset by a favorable $0.4 million increase in volume and a $0.2 million favorable impact of foreign currency translation.

Gross profit and gross profit margins — third quarter

Table 3 sets forth gross profit and gross profit margin for our products and services for the third quarters of 2011 and 2010:

Table 3

		Quarter Ended September 30,
		2011								2010
						Gross								Gross
		Gross				Profit				Gross				Profit
(Dollars in thousands)		Profit				Margin				Profit				Margin
Printers and other products		$	5,257				35.5	%		$	5,261				36.3	%
Print materials			11,981				64.9				8,716				61.2
Services			10,525				43.3				4,851				38.0
Total		$	27,763				48.3	%		$	18,828				45.4	%