Stratasys Ltd.

STRATASYS LTD.

FORM 20-F
(Annual and Transition Report (foreign private issuer))

Filed 03/09/17 for the Period Ending 12/31/16

Address

Telephone

7665 COMMERCE WAY
EDEN PRAIRIE, MN 55344
972-8-931-4314

CIK 0001517396

Symbol SSYS

SIC Code

3577 - Computer Peripheral Equipment, Not Elsewhere Classified

Industry Computer Hardware
Technology
12/31

Sector
Fiscal Year

http://www.edgar-online.com
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Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549FORM 20-F(Mark One)☐☐     REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016
OR
☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Date
of
event
requiring
this
shell
company
report
........................................Commission file number: 001-35751STRATASYS LTD. (Exact
name
of
Registrant
as
specified
in
its
charter)Not Applicable (Translation
of
Registrant’s
name
into
English)Israel (Jurisdiction
of
incorporation
or
Organization)c/o Stratasys, Inc.







1 Holtzman Street,7665 Commerce WayScience ParkEden Prairie,P.O. Box 2496Minnesota 55344Rehovot, Israel76124(Address
of
Principal
Executive
Offices)S. Scott Crump, Chairman of Executive Committee Tel: (952) 937-3000 E-mail: scott.crump@stratasys.com 7665 Commerce Way Eden Prairie, Minnesota 55344 (Name,
Telephone,
E-mail
and/or
Facsimile
number
and
Address
of
Company
Contact
Person)Securities
registered
or
to
be
registered
pursuant
to
Section
12(b)
of
the
Act.Table of ContentsTitle
of
each
class
Name
of
each
exchange
on
which
registeredOrdinary Shares, nominal value NIS 0.01 per shareNASDAQ Global Select MarketSecurities
registered
or
to
be
registered
pursuant
to
Section
12(g)
of
the
Act.
None (Title
of
Class)Securities
for
which
there
is
a
reporting
obligation
pursuant
to
Section
15(d)
of
the
Act.
None (Title
of
Class)Indicate
the
number
of
outstanding
shares
of
each
of
the
issuer’s
classes
of
capital
or
common
stock
as
of
the
close
of
the
period
covered
by
the
annual
report:52,639,444 Ordinary Shares, NIS 0.01 nominal value, at December 31, 2016.Indicate
by
check
mark
if
the
registrant
is
a
well-known
seasoned
issuer,
as
defined
in
Rule
405
of
the
Securities
Act.
Yes
☒
No
☐
If
this
report
is
an
annual
or
transition
report,
indicate
by
check
mark
if
the
registrant
is
not
required
to
file
reports
pursuant
to
Section
13
or
15(d)
of
the
Securities
Exchange
Act
of
1934.
Yes
☐
No
☒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
periodthat
the
registrant
was
required
to
file
such
reports),
and
(2)
has
been
subject
to
such
filing
requirements
for
the
past
90
days.
Yes
☒
No
☐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
ofRegulation
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
☒
No
☐Indicate
by
check
mark
whether
the
registrant
is
a
large
accelerated
filer,
an
accelerated
filer,
or
a
non-accelerated
filer.
See
definition
of
“accelerated
filer
and
large
accelerated
filer”
in
Rule
12b-2
of
the
ExchangeAct.
(Check
one):Large
accelerated
filer
☒Accelerated
filer
☐Non-accelerated
filer
☐Indicate
by
check
mark
which
basis
of
accounting
the
registrant
has
used
to
prepare
the
financial
statements
included
in
this
filing:International
Financial
ReportingUS
GAAP
☒Standards
as
issuedOther
☐by
the
International
Accounting
StandardsBoard
☐If
“Other”
has
been
checked
in
response
to
the
previous
question,
indicate
by
check
mark
which
financial
statement
item
the
registrant
has
elected
to
follow.
Item
17
☐
Item
18
☐If
this
is
an
annual
report,
indicate
by
check
mark
whether
the
registrant
is
a
shell
company
(as
defined
in
Rule
12b-2
of
the
Exchange
Act).
Yes
☐

No
☒Table of ContentsEXPLANATORY NOTEThis
annual
report
on
Form
20-F,
or
this
annual
report,
is
being
filed
by
the
registrant,
Stratasys
Ltd.,
an
Israeli
company.
As
described
in
its
previous
filings
with
the
Securities
and
Exchange
Commission,
or
theSEC,
the
registrant
(formerly
known
as
Objet
Geometries
Ltd.
and
then
Objet
Ltd.)
was
party
to
a
merger
with
Stratasys,
Inc.,
a
Delaware
corporation,
that
was
completed
on
December
1,
2012,
referred
to
as
theStratasys-Objet
merger
or
the
merger.
The
Stratasys-Objet
merger
was
structured
as
a
reverse
merger
of
Stratasys,
Inc.
with
and
into
an
indirect,
wholly
owned
subsidiary
of
Objet
Ltd.,
in
which
Objet
Ltd.
served
asthe
legal
acquirer.
For
accounting
purposes,
however,
Stratasys,
Inc.
was
treated
as
the
acquiring
company,
and
the
Stratasys-Objet
merger
is
accounted
for
as
a
reverse
acquisition
under
the
acquisition
method
ofaccounting
for
business
combinations.Unless
otherwise
indicated
or
the
context
otherwise
requires,
references
to
“Stratasys,”
“our
company,”
“the
Company,”
“the
combined
company,”
“the
registrant,”
“we,”
“us,”
and
“our”
refer
to
Stratasys
Ltd.(formerly
known
as
Objet
Ltd.),
and
its
consolidated
subsidiaries.
References
to
“Objet”
generally
refer
to
Objet
Ltd.
and
its
consolidated
subsidiaries
prior
to
the
effective
time
of
the
Stratasys-Objet
merger
onDecember
1,
2012.
We
may
also
use
“Objet”
to
refer
to
the
line
of
products
previously
sold
by
Objet
Ltd.
and
the
related
current,
ongoing
operations
that
have
continued
following
the
Stratasys-Objet
merger.References
to
“Stratasys,
Inc.”
generally
refer
to
Stratasys,
Inc.,
a
Delaware
corporation,
and
its
consolidated
subsidiaries
prior
to
the
effective
time
of
the
Stratasys-Objet
merger,
but
sometimes
(as
the
contextrequires)
refer
to
the
current,
ongoing
operations
of
our
Stratasys,
Inc.
subsidiary.
The
historical
financial
information
set
forth
in
this
annual
report,
unless
otherwise
indicated
or
the
context
otherwise
requires,
reflectsthe
consolidated
results
of
operations
and
financial
position
of:
(i)
Stratasys,
Inc.
prior
to
the
merger;
and
(ii)
Stratasys
Ltd.
since
the
merger.Table of ContentsTABLE
OF
CONTENTS     PageTABLE OF CONTENTSCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS1USE OF TRADE NAMES2CERTAIN ADDITIONAL TERMS AND CONVENTIONS2
PART IITEM 1.     IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.3ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE.3ITEM 3.KEY INFORMATION.3ITEM 4.INFORMATION ON THE COMPANY.22ITEM 4A.UNRESOLVED STAFF COMMENTS.42ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS.42ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.64ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.82ITEM 8.FINANCIAL INFORMATION.84ITEM 9.THE OFFER AND LISTING.85ITEM 10.ADDITIONAL INFORMATION.86ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.97ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.98
PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.98ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.98ITEM 15.CONTROLS AND PROCEDURES.98ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT.99ITEM 16B.CODE OF ETHICS.99ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES.99ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.99ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.99ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.99ITEM 16G.CORPORATE GOVERNANCE.100ITEM 16H.MINE SAFETY DISCLOSURE.100
PART IIIITEM 17.FINANCIAL STATEMENTS.100ITEM 18.FINANCIAL STATEMENTS.100ITEM 19.EXHIBITS.101SIGNATURES.102Table of ContentsCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSCertain
information
included
or
incorporated
by
reference
in
this
annual
report
may
be
deemed
to
be
“forward-looking
statements”
within
the
meaning
of
the
Private
Securities
Litigation
Reform
Act
of
1995,Section
27A
of
the
Securities
Act
of
1933,
and
Section
21E
of
the
Securities
Exchange
Act
of
1934.
Forward-looking
statements
are
often
characterized
by
the
use
of
forward-looking
terminology
such
as
“may,”“will,”
“expect,”
“anticipate,”
“estimate,”
“continue,”
“believe,”
“should,”
“intend,”
“project”
or
other
similar
words,
but
are
not
the
only
way
these
statements
are
identified.These
forward-looking
statements
may
include,
but
are
not
limited
to,
statements
relating
to
our
objectives,
plans
and
strategies,
statements
that
contain
projections
of
results
of
operations
or
of
financial
conditionand
all
statements
(other
than
statements
of
historical
facts)
that
address
activities,
events
or
developments
that
we
intend,
expect,
project,
believe
or
anticipate
will
or
may
occur
in
the
future.Forward-looking
statements
are
not
guarantees
of
future
performance
and
are
subject
to
risks
and
uncertainties.
We
have
based
these
forward-looking
statements
on
assumptions
and
assessments
made
by
ourmanagement
in
light
of
their
experience
and
their
perception
of
historical
trends,
current
conditions,
expected
future
developments
and
other
factors
they
believe
to
be
appropriate.Important
factors
that
could
cause
actual
results,
developments
and
business
decisions
to
differ
materially
from
those
anticipated
in
these
forward-looking
statements
include,
among
other
things:●the
extent
of
our
success
at
introducing
new
or
improved
products
and
solutions
that
gain
market
share;

●the
extent
of
growth
of
the
3D
printing
market
generally;

●impairments
of
goodwill
or
other
intangible
assets
in
respect
of
companies
that
we
acquire;

●changes
in
our
overall
strategy,
such
as
related
to
our
cost
reduction
and
reorganization
activities
and
our
capital
expenditures;

●the
extent
of
our
success
at
efficiently
and
successfully
integrating
the
operations
of
various
companies
that
we
have
acquired
or
may
acquire;

●the
impact
of
shifts
in
prices
or
margins
of
the
products
that
we
sell
or
services
we
provide;

●the
impact
of
competition
and
new
technologies;

●global
market,
political
and
economic
conditions,
and
in
the
countries
in
which
we
operate
in
particular;

●government
regulations
and
approvals;

●litigation
and
regulatory
proceedings;

●infringement
of
our
intellectual
property
rights
by
others
(including
for
replication
and
sale
of
consumables
for
use
in
our
systems),
or
infringement
of
others’
intellectual
property
rights
by
us;

●the
extent
of
our
success
at
maintaining
our
liquidity
and
financing
our
operations
and
capital
needs;

●impact
of
tax
regulations
on
our
results
of
operations
and
financial
condition;
and

●any
additional
factors
referred
to
in
Item
3.D
“Key
Information
-
Risk
Factors”,
Item
4
“Information
on
the
Company”,
and
Item
5
“Operating
and
Financial
Review
and
Prospects”,
as
well
as
in
this
annualreport
generally.Readers
are
urged
to
carefully
review
and
consider
the
various
disclosures
made
throughout
this
annual
report,
which
are
designed
to
advise
interested
parties
of
the
risks
and
factors
that
may
affect
our
business,financial
condition,
results
of
operations
and
prospects.1Table of ContentsAny
forward-looking
statements
in
this
annual
report
are
made
as
of
the
date
hereof,
and
we
undertake
no
obligation
to
publicly
update
or
revise
any
forward-looking
statements,
whether
as
a
result
of
newinformation,
future
events
or
otherwise,
except
as
required
by
law.USE OF TRADE NAMESUnless
the
context
otherwise
indicates
or
requires,
“Stratasys,”
“J750”,
“Vero”,
“Tango,”
“Objet,”
“PolyJet,”
“Connex,”
“FDM”,
“Fortus,”
“Dimension,”
“Uprint,”
“Mojo,”
“Insight”,
“Stratasys
DirectManufacturing,”
“SDM,”
“Solidscape,”
“Solid
Concepts,”
“GrabCAD,”
“GrabCAD
Print,”,
“GrabCAD
Community”,
“GrabCAD
Workbench”,
“F123”,
“Robotic
Composite”,
“Infinite
Build”
“MakerBot,”“Thingiverse,”
“Replicator,”
“The
3D
Printing
Solutions
Company
”
and
all
product
names
and
trade
names
used
by
us
in
this
annual
report
are
our
trademarks
and
service
marks,
which
may
be
registered
in
certainjurisdictions.
Although
we
have
omitted
the
“®”
and
“TM”
trademark
designations
for
such
marks
in
this
annual
report,
all
rights
to
such
trademarks
and
service
marks
are
nevertheless
reserved.
Furthermore,
theStratasys
Signet
design
logo
is
our
property.
This
annual
report
contains
additional
trade
names,
trademarks
and
service
marks
of
other
companies.
We
do
not
intend
our
use
or
display
of
other
companies’
tradenames,trademarks
or
service
marks
to
imply
a
relationship
with,
or
endorsement
or
sponsorship
of
us
by,
these
other
companies.CERTAIN ADDITIONAL TERMS AND CONVENTIONSIn
this
annual
report,
unless
the
context
otherwise
requires:●references
to
the
“Stratasys-Objet
merger”,
or
the
“merger”,
refer
to
the
merger
consummated
on
December
1,
2012
whereby
Stratasys,
Inc.,
a
Delaware
corporation,
merged
with
and
into
an
indirect,
wholly-owned
Delaware
subsidiary
of
Objet
Ltd.
(now
known
as
Stratasys
Ltd.),
an
Israeli
company,
with
Stratasys,
Inc.
surviving
the
merger
and
becoming
an
indirect,
wholly-owned
subsidiary
of
Objet
(whichchanged
its
name
to
Stratasys
Ltd.
at
that
time);

●references
to
the
“Stratasys-Objet
merger
agreement”
refer
to
the
Agreement
and
Plan
of
Merger,
dated
as
of
April
13,
2012,
as
amended,
by
and
among
Stratasys,
Inc.;
Objet
Ltd.;
Seurat
Holdings
Inc.,
aDelaware
corporation
and
an
indirect,
wholly-owned
subsidiary
of
Objet
(“Holdco”);
and
Oaktree
Merger
Inc.,
a
Delaware
corporation
and
a
direct,
wholly-owned
subsidiary
of
Holdco,
pursuant
to
which
themerger
was
consummated;

●references
to
the
“MakerBot
transaction”
refer
to
the
merger
consummated
on
August
15,
2013
whereby
Cooperation
Technology
Corporation,
a
Delaware
corporation
(now
known
as
Baccio
Corporation),
orMakerBot,
which
is
the
direct
parent
company
of
MakerBot
Industries,
LLC,
merged
with
and
into
an
indirect,
wholly-owned
subsidiary
of
Stratasys
Ltd.,
with
MakerBot
becoming
an
indirect,
wholly-ownedsubsidiary
of
Stratasys
Ltd.;

●references
to
the
“Solid
Concepts
acquisition”
refer
to
the
acquisition
consummated
on
July
14,
2014
whereby
Stratasys
Ltd.
acquired
Solid
Concepts
Inc.;

●references
to
the
“Harvest
Technologies
acquisition”
refer
to
the
acquisition
consummated
on
August
1,
2014
whereby
Stratasys
Ltd.
acquired
Harvest
Technologies
Inc.

●references
to
the
“GrabCAD
acquisition”
refer
to
the
acquisition
consummated
on
September
22,
2014
whereby
Stratasys
Ltd.
acquired
GrabCAD.

●references
to
“ordinary
shares”,
“our
shares”
and
similar
expressions
refer
to
our
Ordinary
Shares,
nominal
value
NIS
0.01
per
share;

●references
to
“dollars”,
“U.S.
dollars”,
“U.S.
$”
and
“$”
are
to
United
States
Dollars;

●references
to
“shekels”
and
“NIS”
are
to
New
Israeli
Shekels,
the
Israeli
currency;

●references
to
the
“articles”
or
“amended
articles”
are
to
our
Amended
and
Restated
Articles
of
Association,
which
became
effective
upon
the
closing
of
the
merger,
as
subsequently
amended;

●references
to
the
“Companies
Law”
are
to
Israel’s
Companies
Law,
5759-1999,
as
amended;

●references
to
the
“Securities
Act”
are
to
the
Securities
Act
of
1933,
as
amended;

●references
to
the
“Exchange
Act”
are
to
the
Securities
Exchange
Act
of
1934,
as
amended;

●references
to
“NASDAQ”
are
to
the
Nasdaq
Stock
Market;
and

●references
to
the
“SEC”
are
to
the
United
States
Securities
and
Exchange
Commission.2Table of ContentsPART IITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.Not
applicable.ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.Not
applicable.ITEM 3. KEY INFORMATION.A. Selected Financial Data.As
noted
above
in
the
“Explanatory
Note”
to
this
annual
report,
Stratasys,
Inc.
was
treated
as
the
acquiring
company
in
the
Stratasys-Objet
merger
for
accounting
purposes
and
the
Stratasys-Objet
merger
wasaccounted
for
as
a
reverse
acquisition
under
the
acquisition
method
of
accounting
for
business
combinations.
As
a
result,
the
historical
financial
statements
of
Stratasys,
Inc.
prior
to
the
effective
time
of
the
merger
onDecember
1,
2012
became
our
historical
financial
statements.
Therefore,
while
the
balance
sheet
data
presented
below
reflects
the
financial
position
of
Stratasys
Ltd.
(formerly
Objet
Ltd.)
as
of
each
of
December
31,2016,
2015,
2014,
2013
and
2012,
the
consolidated
statement
of
operations
data
reflects
the
results
of
operations
of
Stratasys
Ltd.
for
the
years
ended
December
31,
2016,
2015,
2014
and
2013,
and
from
December
1through
December
31,
2012,
and
the
results
of
operations
of
Stratasys,
Inc.
from
January
1
through
November
30,
2012.The
historical
selected
consolidated
statement
of
operations
data
for
the
years
2016,
2015
and
2014,
and
the
selected
consolidated
balance
sheet
data
at
December
31,
2016
and
2015
have
been
derived
from
ouraudited
consolidated
financial
statements
set
forth
elsewhere
in
this
annual
report.
The
selected
consolidated
statements
of
operations
data
for
2013
and
2012,
and
the
selected
consolidated
balance
sheet
data
as
ofDecember
31,
2014,
2013
and
2012,
have
been
derived
from
our
previously
reported
audited
consolidated
financial
statements,
which
are
not
included
in
this
annual
report.
The
selected
financial
data
should
be
read
inconjunction
with
our
consolidated
financial
statements
and
accompanying
notes
and
“Operating
and
Financial
Review
and
Prospects”
appearing
in
Item
5
of
this
annual
report,
and
are
qualified
entirely
by
reference
tosuch
consolidated
financial
statements.
Our
historical
results
set
forth
herein
are
not
necessarily
indicative
of
our
future
results.Year Ended December 31,




2016




2015




2014




2013




2012(U.S. $ in thousands, except per share data)Statement of Operations Data:Net
sales$




672,458$




695,995$




750,129$




484,403$




215,244Gross
profit317,306102,172362,394226,173109,911Research
and
development
expense,
net97,778122,36082,27052,31019,659Selling,
general
and
administrative
expense307,113434,619351,993202,04073,130Goodwill
impairment-942,408102,470--Change
in
fair
value
of
obligations
in
connection
with
acquisitions(872)(23,671)(26,150)754-Operating
income
(loss)(86,713)(1,373,544)(148,189)(28,931)17,122Net
income
(loss)(77,621)(1,373,511)(119,470)(26,907)8,823Net
income
(loss)
attributable
to
Stratasys
Ltd.(77,219)(1,372,835)(119,420)(26,954)8,491Net
income
(loss)
per
basic
share
attributable
to
Stratasys
Ltd.(1.48)(26.64)(2.39)(0.64)0.37Weighted
average
basic
shares
outstanding52,33051,59250,01942,07922,812Net
income
(loss)
per
diluted
share
attributable
to
Stratasys
Ltd.(1.48)(26.64)(2.39)(0.68)0.36Weighted
average
diluted
shares
outstanding52,58251,59250,01942,09923,776Balance Sheet Data:Working
capital*388,428374,346546,062714,404230,929Total
assets*1,366,0491,414,3562,899,1072,782,2211,731,513Equity1,135,9981,188,8012,531,2392,499,7871,572,1563Table of Contents*We
adopted
a
new
accounting
guidance
which
requires
classification
of
deferred
tax
assets
and
liabilities
as
noncurrent
on
the
balance
sheet
on
a
prospective
basis.
All
deferred
taxes
are
classified
as
non-currenton
our
balance
sheets
commencing
December
31,
2015.
Prior
periods
were
not
retrospectively
adjusted.In
addition
to
the
audited
consolidated
financial
data
presented
above,
we
also
present
below
unaudited
pro
forma
combined
statement
of
operations
data
for
our
company
for
the
year
ended
December
31,
2012
thatgive
effect
to
the
Stratasys-Objet
merger
as
if
it
had
been
completed
on
January
1,
2012.
This
data
has
been
prepared
consistent
with
SEC
Regulation
S-X,
Article
11.Year EndedDecember 31, 2012




Pro Forma(U.S.
$
in
thousands,except
per
share
data)Statement of Operations Data:Net
sales$





















359,054Gross
profit163,923Research
and
development
expense36,923Selling,
general
and
administrative
expense141,232Operating
loss(14,232)Net
loss(21,515)Net
loss
attributable
to
Stratasys
Ltd.(21,577)Net
loss
per
basic
share(0.58)Net
loss
per
basic
share
attributable
to
Stratasys
Ltd.(0.58)Weighted
average
basic
shares
outstanding36,987Net
loss
per
diluted
share(0.58)Net
loss
per
diluted
share
attributable
to
Stratasys
Ltd.(0.58)Weighted
average
diluted
shares
outstanding36,987B. Capitalization and Indebtedness.Not
applicable.C. Reasons for the Offer and Use of Proceeds.Not
applicable.D. Risk Factors.You should carefully consider the risks described below, together with all of the other information in this annual report on Form 20-F. The risks described below are not the only risks facing us. Additional risksand uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of these risks actually occurs ,
our business, financialcondition and results of operations could suffer and the price of our shares could decline.Risks related to our business and financial conditionWe may not be able to introduce new 3D printers, high-performance systems and consumables acceptable to customers or to improve the technology, software or consumables used in our current systems inresponse to changing technology and end-user needs.We
derive
most
of
our
revenues
from
the
sale
of
additive
manufacturing
systems
and
related
consumables.
The
markets
in
which
we
operate
are
subject
to
rapid
and
substantial
innovation
and
technological
change,mainly
driven
by
technological
advances
and
end-user
requirements
and
preferences,
as
well
as
the
emergence
of
new
standards
and
practices.
Our
ability
to
compete
in
these
markets
depends,
in
large
part,
on
oursuccess
in
enhancing
our
existing
products
and
developing
new
additive
manufacturing
systems
and
new
consumables
that
will
address
the
increasingly
sophisticated
and
varied
needs
of
prospective
end-users,
andrespond
to
technological
advances
and
industry
standards
and
practices
on
a
cost-effective
and
timely
basis
or
otherwise
gain
market
acceptance.Even
if
we
successfully
enhance
our
existing
systems
or
create
new
systems,
it
is
likely
that
new
systems
and
technologies
that
we
develop
will
eventually
supplant
our
existing
systems
or
that
our
competitors
willcreate
systems
that
will
replace
our
systems.
As
a
result,
any
of
our
products
may
be
rendered
obsolete
or
uneconomical
by
our
or
others’
technological
advances.4Table of ContentsOur operating results and financial condition may fluctuate.The
operating
results
and
financial
condition
of
our
company
may
fluctuate
from
quarter
to
quarter
and
year
to
year
and
are
likely
to
continue
to
vary
due
to
a
number
of
factors,
many
of
which
will
not
be
withinour
control.
If
our
operating
results
do
not
meet
the
guidance
that
we
provide
to
the
market
place
or
the
expectations
of
securities
analysts
or
investors,
the
market
price
of
our
ordinary
shares
will
likely
decline.Fluctuations
in
our
operating
results
and
financial
condition
may
be
due
to
a
number
of
factors,
including
those
listed
below
and
those
identified
throughout
this
“Risk
Factors”
section:●the
degree
of
market
acceptance
of
our
products
and
services;

●the
mix
of
products
and
services
that
we
sell
during
any
period;

●long
sales
cycles;

●changes
in
our
overall
strategy,
such
as
related
to
our
cost
reduction
and
reorganization
activities
and
our
capital
expenditures;

●unforeseen
liabilities
or
difficulties
in
integrating
our
acquisitions;

●changes
in
the
amount
that
we
spend
to
develop,
acquire
or
license
new
products,
consumables,
technologies
or
businesses;

●changes
in
the
amounts
that
we
spend
to
promote
our
products
and
services;

●changes
in
the
cost
of
satisfying
our
warranty
obligations
and
servicing
our
installed
base
of
systems;

●delays
between
our
expenditures
to
develop
and
market
new
or
enhanced
systems
and
consumables
and
the
generation
of
sales
from
those
products;

●development
of
new
competitive
products
and
services
by
others;

●difficulty
in
predicting
sales
patterns
and
reorder
rates
that
may
result
from
multi-tier
distribution
strategy
associated
with
new
product
categories
such
as
entry
level
desktop
3D
printers;

●impairment
charges
that
we
may
be
required
to
record
in
respect
of
our
goodwill
and/or
other
long-lived
assets;

●litigation
or
threats
of
litigation,
including
intellectual
property
claims
by
third
parties;

●changes
in
accounting
rules
and
tax
laws;

●tax
benefit
that
we
may
record
due
to
partial
or
full
release
of
valuation
allowances
against
our
deferred
tax
assets;

●the
geographic
distribution
of
our
sales;

●our
responses
to
price
competition;

●general
economic
and
industry
conditions
that
affect
end-user
demand
and
end-user
levels
of
product
design
and
manufacturing;

●changes
in
dollar-shekel
and
dollar-Euro
exchange
rates
that
affect
the
value
of
our
net
assets,
revenues
and
expenditures
from
and/or
relating
to
our
activities
carried
out
in
those
currencies;
and

●the
level
of
research
and
development
activities
by
our
company.Due
to
all
of
the
foregoing
factors,
and
the
other
risks
discussed
in
this
annual
report,
you
should
not
rely
on
quarter-over-quarter
and
year-over-year
comparisons
of
our
operating
results
as
an
indicator
of
ourfuture
performance.If demand for our products and services does not grow as expected, our revenues may stagnate or decline and our profitability may be adversely affected.The
commercial
marketplace
for
additive
manufacturing,
which
was
once
dominated
by
conventional
methods
that
do
not
involve
3D
printing
technology,
has
been
undergoing
a
shift
towards
3D
printing.
This
istrue
with
respect
to
prototype
development,
and
to
some
extent,
with
respect
to
direct
digital
manufacturing,
or
DDM,
as
an
alternative
to
traditional
manufacturing.
If
the
commercial
marketplace
does
not
continue
totransform
towards
the
broader
acceptance
of
3D
printing
and
DDM
as
alternatives
for
prototype
development
and
traditional
manufacturing,
or
if
it
adopts
3D
printing
based
on
technologies
other
than
the
technologiesthat
we
use,
we
may
not
be
able
to
increase
or
sustain
current
or
future
levels
of
sales
of
our
products
and
related
materials
and
services,
and
our
results
of
operations
may
be
adversely
affected
as
a
result.5Table of ContentsDuring
the
years
2015
and
2016,
the
growth
rate
in
the
3D
printing
and
additive
manufacturing
industries
slowed
significantly
and
our
revenues
declined
in
each
year
relative
to
the
previous
year.
We
experiencedlower
revenues
across
most
regions
and
most
product
and
service
lines.
We
believe
this
trend
was
attributable,
in
part,
to
weak
investment
in
capital
equipment
by
customers
within
key
verticals,
as
well
as
difficultmacroeconomic
conditions
in
certain
global
regions.
These
factors,
when
combined
with
excess
capacity
that
we
have
experienced
as
a
result
of
our
significant
growth
in
the
years
2013
and
2014,
adversely
impactedour
profitability.
While
we
were
able
to
mitigate
this
trend
via
cost
reduction
measures
in
2016
and
thereby
improve
our
operating
results
relative
to
2015.
To
the
extent
that
these
trends
continue
for
an
extended
periodof
time
or
macroeconomic
conditions
worsen
further,
that
could
affect
our
results
of
operations
in
a
more
significant
adverse
manner.If additional goodwill or other intangible assets that we have recorded become impaired, we could have to take further significant charges against earnings.As
of
December
31,
2016,
the
carrying
value
of
all
of
our
goodwill
and
other
intangible
assets
was
approximately
$563.1
million
compared
to
a
carrying
value
of
$636.3
million
as
of
December
31,
2015.
As
ofDecember
31,
2014,
however,
that
carrying
value
was
$1.9
billion
.
The
significant
decrease
in
the
carrying
value
of
our
goodwill
and
other
intangible
assets
over
the
course
of
2015
was
primarily
due
to
impairmentcharges
of
$1.2
billion
during
2015.Under
accounting
principles
generally
accepted
in
the
United
States
of
America,
or
GAAP,
we
are
required
to
review
goodwill
for
impairment
annually
and
whenever
events
or
changes
in
circumstances
indicatethat
the
carrying
amount
of
goodwill
may
not
be
recoverable.
During
2015,
we
determined
that
certain
indicators
of
potential
impairment
existed
that
required
interim
goodwill
impairment
analysis.
These
indicatorsincluded
a
further
significant
decline
in
our
market
capitalization
for
a
sustained
period
and
weaker
than
expected
operating
results
of
our
reporting
units
for
2015.
During
2015,
we
also
tested
the
recoverability
of
ourpurchased
intangible
assets
due
to
certain
indicators
of
impairment
including
weaker
than
expected
operating
results
of
our
reporting
units
for
2015,
reorganization
initiatives
for
our
operations,
lower
forecastedprofitability
due
to
technological
and
other
trends
as
well
as
the
increased
uncertainty
in
the
3D
printing
environment.These
tests
and
analyses,
performed
in
2015,
led
to
non-cash
goodwill
impairment
charges
of
$942.4
million
and
non-cash
impairment
charges
of
$278.5
million
to
our
intangible
assets.
For
further
information,please
see
notes
7
and
8
to
our
consolidated
financial
statements
included
elsewhere
in
this
annual
report.During
2016,
we
recorded
impairment
charges
of
$17.9
million
to
our
intangible
assets.
In
addition,
during
the
fourth
quarter
of
2016,
we
performed
a
quantitative
assessment
for
goodwill
impairment
for
ourStratasys-Objet
reporting
unit.
Following
our
quantitative
assessment,
we
concluded
that
there
is
a
narrow
percentage
difference
between
the
estimated
fair
value
and
estimated
carrying
value
of
our
Stratasys-Objetreporting
unit,
which
difference
did
not
warrant
that
we
record
an
impairment
charge
in
2016.
We
have
approximately
$386
million
of
goodwill
allocated
to
our
Stratasys-Objet
reporting
unit,
however,
which
could
besubject
to
impairment
in
the
future.
For
further
information,
please
see
Note
7
to
our
consolidated
financial
statements
included
elsewhere
in
this
annual
report.Our
ongoing
consideration
of
the
factors
described
above,
as
well
as
additional
factors,
could
result
in
further
significant
charges
against
our
earnings,
which
could
have
a
material
adverse
effect
on
our
results
ofoperations.Declines in the prices of our products and services, or in our volume of sales, together with our relatively inflexible cost structure, may adversely affect our financial results and diminish the impact of our costreduction programs that we initiated in 2015 and 2016.Our
business
is
subject
to
price
competition.
Such
price
competition
may
adversely
affect
our
ability
to
maintain
the
same
degree
of
profitability,
especially
during
periods
of
decreased
demand.
Decreased
demandalso
adversely
impacts
the
volume
of
our
systems
sales,
as
occurred
in
2015
and
again
in
2016,
when
our
sales
declined
overall
in
each
case
relative
to
the
previous
year.
If
our
business
is
not
able
to
offset
pricereductions
resulting
from
these
pressures,
or
decreased
volume
of
sales
due
to
contractions
in
the
market,
by
improved
operating
efficiencies
and
reduced
expenditures,
then
our
operating
results
will
be
adverselyaffected.In
2015
and
2016,
in
response
to
declining
sales
volume
and
revenues,
we
implemented
certain
reorganization
programs
aimed
at
reducing
our
costs
and
improving
operating
efficiencies.
These
programs
began
toshow
positive
results
in
2016,
successfully
reducing
our
expenditures
and
improving
our
operating
results
in
2016
relative
to
2015.
Certain
of
our
operating
costs,
however,
are
fixed
and
cannot
readily
be
reduced,which
diminishes
the
positive
impact
of
our
reorganization
programs
on
our
operating
results.
In
particular,
prior
to
this
contraction
in
our
sales,
we
had
increased
our
manufacturing
capacity
in
anticipation
of
thegrowth
of
the
3D
printing
market
over
the
long
term,
which
is
accompanied
by
increased
fixed
costs.
To
the
extent
that
the
growth
in
the
market
for
our
products
slows
further,
or
the
3D
printing
market
contracts,
wemay
be
faced
with
excess
manufacturing
capacity
and
excess
related
costs
that
cannot
readily
be
reduced,
which
will
adversely
impact
our
results
of
operations.To the extent that other companies are successful in developing or marketing consumables for use in our Stratasys Idea, Design and Production Series systems, our revenues and profits would likely beadversely affected.We
sell
a
substantial
portion
of
the
consumables
used
in
our
systems.
We
attempt
to
protect
against
replication
of
our
proprietary
consumables
through
patents
and
trade
secrets
and
provide
that
warranties
on
thosesystems
may
be
invalid
if
customers
use
non-genuine
consumables
that
cause
damage
to
the
printer.
Other
companies
have
developed
and
sold,
and
may
continue
to
develop
and
sell,
consumables
that
are
used
with
oursystems,
which
may
reduce
our
consumables
sales
and
impair
our
overall
revenues
and
profitability.6Table of ContentsIf our product mix shifts too far into lower margin products or our revenues mix shifts significantly towards our AM services business, our profitability could be reduced.Sales
of
certain
of
our
existing
products
have
higher
margins
than
others.
For
instance,
our
high-end
systems
and
related
consumables
yield
a
greater
gross
margin
than
our
entry-level
systems.
As
some
of
the
salesof
our
entry-level
systems
may
displace
sales
of
our
other
systems.
If
sales
of
our
entry-level
desktop
3D
printers
have
the
effect
of
reducing
sales
of
our
higher
margin
products,
or
if
for
any
other
reason,
our
productmix
shifts
too
far
into
lower
margin
products,
and
we
are
not
able
to
sufficiently
reduce
the
engineering,
production
and
other
costs
associated
with
those
products
or
substantially
increase
the
sales
of
those
products,our
profitability
could
be
reduced.
A
similar
negative
impact
on
our
gross
margins
could
result
due
to
a
significant
shift
towards
revenues
generated
by
our
AM
parts
service
business,
Stratasys
Direct
Manufacturing,and
which
are
characterized
by
lower
margins
relative
to
our
products.Until fairly recently, we have experienced rapid and significant growth in our operations and intend to continue to grow over the long term, and if we cannot adequately adapt our infrastructure and properlyintegrate the internal or external sources of our growth in order to generate the intended benefits from it, our results of operations will suffer.Until
2015,
we
had
experienced
rapid
and
significant
growth
in
our
operations,
and
we
intend
to
continue
to
grow
over
the
long
term.
The
continued
adaptation
of
our
infrastructure
to
our
growth
will
require,among
other
things,
development
of
our
financial
and
management
controls
and
management
information
systems,
management
of
our
sales
channel,
increased
capital
expenditures,
the
ability
to
attract
and
retainqualified
management
personnel
and
the
training
of
new
personnel.
We
cannot
be
sure
that
our
infrastructure,
systems,
procedures,
business
processes
and
managerial
controls
will
be
adequate
to
support
the
expectedlong-term
growth
in
our
operations.
Any
delays
in,
or
problems
associated
with,
implementing,
or
transitioning
to,
new
or
enhanced
systems,
procedures,
or
controls
to
accommodate
and
support
the
requirements
ofour
business
and
operations
and
to
effectively
and
efficiently
integrate
acquired
operations
may
adversely
affect
our
ability
to
meet
customer
requirements,
manage
our
product
inventory,
and
record
and
reportfinancial
and
management
information
on
a
timely
and
accurate
basis.Additional
unforeseen
difficulties
and
expenditures
that
may
result
from
the
integration
of
a
new
business
or
technology
include:●difficulty
transitioning
customers
and
other
business
relationships
to
our
company;

●problems
unifying
management
following
a
transaction;

●the
loss
of
key
employees
from
our
existing
or
acquired
businesses;

●diversion
of
management’s
attention
to
the
assimilation
of
the
technology
and
personnel
of
acquired
businesses
or
new
product
or
service
lines;
and

●difficulties
in
coordinating
geographically
disparate
organizations
and
corporate
cultures
and
integrating
management
personnel
with
different
business
backgrounds.These
potential
negative
effects
could
prevent
us
from
realizing
the
benefits
of
an
acquisition
transaction
or
other
growth
opportunity.
In
that
event,
our
competitive
position,
revenues,
revenue
growth,
financialcondition,
results
of
operations
and
liquidity
could
be
adversely
affected,
which
could,
in
turn,
adversely
affect
our
share
price
and
shareholder
value.The markets in which we participate (especially the lower-end market) are competitive. Our failure to compete successfully could cause our revenues and the demand for our products to decline.We
compete
for
end-users
with
a
wide
variety
of
producers
of
systems
that
create
models,
prototypes,
other
3D
objects
and
end-use
parts
as
well
as
producers
of
materials
and
services
for
these
systems,
includingboth
additive
and
subtractive
manufacturing
methodologies,
such
as
metal
extrusion,
computer-controlled
machining
and
manual
modeling
techniques.
Our
principal
competition
currently
consists
of
othermanufacturers
of
systems
for
prototype
development
and
customized
manufacturing
processes,
including
3D
Systems
Corporation,
EOS
GmbH
and
EnvisionTEC
GmbH,
and,
with
respect
to
our
entry-level
desktop3D
printers,
a
multitude
of
companies
such
as
XYZprinting,
Ultimaker,
and
others.
Competition
with
our
entry-level
desktop
3D
printers
and
our
other
lower-end
products
has
intensified
and
is
an
important
factor
inthe
decrease
in
sales.
For
our
broadened
AM
parts
and
services
business,
our
chief
competitors
consist
of
3D
Systems
Corporation,
Materialise
and
many
other
smaller
service
providers.
During
2016,
Carbon
startedselling
3D
printers
targeting
similar
end-users,
and
HP
is
expected
to
start
commercial
sales
of
its
3D
printers
in
2017.
Their
3D
printers
are
expected
to
compete
directly
with
some
of
our
product
lines.
We
may
faceadditional
competition
in
the
future
from
other
new
entrants
into
the
marketplace,
including
companies
that
may
have
significantly
greater
resources
than
we
have
that
may
become
new
market
entrants
or
may
enterthrough
acquisition
or
strategic
or
marketing
partnerships
with
current
competitors.Some
of
our
current
and
potential
competitors
have
longer
operating
histories
and
more
extensive
name
recognition
than
we
have
and
may
also
have
greater
financial,
marketing,
manufacturing,
distribution
andother
resources
than
we
have.
Current
and
future
competitors
may
be
able
to
respond
more
quickly
to
new
or
emerging
technologies
and
changes
in
end-user
demands
and
to
devote
greater
resources
to
thedevelopment,
promotion
and
sale
of
their
products
than
we
can.
Our
current
and
potential
competitors
may
develop
and
market
new
technologies
that
render
our
existing
or
future
products
obsolete,
unmarketable
orless
competitive
(whether
from
a
price
perspective
or
otherwise).
We
cannot
assure
you
that
we
will
be
able
to
maintain
or
enhance
our
current
competitive
position
or
continue
to
compete
successfully
against
currentand
future
sources
of
competition.7Table of ContentsAs part of our growth strategy, we have sought, and will continue to seek, to acquire or to make investments in other businesses, patents, technologies, products or services. Our failure to do so successfully(including, if applicable, to finance such acquisitions or investments on favorable terms and to avoid adverse financial consequences) may adversely affect our financial results.As
part
of
our
growth
strategy,
we
expect
to
continue
to
regularly
evaluate
acquisitions
or
investments
to
expand
our
suite
of
products
and
services.
Even
if
we
are
able
to
identify
a
suitable
acquisition
orinvestment,
we
may
not
be
able
to
consummate
any
such
transaction
if
we
cannot
reach
an
agreement
on
favorable
terms
or
if
we
lack
sufficient
resources
to
finance
the
transaction
on
our
own
and
cannot
obtainfinancing
at
a
reasonable
cost
or
if
regulatory
authorities
prevent
such
transaction
from
being
consummated.
If
we
proceed
with
a
particular
acquisition,
we
may
have
to
use
cash,
issue
new
equity
securities
withdilutive
effects
on
existing
shareholders,
incur
indebtedness,
assume
contingent
liabilities
or
amortize
assets
or
expenses
in
a
manner
that
might
have
a
material
adverse
effect
on
our
financial
condition,
results
ofoperations
or
liquidity.
Acquisitions
will
also
require
us
to
record
certain
acquisition-related
costs
and
other
items
as
current
period
expenses,
which
would
have
the
effect
of
reducing
our
reported
earnings
in
the
periodin
which
an
acquisition
is
consummated.
In
addition,
we
could
also
face
unknown
liabilities
or
write-offs
due
to
our
acquisitions,
which
could
result
in
a
significant
charge
to
our
earnings
in
the
period
in
which
theyoccur.
We
will
also
be
required
to
record
goodwill
or
other
long-lived
asset
impairment
charges
(if
any)
in
the
periods
in
which
they
occur,
which
could
result
in
a
significant
charge
to
our
earnings
in
any
such
period.Further
to
that
risk,
during
the
years
ended
December
31,
2016,
December
31,
2015
and
December
31,
2014,
we
recorded
intangible
assets
impairment
charges
of
$17.9
million,
$278.5
million
and
$14.6
million,respectively.
In
addition,
during
the
years
ended
December
31,
2015
and
December
31,
2014,
we
recorded
goodwill
impairment
charges
of
$942.4
million
and
$102.5
million,
respectively,
related
to
our
goodwillassigned
to
companies
that
we
have
acquired.
We
did
not
record
any
such
impairment
charges
during
the
year
ended
December
31,
2016.
For
further
information
on
our
quantitative
assessment
for
goodwill
impairmentwe
performed
in
2016,
please
see
Note
7
to
our
consolidated
financial
statements
included
elsewhere
in
this
annual
report.If we are not successful in completing the integration of our constituent companies from our recent acquisitions, the benefits of these later transactions may not be fully realized and the market price of ourordinary shares may be negatively affected.Since
the
consummation
of
the
Objet-Stratasys
merger
in
December
2012,
we
have
acquired
MakerBot,
Solid
Concepts,
Harvest
Technologies,
GrabCAD
and
other
companies.
While
we
believe
that
integrationactivities
have
progressed
well
to
date,
the
ongoing
difficulties
of
coordinating
our
operations
include:●coordinating
geographically
separate
organizations;

●coordinating
sales,
distribution
and
marketing
functions,
including
integration
and
management
of
our
constituent
companies’
sales
channels;

●consolidating
the
financial
reporting
systems
and
ERP
systems
of
our
constituent
companies;

●management
of
a
substantially
larger
organization,
with
an
increased
number
of
employees
over
large
geographic
distances;
and

●addressing
inconsistencies
among
the
companies
in
standards,
controls,
procedures
and
policies,
any
of
which
could
adversely
affect
our
ability
to
maintain
relationships
with
suppliers,
distributors,
customersand
employees.As
a
result
of
these
and
other
factors,
we
may
not
successfully
complete
the
integration
of
our
acquired
entities.
Furthermore,
we
may
not
realize
all
of
the
benefits
and
synergies
of
the
acquired
entities
in
thetimeframe
anticipated.
It
is
also
possible
that
such
continuing
integration
and
coordination
arrangements
could
lead
to
the
loss
of
members
of
our
senior
executive
team,
diversion
of
the
attention
of
management,
or
thedisruption
or
interruption
of,
or
the
loss
of
momentum
in,
our
ongoing
business,
which
could
adversely
affect
our
business
and
financial
results.
The
occurrence
of
such
negative
results
could
adversely
affect
the
marketprice
of
our
ordinary
shares.Our operations, particularly in integrating the operations of our constituent companies, could suffer if we are unable to attract and retain key management or other key employees.Our
success
depends
upon
the
continued
service
and
performance
of
our
senior
management
and
other
key
personnel.
Our
senior
executive
team
is
critical
to
the
management
of
our
business
and
operations,
as
wellas
to
the
development
of
our
strategy.
The
loss
of
the
services
of
any
members
of
our
senior
executive
team
could
delay
or
prevent
the
successful
implementation
of
our
growth
strategy,
or
our
commercialization
ofnew
applications
for
our
systems
or
other
products,
or
could
otherwise
adversely
affect
our
ability
to
manage
our
company
effectively
and
carry
out
our
business
plan.
Members
of
our
senior
management
team
mayresign
at
any
time.
In
2016
and
the
start
of
2017,
we
experienced
a
turn-over
in
two
of
our
key
executive
positions,
as
Ilan
Levin
replaced
David
Reis
as
our
Chief
Executive
Officer
effective
as
of
July
1,
2016,
andLilach
Payorski
replaced
Erez
Simha
as
our
Chief
Financial
Officer
effective
as
of
January
1,
2017.
While
each
of
these
new
executives
came
from
within
Stratasys
and
we
have
experienced
a
smooth
transition
to
date,there
is
no
guarantee
that
these
changes
(and
the
relative
close
proximity
in
which
they
occurred)
will
not
have
any
adverse
effects
on
our
operations.
In
addition,
high
demand
exists
for
senior
management
and
otherkey
personnel
(including
scientific,
technical
and
sales
personnel)
in
the
additive
manufacturing,
or
AM,
industry,
and
there
can
be
no
assurance
that
we
will
be
able
to
retain
our
current
key
personnel.
We
experienceintense
competition
for
qualified
personnel.
While
we
intend
to
continue
to
provide
competitive
compensation
packages
to
attract
and
retain
key
personnel,
some
of
our
competitors
for
these
employees
have
greaterresources
and
more
experience,
making
it
difficult
for
us
to
compete
successfully
for
key
personnel.
If
we
cannot
attract
and
retain
sufficiently
qualified
technical
employees
for
our
research
and
development
andmanufacturing
operations,
we
may
be
unable
to
achieve
the
synergies
expected
from
mergers
and
acquisitions
that
we
may
effect
from
time
to
time,
or
to
develop
and
commercialize
new
products
or
new
applicationsfor
existing
products.
Furthermore,
possible
shortages
of
key
personnel,
including
engineers,
in
the
regions
surrounding
our
Minnesota,
New
York,
California,
Texas,
Boston,
New
Hampshire
or
Israeli
facilities
couldrequire
us
to
pay
more
to
hire
and
retain
key
personnel,
thereby
increasing
our
costs.8Table of ContentsDefects in new products or in enhancements to our existing products could give rise to product returns or product liability, warranty or other claims that could result in material expenses, diversion ofmanagement time and attention, and damage to our reputation.Our
products
are
complex
and
may
contain
defects
or
experience
failures
or
unsatisfactory
performance
due
to
any
number
of
issues
in
design,
fabrication,
packaging,
materials,
and/or
use
within
a
system.
Thesedefects
or
errors
could
result
in
significant
warranty,
support
and
repair
or
replacement
costs,
cause
us
to
lose
market
share
and
divert
the
attention
of
our
engineering
personnel
from
our
product
development
efforts
tofind
and
correct
the
issue.This
risk
of
product
liability
claims
may
also
be
greater
due
to
the
use
of
certain
hazardous
chemicals
used
in
the
manufacture
of
certain
of
our
products.
Those
hazardous
chemicals
fall
within
three
differentcategories
(with
several
of
the
chemicals
falling
within
multiple
categories):
irritants,
harmful
chemicals
and
chemicals
dangerous
for
the
environment.
In
addition,
we
may
be
subject
to
claims
that
our
3D
printers
havebeen,
or
may
be,
used
to
create
parts
that
are
not
in
compliance
with
legal
requirements
or
that
intellectual
property
posted
by
third
parties
on
our
Thingiverse
and
GrabCAD
websites
infringes
the
intellectual
propertyrights
of
others.Any
claim
brought
against
us,
regardless
of
its
merit,
could
result
in
material
expense,
diversion
of
management
time
and
attention,
and
damage
to
our
reputation,
and
could
cause
us
to
fail
to
retain
existing
end-users
or
to
attract
new
end-users.
Although
we
maintain
product
liability
insurance,
such
insurance
is
subject
to
significant
deductibles
and
there
is
no
guarantee
that
such
insurance
will
be
available
or
adequate
toprotect
against
all
such
claims,
or
we
may
elect
to
self-insure
with
respect
to
certain
matters.
Costs
or
payments
made
in
connection
with
warranty
and
product
liability
claims
and
product
recalls
or
other
claims
couldmaterially
affect
our
financial
condition
and
results
of
operations.Our AM services business, offering parts used as prototypes, benchmarks and end-use parts in general, and in the case of end-use parts, our sales to customers in the aerospace, medical and automotiveindustries, in particular, makes us more susceptible to product and other liability claims, which characterize operations in those industries. Any such claims that are not adequately covered by insurance or forwhich insurance is not available may adversely affect our results of operations and financial condition.Our
digital
manufacturing
business,
Stratasys
Direct
Manufacturing,
produce
AM
parts,
which
are
used
by
our
customers
as
prototypes,
benchmarks
and
end-use
parts.
In
particular,
we
provide
these
additivemanufacturing
services
to
customers
in
the
aerospace,
medical
and
automotive
industries.
The
sale
of
end
use
parts
in
general,
and
to
customers
in
the
foregoing
industries
in
particular,
exposes
us
to
possible
claims
forproperty
damage
and
personal
injury
or
death,
which
may
result
from
the
use
of
these
end-use
parts.
We
may
be
potentially
liable,
in
significant
amounts,
if
an
aircraft,
automotive
or
medical
part,
component,
oraccessory
or
any
other
aviation,
automotive
or
medical
product
that
we
have
sold,
produced
or
repaired
fails,
or
if
an
aircraft
or
automobile
for
which
our
subsidiaries
have
provided
services
or
in
which
their
parts
areinstalled
crashes
and
the
cause
can
be
linked
to
those
parts
or
cannot
be
determined.
Our
SDM
service
carries
liability
insurance
in
amounts
that
we
believe
are
adequate
for
its
risk
exposure
and
commensurate
withindustry
norms.
While
we
intend
to
monitor
our
insurance
coverage
as
our
additive
manufacturing
services
business
continues
to
grow,
claims
may
arise
in
the
future,
and
that
insurance
coverage
may
not
be
adequateor
available
to
protect
our
consolidated
company
in
all
circumstances.
Additionally,
we
might
not
be
able
to
maintain
adequate
insurance
coverage
for
our
AM
services
business
in
the
future
at
an
acceptable
cost.
Anyliability
claim
against
our
AM
services
business
that
is
not
covered
by
adequate
insurance
could
adversely
affect
our
consolidated
results
of
operations
and
financial
condition.If our relationships with suppliers for our products and services, especially with single source suppliers of components of our products, were to terminate or our manufacturing arrangements were to bedisrupted, our business could be interrupted.We
purchase
components
and
sub-assemblies
for
our
systems,
raw
materials
that
are
used
in
our
consumables,
and
AM
systems,
component
parts
and
raw
materials
for
our
Stratasys
Direct
Manufacturing
servicesbusiness,
from
third-party
suppliers,
some
of
whom
may
compete
with
us.
While
there
are
several
potential
suppliers
of
most
of
these
component
parts,
sub-assemblies
and
raw
materials
that
we
use,
we
currentlychoose
to
use
only
one
or
a
limited
number
of
suppliers
for
several
of
these
components
and
materials.
Furthermore,
the
suppliers
of
AM
systems
and
materials
used
in
our
SDM
parts
service
may
refuse
to
sell
usadditional
AM
systems
or
component
parts
and
materials
for
AM
systems
that
our
SDM
service
uses.
Our
reliance
on
a
single
or
limited
number
of
vendors
involves
a
number
of
risks,
including:●potential
shortages
of
some
key
components;

●product
performance
shortfalls,
if
traceable
to
particular
product
components,
since
the
supplier
of
the
faulty
component
cannot
readily
be
replaced;

●discontinuation
of
a
product
on
which
we
rely;

●potential
insolvency
of
these
vendors;
and

●reduced
control
over
delivery
schedules,
manufacturing
capabilities,
quality
and
costs.9Table of ContentsIn
addition,
we
require
any
new
supplier
to
become
“qualified”
pursuant
to
our
internal
procedures.
The
qualification
process
involves
evaluations
of
varying
durations,
which
may
cause
production
delays
if
wewere
required
to
qualify
a
new
supplier
unexpectedly.
We
generally
assemble
our
systems
and
parts
based
on
our
internal
forecasts
and
the
availability
of
raw
materials,
assemblies,
components
and
finished
goods
thatare
supplied
to
us
by
third
parties,
which
are
subject
to
various
lead
times.
If
certain
suppliers
were
to
decide
to
discontinue
production
of
an
assembly,
component
or
raw
material
that
we
use,
the
unanticipated
changein
the
availability
of
supplies,
or
unanticipated
supply
limitations,
could
cause
delays
in,
or
loss
of,
sales,
increased
production
or
related
costs
and
consequently
reduced
margins,
and
damage
to
our
reputation.
If
wewere
unable
to
find
a
suitable
supplier
for
a
particular
component,
material
or
compound,
we
could
be
required
to
modify
our
existing
products
or
the
end-parts
that
we
offer
to
accommodate
substitute
components,material
or
compounds.In
particular,
we
rely
on
a
sole
supplier,
Ricoh
Printing
Systems
America,
Inc.,
or
Ricoh,
for
the
printer
heads
for
our
PolyJet
3D
printers.
Under
the
terms
of
our
agreement
with
Ricoh,
we
purchase
printer
headsand
associated
electronic
components,
and
receive
a
non-transferable,
non-exclusive
right
to
assemble,
use
and
sell
these
purchased
products
under
Ricoh’s
patent
rights
and
trade
secrets.
Due
to
the
risk
of
adiscontinuation
of
the
supply
of
Ricoh
printer
heads
and
other
key
components
of
our
products,
we
maintain
excess
inventory
of
those
printer
heads
and
other
components.
However,
if
our
forecasts
exceed
actualorders,
we
may
hold
large
inventories
of
slow-moving
or
unusable
parts
or
raw
materials,
which
could
result
in
inventory
write
offs
or
write
downs
and
have
an
adverse
effect
on
our
cash
flow,
profitability
and
resultsof
operations.
See
“Item
4.
Information
on
the
Company—Business
Overview—Manufacturing
and
Suppliers—Inventory
and
Suppliers—Ricoh
Agreement”
for
further
discussion
of
this
agreement.Discontinuation of operations at our manufacturing sites could prevent us from timely filling customer orders and could lead to unforeseen costs for us.We
assemble
and
test
the
systems
that
we
sell,
and
produce
consumables
for
our
systems,
at
single
facilities
in
various
locations
that
are
specifically
dedicated
to
separate
categories
of
systems
and
consumables.We
similarly
rely
on
a
single
facility
for
assembly
of
the
component
parts
and
materials
for
AM
systems
that
our
SDM
service
uses.
Because
of
our
reliance
on
all
of
these
production
facilities,
a
disruption
at
any
ofthose
facilities
could
materially
damage
our
ability
to
supply
3D
printers,
other
systems
or
consumable
materials
to
the
marketplace
in
a
timely
manner.
Depending
on
the
cause
of
the
disruption,
we
could
also
incursignificant
costs
to
remedy
the
disruption
and
resume
product
shipments.
Such
disruptions
may
be
caused
by,
among
other
factors,
earthquakes,
fire,
flood
and
other
natural
disasters.
Accordingly,
any
such
disruptioncould
result
in
a
material
adverse
effect
on
our
revenue,
results
of
operations
and
earnings,
and
could
also
potentially
damage
our
reputation.A loss of, or reduction in revenues from, a significant number of our resellers and our independent sales agents would impair our ability to sell our products and services and could reduce our revenues andadversely impact our operating results.We
rely
heavily
on
our
network
of
resellers
and
independent
sales
agents
to
sell
and
(in
the
case
of
resellers)
to
service
our
products
for
end-users
in
their
respective
geographic
regions.
These
resellers
and
salesagents
may
not
be
as
effective
in
selling
our
products
or
servicing
our
end-users
as
we
are.
Further,
if
a
significant
number
of
these
resellers
and
sales
agents
were
to
terminate
their
relationship
with
us
or
otherwise
failor
refuse
to
sell
our
products,
we
may
not
be
able
to
find
replacements
that
are
as
qualified
or
as
successful
in
a
timely
manner,
if
at
all.
If
these
resellers
and
independent
sales
agents
do
not
perform
as
anticipated
or
ifwe
are
unable
to
find
qualified
and
successful
replacements,
our
sales
will
suffer,
which
would
have
an
adverse
effect
on
our
revenues
and
operating
results.
Additionally,
a
default
by
one
or
more
resellers
that
have
asignificant
receivables
balance
could
have
an
adverse
financial
impact
on
our
financial
results.Our business model is predicated in part on building an end-user base that will generate a recurring stream of revenues through the sale of our consumables. If that recurring stream of revenues does notdevelop as expected, or if our business model changes as the industry evolves, our operating results may be adversely affected.Our
business
model
is
dependent
in
part
on
our
ability
to
maintain
and
increase
sales
of
our
proprietary
consumables
as
they
generate
recurring
revenues.
Existing
and
future
end-users
of
our
systems
may
notpurchase
our
consumables
at
the
same
rate
at
which
end-users
currently
purchase
those
consumables.
In
addition,
our
entry-level
systems
generally
use
a
lower
volume
of
consumables
relative
to
our
higher
endsystems.
If
our
current
and
future
end-users
purchase
a
lower
volume
of
our
consumables,
or
if
our
entry
level
systems
represent
an
increasing
percentage
of
our
future
installed
base
mix
uses
less
consumables
than
ourcurrent
installed
base,
our
recurring
revenue
stream
relative
to
our
total
revenues
would
be
reduced,
and
our
operating
results
would
be
adversely
affected.Global economic, political and social conditions have adversely impacted our sales, and may continue to affect us more significantly in the future.Uncertainty
with
respect
to
the
global
economy,
difficulties
in
the
financial
services
sector
and
credit
markets,
geopolitical
uncertainties
and
other
macroeconomic
factors
all
affect
spending
behavior
of
potentialend-users
of
our
products
and
services.
The
uncertain
prospects
for
economic
growth
in
some
of
the
regions
in
which
we
sell
our
products
may
cause
end-users
to
delay
or
reduce
technology
purchases.
We
also
facerisks
that
may
arise
from
financial
difficulties
experienced
by
our
end-users,
suppliers
and
distributors,
which
may
be
exacerbated
by
continued
uncertainty
in
the
global
economy,
including:10Table of Contents●reduced
end-user
demand
for
products
and
reduced
manufacturing
activity
levels;

●distributors
and
end-users
may
be
unable
to
obtain
credit
financing
to
finance
purchases
of
our
products;

●suppliers
may
be
unable
to
obtain
credit
financing
to
finance
purchases
of
sub-assemblies
used
to
build
components
of
products
or
purchases
of
raw
materials
to
produce
consumables;

●end-users
or
distributors
may
face
financial
difficulties
or
may
become
insolvent,
which
could
lead
to
our
inability
to
obtain
payment
for
our
products;
and

●key
suppliers
of
raw
materials,
finished
products
or
components
used
in
our
products
and
consumables
may
face
financial
difficulties
or
may
become
insolvent,
which
could
lead
to
disruption
in
the
supply
ofsystems,
consumables
or
spare
parts
to
our
end-users.Our existing and planned international operations currently expose us and will continue to expose us to additional market and operational risks, and failure to manage these risks may adversely affect ourbusiness and operating results.We
expect
to
derive
a
substantial
percentage
of
our
sales
from
international
markets.
We
derived
40.5%
of
our
sales
in
2016
from
countries
outside
of
North
America.
Accordingly,
we
face
significant
operationalrisks
from
doing
business
internationally,
including:●fluctuations
in
foreign
currency
exchange
rates;

●potentially
longer
sales
and
payment
cycles;

●potentially
greater
difficulties
in
collecting
accounts
receivable;

●potentially
adverse
tax
consequences;

●reduced
protection
of
intellectual
property
rights
in
certain
countries,
particularly
in
Asia
and
South
America;

●difficulties
in
staffing
and
managing
foreign
operations;

●laws
and
business
practices
favoring
local
competition;

●costs
and
difficulties
of
customizing
products
for
foreign
countries;

●compliance
with
a
wide
variety
of
complex
foreign
laws,
treaties
and
regulations;

●tariffs,
trade
barriers
and
other
regulatory
or
contractual
limitations
on
our
ability
to
sell
or
develop
our
products
in
certain
foreign
markets;
and

●being
subject
to
the
laws,
regulations
and
the
court
systems
of
many
jurisdictions.Our
failure
to
manage
the
market
and
operational
risks
associated
with
our
international
operations
effectively
could
limit
the
future
growth
of
our
business
and
adversely
affect
our
operating
results.We are subject to environmental laws due to the import and export of our products, which could subject us to compliance costs and/or potential liability in the event of non-compliance.The
export
of
our
products
internationally
from
our
production
facilities
subjects
us
to
environmental
laws
and
regulations
concerning
the
import
and
export
of
chemicals
and
hazardous
substances
such
as
theUnited
States
Toxic
Substances
Control
Act,
or
TSCA,
and
the
Registration,
Evaluation,
Authorization
and
Restriction
of
Chemical
Substances,
or
REACH.
These
laws
and
regulations
require
the
testing
andregistration
of
some
chemicals
that
we
ship
along
with,
or
that
form
a
part
of,
our
systems
and
other
products.
If
we
fail
to
comply
with
these
or
similar
laws
and
regulations,
we
may
be
required
to
make
significantexpenditures
to
reformulate
the
chemicals
that
we
use
in
our
products
and
materials
or
incur
costs
to
register
such
chemicals
to
gain
and/or
regain
compliance.
Additionally,
we
could
be
subject
to
significant
fines
orother
civil
and
criminal
penalties
should
we
not
achieve
such
compliance.Significant disruptions of our information technology systems or breaches of our data security could adversely affect our business.A
significant
invasion,
interruption,
destruction
or
breakdown
of
our
information
technology
systems
and/or
infrastructure
by
persons
with
authorized
or
unauthorized
access
could
negatively
impact
our
businessand
operations.
We
could
also
experience
business
interruption,
information
theft
and/or
reputational
damage
from
cyber
attacks,
which
may
compromise
our
systems
and
lead
to
data
leakage
either
internally
or
at
ourthird
party
providers.
Our
systems
have
been,
and
are
expected
to
continue
to
be,
the
target
of
malware
and
other
cyber
attacks.
Although
we
have
invested
in
measures
to
reduce
these
risks,
we
cannot
assure
you
thatthese
measures
will
be
successful
in
preventing
compromise
and/or
disruption
of
our
information
technology
systems
and
related
data.11Table of ContentsUnder applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our formeremployees.We
generally
enter
into
non-competition
agreements
with
our
employees.
These
agreements
prohibit
our
employees
from
competing
directly
with
us
or
working
for
our
competitors
or
clients
for
a
limited
periodafter
they
cease
working
for
us.
We
may
be
unable
to
enforce
these
agreements
under
the
laws
of
the
jurisdictions
in
which
our
employees
work
and
it
may
be
difficult
for
us
to
restrict
our
competitors
from
benefitingfrom
the
expertise
that
our
former
employees
or
consultants
developed
while
working
for
us.
For
example,
Israeli
courts
have
required
employers
seeking
to
enforce
non-compete
undertakings
of
a
former
employee
todemonstrate
that
the
competitive
activities
of
the
former
employee
will
harm
one
of
a
limited
number
of
material
interests
of
the
employer
that
have
been
recognized
by
the
courts,
such
as
the
secrecy
of
a
company’sconfidential
commercial
information
or
the
protection
of
its
intellectual
property.
If
we
cannot
demonstrate
that
such
interests
will
be
harmed,
we
may
be
unable
to
prevent
our
competitors
from
benefiting
from
theexpertise
of
our
former
employees
or
consultants
and
our
ability
to
remain
competitive
may
be
diminished.
In
addition
in
California,
where
many
employees
of
our
SDM
parts
service
are
located,
non-competitionagreements
with
employees
are
generally
unenforceable
after
termination
of
employment.As a public company with significant operations in several countries, we are subject to regulation and must comply with reporting and other requirements in a number of jurisdictions and, to the extent thatregulatory authorities assert that we are not in compliance, we could be subject to sanctions which, if material, could materially and adversely affect our business.As
a
public
company
with
significant
operations
in
Israel,
the
United
States
and
many
other
countries,
we
are
subject
to
regulation
and
must
comply
with
reporting
and
other
requirements
in
a
number
ofjurisdictions.
In
particular,
we
are
subject
to
the
rules
and
regulations
of
the
SEC
and
FINRA,
which
may
elect
from
time
to
time
to
review
or
investigate
our
operations,
various
aspects
of
our
financial
statements,
ourdisclosure
practices
and
other
matters.
As
such
reviews
progress,
the
regulating
agencies
may
determine
that
we
are
and
have
been
in
compliance
with
applicable
rules,
or
they
may
determine
to
pursue
enforcementactions
or
other
sanctions
against
us
for
alleged
noncompliance.
As
an
example,
on
March
3,
2016,
the
enforcement
division
of
the
U.S.
Securities
and
Exchange
Commission,
or
SEC,
issued
a
subpoena
to
usrequesting
a
number
of
documents
as
part
of
an
investigation
of
the
valuations
and
other
calculations
we
used
to
assess
the
impairment
of
goodwill
and/or
intangible
assets
included
in
the
balance
sheet
in
our
SECfilings.
We
have
cooperated
with
the
SEC
and
produced
documents
in
the
summer
of
2016.
If
the
SEC
has
any
further
information
requests,
we
will
continue
to
cooperate
with
that
agency.Failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation could result in fines, criminal penalties and an adverse effect on our business.We
operate
in
a
number
of
countries
throughout
the
world,
including
countries
known
to
have
a
reputation
for
corruption.
We
are
committed
to
doing
business
in
accordance
with
applicable
anti-corruption
laws.We
are
subject,
however,
to
the
risk
that
our
affiliated
entities
or
our
and
our
affiliates’
respective
officers,
directors,
employees
and
agents
(including
distributors
of
our
products)
may
take
action
determined
to
be
inviolation
of
such
anti-corruption
laws,
including
the
U.S.
Foreign
Corrupt
Practices
Act
of
1977
and
the
U.K.
Bribery
Act
of
2010,
as
well
as
trade
sanctions
administered
by
the
Office
of
Foreign
Assets
Control
andthe
U.S.
Department
of
Commerce.
Any
violation
by
any
of
these
persons
could
result
in
substantial
fines,
sanctions,
civil
and/or
criminal
penalties,
or
curtailment
of
operations
in
certain
jurisdictions,
and
mightadversely
affect
our
results
of
operations.
In
addition,
actual
or
alleged
violations
could
damage
our
reputation
and
ability
to
do
business.We own a number of our manufacturing and office facilities, which may limit our ability to move those operations. If we were to move some or all of those operations, we could incur unforeseen charges.We
own
buildings
in
Eden
Prairie,
Minnesota,
which
we
use
to
conduct
our
FDM
manufacturing
and
assembly
operations,
as
well
as
our
new
office
facility
in
Rehovot,
Israel
and
manufacturing
facility
in
KiryatGat,
Israel.
Ownership
of
these
buildings
and
facilities
may
adversely
affect
our
ability
to
move
some
or
all
of
those
operations
to
other
locations
that
may
be
more
favorable.
If
we
were
to
move
any
of
those
operationsto
other
locations,
we
may
have
difficulty
selling
or
leasing
the
property
that
we
vacate.
This
risk
also
applies
to
the
facilities
that
we
lease
under
non-cancellable
lease
agreements,
where
we
cannot
freely
vacate
thefacilities.
These
limitations
on
our
ability
to
move
could
result
in
an
impairment
charge,
as
occurred
in
2015
in
respect
of
some
of
our
leased
facilities,
which
negatively
impacted
our
results
of
operations,
and
could,
infuture
periods,
once
again
have
an
adverse
effect
on
our
results
of
operations.12Table of ContentsDefault in payment by one or more resellers or customers from which we have large account receivable balances could adversely impact our results of operations and financial condition.From
time
to
time,
our
accounts
receivable
balances
have
been
concentrated
with
certain
resellers
or
customers.
Default
by
one
or
more
of
these
resellers
or
customers
could
result
in
a
significant
charge
against
ourcurrent
reported
earnings.
We
have
reviewed
our
policies
that
govern
credit
and
collections,
and
will
continue
to
monitor
them
in
light
of
current
payment
status
and
economic
conditions.
In
addition,
we
try
to
reducethe
credit
exposures
of
our
accounts
receivable
by
credit
limits
and
credit
insurance
for
many
of
our
customers.
However,
there
can
be
no
assurance
that
our
efforts
to
identify
potential
credit
risks
will
be
successful.Our
inability
to
timely
identify
resellers
and
customers
that
are
credit
risks
could
result
in
defaults
at
a
time
when
such
resellers
or
customers
have
high
accounts
receivable
balances
with
us.
Any
such
default
wouldresult
in
a
significant
charge
against
our
earnings
and
adversely
affect
our
results
of
operations
and
financial
condition.We are subject to extensive environmental, health and safety laws and regulations that could have a material adverse effect on our business, financial condition and results of operations.Our
operations
use
chemicals
and
produce
waste
materials.
We
are
subject
to
extensive
environmental,
health
and
safety
laws,
regulations
and
permitting
requirements
in
multiple
jurisdictions
governing,
amongother
things,
the
generation,
use,
storage,
registration,
handling
and
disposal
of
chemicals
and
waste
materials,
the
presence
of
specified
substances
in
electrical
products,
the
emission
and
discharge
of
hazardousmaterials
into
the
ground,
air
or
water,
the
cleanup
of
contaminated
sites,
including
any
contamination
that
results
from
spills
due
to
our
failure
to
properly
dispose
of
chemicals
and
other
waste
materials
and
the
healthand
safety
of
our
employees.
Under
these
laws,
regulations
and
requirements,
we
could
also
be
subject
to
liability
for
improper
disposal
of
chemicals
and
waste
materials,
including
those
resulting
from
the
use
of
oursystems
and
accompanying
materials
by
end-users.
These
or
future
laws
and
regulations
could
potentially
require
the
expenditure
of
significant
amounts
for
compliance
and/or
remediation.
If
our
operations
fail
tocomply
with
such
laws
or
regulations,
we
may
be
subject
to
fines
and
other
civil,
administrative
or
criminal
sanctions,
including
the
revocation
of
permits
and
licenses
necessary
to
continue
our
business
activities.
Inaddition,
we
may
be
required
to
pay
damages
or
civil
judgments
in
respect
of
third-party
claims,
including
those
relating
to
personal
injury
(including
exposure
to
hazardous
substances
that
we
generate,
use,
store,handle,
transport,
manufacture
or
dispose
of),
property
damage
or
contribution
claims.
Some
environmental
laws
allow
for
strict,
joint
and
several
liabilities
for
remediation
costs,
regardless
of
fault.
We
may
beidentified
as
a
potentially
responsible
party
under
such
laws.
Such
developments
could
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.We are currently subject to a number of lawsuits. These and any future lawsuits to which we become subject may have a significant adverse effect on our financial condition or profitability.We
are
subject
to
four
lawsuits,
styled
as
class
actions
of
our
shareholders,
which
were
initiated
in
the
United
States
District
Courts
for
the
District
of
Minnesota,
the
Southern
District
of
New
York,
and
the
EasternDistrict
of
New
York
on
February
5,
9,
and
20,
2015,
and
March
25,
2015,
and
which
name
the
Company
and
certain
of
our
officers
as
defendants.
The
lawsuits
allege
violations
of
the
Exchange
Act
in
connection
withallegedly
false
and
misleading
statements
concerning
our
business
and
prospects.
The
plaintiffs
seek
damages
and
an
award
of
reasonable
costs
and
expenses,
including
attorneys’
fees.
On
April
15,
2015,
the
caseswere
consolidated
for
all
purposes,
and
on
April
24,
2015,
the
court
entered
an
order
appointing
lead
plaintiffs
and
approving
their
selection
of
lead
counsel
for
the
putative
class.
On
July
1,
2015,
lead
plaintiffs
filedtheir
consolidated
complaint.
On
August
31,
2015,
the
defendants
moved
to
dismiss
the
consolidated
complaint
for
failure
to
state
a
claim.
The
court
heard
the
motion
on
December
11,
2015.
On
June
30,
2016,
thecourt
granted
defendants’
motion
to
dismiss
with
prejudice
and
entered
judgment
in
favor
of
defendants.
On
July
29,
2016,
lead
plaintiffs
filed
a
notice
of
appeal
to
the
United
States
Court
of
Appeals
for
the
EighthCircuit
from
the
court’s
judgment.
On
September
22,
2016,
lead
plaintiffs
filed
the
opening
initial
brief
on
appeal.
On
October
24,
2016,
defendants
filed
their
answering
brief
to
appeal.
On
November
18,
2016,
leadplaintiffs
filed
the
reply
brief
in
support
of
their
appeal.
Oral
arguments
for
appeal
are
scheduled
for
March
9,
2017.
We
intend
to
mount
vigorous
defenses
to
these
lawsuits.We
can
provide
no
assurance
as
to
the
outcome
of
these
or
any
future
matters
or
actions,
and
any
such
matters
or
actions
may
result
in
judgments
against
us
for
significant
damages.
Resolution
of
these
matters
canbe
prolonged
and
costly,
and
the
ultimate
results
or
judgments
are
uncertain
due
to
the
inherent
uncertainty
in
litigation
and
other
proceedings.
Moreover,
our
potential
liabilities
are
subject
to
change
over
time
due
tonew
developments,
changes
in
settlement
strategy
or
the
impact
of
evidentiary
requirements.
Regardless
of
the
outcome,
litigation
has
resulted
in
the
past,
and
may
result
in
the
future,
in
significant
legal
expenses
andrequire
significant
attention
and
resources
of
management.
As
a
result,
current
and
any
future
litigation
could
result
in
losses,
damages
and
expenses
that
have
a
significant
adverse
effect
on
our
financial
condition
orprofitability.13Table of ContentsWe rely on our management information systems for inventory management, distribution, and other key functions. If our information systems fail to adequately perform these functions, or if we experience aninterruption in their operation, our business and operating results could be adversely affected.The
efficient
operation
of
our
business
is
dependent
on
our
management
information
systems.
We
rely
on
our
management
information
systems:
to,
among
other
things,
effectively
manage
our
accounting
andfinancial
functions,
including
maintaining
our
internal
controls;
to
manage
our
manufacturing
and
supply
chain
processes;
and
to
maintain
our
research
and
development
data.
The
failure
of
our
managementinformation
systems
to
perform
properly
could
disrupt
our
business
and
product
development,
which
may
result
in
decreased
sales,
increased
overhead
costs,
excess
or
obsolete
inventory,
and
product
shortages,causing
our
business
and
operating
results
to
suffer.
Although
we
take
steps
to
secure
our
management
information
systems,
including
our
computer
systems,
intranet
and
internet
sites,
email
and
othertelecommunications
and
data
networks,
the
security
measures
we
have
implemented
may
not
be
effective
and
our
systems
may
be
vulnerable
to
theft,
loss,
damage
and
interruption
from
a
number
of
potential
sourcesand
events,
including
unauthorized
access
or
security
breaches,
natural
or
man-made
disasters,
cyber-attacks,
computer
viruses,
power
loss,
or
other
disruptive
events.
Our
reputation,
brand,
and
financial
conditioncould
be
adversely
affected
if,
as
a
result
of
a
significant
cyber
event
or
otherwise,
our
operations
are
disrupted
or
shut
down;
our
confidential,
proprietary
information
is
stolen
or
disclosed;
we
incur
costs
or
arerequired
to
pay
fines
in
connection
with
stolen
customer,
employee,
or
other
confidential
information;
we
must
dedicate
significant
resources
to
system
repairs
or
increase
cyber
security
protection;
or
we
otherwiseincur
significant
litigation
or
other
costs.Compliance with disclosure rules regarding “conflict minerals” may require us to incur expenses or modify our products or operations and may also adversely affect the demand for some of our products andour operating results.As
required
under
the
Dodd-Frank
Wall
Street
Reform
and
Consumer
Protection
Act,
in
August
2012
the
SEC
promulgated
final
rules
regarding
disclosure
of
the
use
of
certain
minerals
(tin,
tantalum,
tungsten,
andgold),
and
certain
of
their
derivatives,
known
as
“conflict
minerals,”
which
are
mined
from
the
Democratic
Republic
of
the
Congo
and
adjoining
countries,
as
well
as
procedures
regarding
a
manufacturer’s
efforts
toprevent
the
sourcing
of
such
minerals
and
metals
produced
from
those
minerals.
As
required
by
these
new
rules,
in
2013,
we
commenced
due
diligence
efforts
to
determine
our
use
of
conflict
minerals,
and
we
madeour
initial
three
annual
conflict
mineral
filings
with
the
SEC
(for
calendar
years
2013,
2104
and
2015)
on
June
2,
2014,
June
1,
2015
and
May
24,
2016,
respectively.
The
rules
require
us
to
make
subsequent
disclosuresno
later
than
May
31
of
each
following
year.
A
court
ruling
has
overturned
part
of
these
SEC
rules,
by
characterizing
the
required
identification
of
products
as
“DRC
conflict
free,”
having
“not
been
found
to
be
‘DRCconflict
free’”
or
“DRC
conflict
undeterminable”
as
compelled
speech
that
violates
the
First
Amendment
in
the
United
States.
Despite
the
court’s
ruling,
the
conflict
minerals
disclosures
will
nevertheless
remain
inplace
for
the
report
that
we
will
need
to
submit
in
2017
(in
respect
of
the
2016
year).
We
expect
that
we
will
continue
to
incur
additional
costs
and
expenses,
which
may
be
significant,
in
order
to
comply
with
theserules.
Since
our
supply
chain
is
complex,
ultimately
we
may
not
be
able
to
sufficiently
verify
the
origins
for
any
conflict
minerals
and
metals
used
in
our
products
through
the
due
diligence
procedures
that
weimplement,
which
may
adversely
affect
our
reputation
with
our
customers,
shareholders,
and
other
stakeholders.
In
such
event,
we
may
also
face
difficulties
in
satisfying
customers
who
require
that
all
of
our
productsare
certified
as
conflict
mineral
free.
If
we
are
not
able
to
meet
such
requirements,
customers
may
choose
not
to
purchase
our
products,
which
could
adversely
affect
our
sales
and
the
value
of
portions
of
our
inventory.Furthermore,
there
may
be
only
a
limited
number
of
suppliers
offering
conflict
free
minerals
and,
as
a
result,
we
cannot
be
sure
that
we
will
be
able
to
obtain
metals,
if
necessary,
from
such
suppliers
in
sufficientquantities
or
at
competitive
prices.
Any
one
or
a
combination
of
these
various
factors
could
harm
our
business,
reduce
market
demand
for
our
products,
and
adversely
affect
our
profit
margins,
net
sales,
and
overallfinancial
results.Risks related to our intellectual propertyIf we are unable to obtain patent protection for our products or otherwise protect our intellectual property rights, our business could suffer.We
rely
on
a
combination
of
patent
and
trademark
laws
in
the
United
States
and
other
countries,
trade
secret
protection,
confidentiality
agreements
and
other
contractual
arrangements
with
our
employees,
end-usersand
others
to
maintain
our
competitive
position.
In
particular,
our
success
depends,
in
part,
on
our
ability,
and
the
ability
of
our
licensors,
to
obtain
patent
protection
for
our
and
their
products,
technologies
andinventions,
maintain
the
confidentiality
of
our
and
their
trade
secrets
and
know-how,
operate
without
infringing
upon
the
proprietary
rights
of
others
and
prevent
others
from
infringing
upon
our
and
their
proprietaryrights.Despite
our
efforts
to
protect
our
proprietary
rights,
it
is
possible
that
competitors
or
other
unauthorized
third
parties
may
obtain,
copy,
use
or
disclose
our
technologies,
inventions,
processes
or
improvements.
Wecannot
assure
you
that
any
of
our
existing
or
future
patents
or
other
intellectual
property
rights
will
not
be
challenged,
invalidated
or
circumvented,
or
will
otherwise
provide
us
with
meaningful
protection.
Our
pendingpatent
applications
may
not
be
granted,
and
we
may
not
be
able
to
obtain
foreign
patents
or
pending
applications
corresponding
to
our
U.S.
patents.
The
laws
of
certain
countries,
such
as
China,
may
not
provide
thesame
level
of
patent
protection
and
intellectual
property
right
enforcement
as
in
the
United
States,
so
even
if
we
enforce
our
intellectual
property
rights
or
obtain
additional
patents
in
China
or
elsewhere
outside
of
theUnited
States,
effective
enforcement
of
such
rights
may
not
be
effective.
If
our
patents
and
other
intellectual
property
do
not
adequately
protect
our
technology,
our
competitors
may
be
able
to
offer
additivemanufacturing
systems,
consumables
or
other
products
similar
to
ours.
Our
competitors
may
also
be
able
to
develop
similar
technology
independently
or
design
around
our
patents,
and
we
may
not
be
able
to
detect
theunauthorized
use
of
our
proprietary
technology
or
take
appropriate
steps
to
prevent
such
use.If
we
attempt
enforcement
of
our
intellectual
property
rights,
we
may
be
(as
we
have
been
in
the
past)
subject
or
party
to
claims,
negotiations
or
complex,
protracted
litigation.
Intellectual
property
disputes
andlitigation,
regardless
of
merit,
can
be
costly
and
disruptive
to
our
business
operations
by
diverting
attention
and
energies
of
management
and
key
technical
personnel,
and
by
increasing
our
costs
of
doing
business.
Anyof
the
foregoing
could
adversely
affect
our
operating
results.14Table of ContentsWe may be subject to claims that we are infringing, misappropriating or otherwise violating the intellectual property rights of others.Our
products
and
technology,
including
the
technology
that
we
license
from
others,
may
infringe,
misappropriate
or
otherwise
violate
the
intellectual
property
rights
of
third
parties.
Patent
applications
in
the
UnitedStates
and
most
other
countries
are
confidential
for
a
period
of
time
until
they
are
published,
and
the
publication
of
discoveries
in
scientific
or
patent
literature
typically
lags
actual
discoveries
by
several
months
ormore.
As
a
result,
the
nature
of
claims
contained
in
unpublished
patent
filings
around
the
world
is
unknown
to
us,
and
we
cannot
be
certain
that
we
were
the
first
to
conceive
inventions
covered
by
our
patents
or
patentapplications
or
that
we
were
the
first
to
file
patent
applications
covering
such
inventions.
Furthermore,
it
is
not
possible
to
know
in
which
countries
patent
holders
may
choose
to
extend
their
filings
under
the
PatentCooperation
Treaty
or
other
mechanisms.
In
addition,
we
may
be
subject
to
intellectual
property
infringement
claims
from
individuals,
vendors
and
other
companies,
including
those
that
have
acquired
patents
in
thefields
of
3D
printing
or
consumable
production
for
the
sole
purpose
of
asserting
claims
against
us.
In
addition
to
patent
infringement
claims,
we
may
be
subject
to
other
intellectual
property
claims,
such
as
claims
thatwe
are
infringing
trademarks
or
misappropriating
trade
secrets.
We
may
also
be
subject
to
claims
relating
to
the
content
on
our
websites,
including
third-party
content
posted
on
our
Thingiverse.com
or
GrabCAD.comwebsites.
Any
intellectual
property
claims,
regardless
of
the
merit
or
resolution
of
such
claims
could
cause
us
to
incur
significant
costs
in
responding
to,
defending
and
resolving
such
claims,
and
may
prohibit
orotherwise
impair
our
ability
to
commercialize
new
or
existing
products.
Resolution
of
such
claims
may,
among
other
things,
require
us
to
redesign
infringing
technology,
enter
into
costly
settlement
or
licenseagreements
on
terms
that
are
unfavorable
to
us,
or
require
us
to
indemnify
our
distributors
and
end-users.
Any
infringement
by
us
or
our
licensors
of
the
intellectual
property
rights
of
third
parties
may
have
a
materialadverse
effect
on
our
business,
financial
condition
and
results
of
operations.If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us, in particular in developing consumables that couldbe used with our printing systems in place of our proprietary consumables.We
have
devoted
substantial
resources
to
the
development
of
our
technology,
trade
secrets,
know-how
and
other
unregistered
proprietary
rights.
While
we
enter
into
confidentiality
and
invention
assignmentagreements
intended
to
protect
such
rights,
such
agreements
can
be
difficult
and
costly
to
enforce
or
may
not
provide
adequate
remedies
if
violated,
and
we
may
not
have
entered
into
such
agreements
with
all
relevantparties.
Such
agreements
may
be
breached
and
confidential
information
may
be
willfully
or
unintentionally
disclosed,
or
our
competitors
or
other
parties
may
learn
of
the
information
in
some
other
way.
The
disclosureto,
or
independent
development
by,
a
competitor
of
any
of
our
trade
secrets,
know-how
or
other
technology
not
protected
by
a
patent
or
other
intellectual
property
system
could
materially
reduce
or
eliminate
anycompetitive
advantage
that
we
may
have
over
such
competitor.This
concern
could
manifest
itself
in
particular
with
respect
to
our
proprietary
consumables
that
are
used
with
our
systems.
Portions
of
our
proprietary
consumables
may
not
be
afforded
patent
protection.
Chemicalcompanies
or
other
producers
of
raw
materials
used
in
our
consumables
may
be
able
to
develop
consumables
that
are
compatible
to
a
large
extent
with
our
systems,
whether
independently
or
in
contravention
of
ourtrade
secret
rights
and
related
proprietary
and
contractual
rights.
If
such
consumables
are
made
available
to
owners
of
our
systems,
and
are
purchased
in
place
of
our
proprietary
consumables,
our
revenues
andprofitability
would
be
reduced
and
we
could
be
forced
to
reduce
prices
for
our
proprietary
consumables.As our patents expire, additional competitors using our technology could enter the market, which could offer competitive printers and consumables, require us to reduce our prices for our products and resultin lost sales.Some
of
our
patents
have
expired
and
others
will
expire
in
coming
years.
Upon
expiration
of
those
patents,
our
competitors
have
introduced,
and
are
likely
to
continue
to
introduce,
products
using
the
technologypreviously
protected
by
the
expired
patents,
which
products
may
have
lower
prices
than
those
of
our
products.
To
compete,
we
may
need
to
reduce
our
prices
for
those
products,
which
would
adversely
affect
ourrevenues,
margins
and
profitability.
Additionally,
the
expiration
of
our
patents
could
reduce
barriers
to
entry
into
AM
systems,
which
could
result
in
the
reduction
of
our
sales
and
earnings
potential.Risks related to operations in IsraelOur Israeli headquarters and manufacturing and other significant operations may be adversely affected by political, economic and military instability in Israel.One
of
our
dual
corporate
headquarters,
as
well
as
all
of
our
PolyJet-related
system
manufacturing
and
research
and
development
facilities,
one
of
our
two
PolyJet
consumables
manufacturing
facilities,
one
of
ourFDM
manufacturing
facilities,
and
some
of
our
suppliers,
are
located
in
central
and
southern
Israel.
In
addition,
many
of
our
key
employees,
officers
and
directors
are
residents
of
Israel.
Accordingly,
political,economic
and
military
conditions
in
Israel
may
directly
affect
our
business.
Since
the
establishment
of
the
State
of
Israel
in
1948,
a
number
of
armed
conflicts
have
taken
place
between
Israel
and
its
neighboringcountries.
Any
hostilities
involving
Israel
or
the
interruption
or
curtailment
of
trade
between
Israel
and
its
trading
partners
could
adversely
affect
our
operations
and
results
of
operations.
During
the
winter
of
2008-2009,
in
November
2012
and
once
again
in
the
summer
of
2014,
Israel
has
been
engaged
in
armed
conflict
with
Hamas,
a
militia
group
and
political
party
that
controls
the
Gaza
Strip,
and
during
the
summer
of
2006,Israel
was
engaged
in
an
armed
conflict
with
Hezbollah,
a
Lebanese
Islamist
Shiite
militia
group
and
political
party.
These
conflicts
involved
missile
strikes
against
civilian
targets
in
various
parts
of
Israel,
includingareas
where
some
of
our
manufacturing
facilities
are
located,
and
negatively
affected
business
conditions
in
Israel.
Any
armed
conflicts,
terrorist
activities
or
political
instability
in
the
region,
including
those
related
tothe
unrest
in
Syria,
could
adversely
affect
business
conditions
and
could
harm
our
results
of
operations
and
could
make
it
more
difficult
for
us
to
raise
capital.
Parties
with
whom
we
do
business
have
sometimesdeclined
to
travel
to
Israel
during
periods
of
heightened
unrest
or
tension,
forcing
us
to
make
alternative
arrangements
when
necessary
in
order
to
meet
our
business
partners
face
to
face.
In
addition,
parties
with
whomwe
have
agreements
involving
performance
in
Israel
may
claim
that
they
are
not
obligated
to
perform
their
commitments
under
those
agreements
pursuant
to
force
majeure
provisions
in
such
agreements
due
to
thepolitical
or
security
situation
in
Israel.15Table of ContentsFurthermore,
many
of
our
male
employees
in
Israel,
including
members
of
our
senior
management,
are
obligated
to
perform
one
month,
and
in
some
cases
longer
periods,
of
annual
military
reserve
duty
until
theyreach
the
age
of
45
(or
older,
for
citizens
who
hold
certain
positions
in
the
Israeli
armed
forces
reserves),
and,
in
the
event
of
a
military
conflict
(such
as
the
last
conflict
with
Hamas),
may
be
called
to
active
duty.
Inresponse
to
increases
in
terrorist
activity
from
time
to
time
and
as
a
result
of
the
last
conflict
with
Hamas,
there
have
been
periods
of
significant
call-ups
of
military
reservists,
and
some
of
our
Israeli
employees
havebeen
called
up
in
connection
with
armed
conflicts.
It
is
possible
that
there
will
be
similar
large-scale
military
reserve
duty
call-ups
in
the
future.
Our
operations
could
be
disrupted
by
the
absence
of
a
significant
numberof
Israeli
employees
or
of
one
or
more
of
our
key
Israeli
employees.
Such
disruption
could
materially
adversely
affect
our
business
and
operations.Our
commercial
insurance
does
not
cover
losses
that
may
occur
as
a
result
of
an
event
associated
with
the
security
situation
in
the
Middle
East.
Although
the
Israeli
government
is
currently
committed
to
coveringthe
reinstatement
value
of
direct
damages
that
are
caused
by
terrorist
attacks
or
acts
of
war,
we
cannot
assure
you
that
this
government
coverage
will
be
maintained,
or
if
maintained,
will
be
sufficient
to
compensate
usfully
for
damages
incurred.
Any
losses
or
damages
incurred
by
our
Israeli
operations
could
have
a
material
adverse
effect
on
our
business.
Any
armed
conflicts
or
political
instability
in
the
region
would
likelynegatively
affect
business
conditions
generally
and
could
harm
our
results
of
operations.Your rights and responsibilities as a shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of U.S. companies.We
are
organized
under
Israeli
law.
The
rights
and
responsibilities
of
the
holders
of
our
ordinary
shares
are
governed
by
our
amended
and
restated
articles
of
association
and
Israeli
law.
These
rights
andresponsibilities
differ
in
some
respects
from
the
rights
and
responsibilities
of
shareholders
in
typical
U.S.-based
corporations.
In
particular,
a
shareholder
of
an
Israeli
company
has
a
duty
to
act
in
good
faith
toward
thecompany
and
other
shareholders
and
to
refrain
from
abusing
its
power
in
the
company,
including,
among
other
things,
in
voting
at
the
general
meeting
of
shareholders
on
matters
such
as
amendments
to
a
company’sarticles
of
association,
increases
in
a
company’s
authorized
share
capital,
mergers
and
acquisitions
and
interested
party
transactions
requiring
shareholder
approval.
In
addition,
a
shareholder
who
knows
that
itpossesses
the
power
to
determine
the
outcome
of
a
shareholder
vote
or
to
appoint
or
prevent
the
appointment
of
a
director
or
executive
officer
in
the
company
has
a
duty
of
fairness
toward
the
company.
There
is
limitedcase
law
available
to
assist
us
in
understanding
the
implications
of
these
provisions
that
govern
shareholders’
actions.
These
provisions
may
be
interpreted
to
impose
additional
obligations
and
liabilities
on
holders
ofour
ordinary
shares
that
are
not
typically
imposed
on
shareholders
of
U.S.
corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, even when the terms of such a transaction arefavorable to us and our shareholders.Israeli
corporate
law
regulates
mergers,
requires
tender
offers
for
acquisitions
of
shares
above
specified
thresholds,
requires
special
approvals
for
transactions
involving
directors,
officers
or
significant
shareholdersand
regulates
other
matters
that
may
be
relevant
to
such
types
of
transactions.
For
example,
a
merger
may
not
be
consummated
unless
at
least
50
days
have
passed
from
the
date
on
which
a
merger
proposal
is
filed
byeach
merging
company
with
the
Israel
Registrar
of
Companies
and
at
least
30
days
have
passed
from
the
date
on
which
the
shareholders
of
both
merging
companies
have
approved
the
merger.
In
addition,
a
majority
ofeach
class
of
securities
of
the
target
company
must
approve
a
merger.
Moreover,
a
tender
offer
for
all
of
a
company’s
issued
and
outstanding
shares
can
only
be
completed
if
the
acquirer
receives
positive
responsesfrom
the
holders
of
at
least
95%
of
the
issued
share
capital.
Completion
of
the
tender
offer
also
requires
approval
of
a
majority
of
the
offerees
that
do
not
have
a
personal
interest
in
the
tender
offer,
unless,
followingconsummation
of
the
tender
offer,
the
acquirer
would
hold
at
least
98%
of
the
company’s
outstanding
shares.
Furthermore,
the
shareholders,
including
those
who
indicated
their
acceptance
of
the
tender
offer,
may,
atany
time
within
six
months
following
the
completion
of
the
tender
offer,
petition
an
Israeli
court
to
alter
the
consideration
for
the
acquisition,
unless
the
acquirer
stipulated
in
its
tender
offer
that
a
shareholder
thataccepts
the
offer
may
not
seek
such
appraisal
rights.Furthermore,
Israeli
tax
considerations
may
make
potential
transactions
unappealing
to
us
or
to
our
shareholders
whose
country
of
residence
does
not
have
a
tax
treaty
with
Israel
exempting
such
shareholders
fromIsraeli
tax.
For
example,
Israeli
tax
law
does
not
recognize
tax-free
share
exchanges
to
the
same
extent
as
U.S.
tax
law.
With
respect
to
mergers,
Israeli
tax
law
allows
for
tax
deferral
in
certain
circumstances
but
makesthe
deferral
contingent
on
the
fulfillment
of
a
number
of
conditions,
including
a
holding
period
of
two
years
from
the
date
of
the
transaction
during
which
sales
and
dispositions
of
shares
of
the
participating
companiesare
subject
to
certain
restrictions.Moreover,
with
respect
to
certain
share
swap
transactions,
the
tax
deferral
is
limited
in
time,
and
when
such
time
expires,
the
tax
becomes
payable
even
if
no
disposition
of
the
shares
has
occurred.These
and
other
similar
provisions
could
delay,
prevent
or
impede
an
acquisition
of
our
company
or
our
merger
with
another
company,
even
if
such
an
acquisition
or
merger
would
be
beneficial
to
us
or
to
ourshareholders.16Table of ContentsExchange rate fluctuations between the U.S. dollar and the New Israeli Shekel, the Euro, the Yen and other non-U.S. currencies may negatively affect the earnings of our operations.We
report
our
financial
results
and
most
of
our
revenues
are
recorded
in
U.S.
dollars.
However,
substantially
all
of
the
manufacturing,
research
and
development
expenses
of
our
Israeli
operations,
as
well
as
aportion
of
the
cost
of
revenues,
selling
and
marketing,
and
general
and
administrative
expenses
of
our
Israeli
operations,
are
incurred
in
New
Israeli
Shekels.
As
a
result,
we
are
exposed
to
exchange
rate
risks
that
mayadversely
affect
our
financial
results.
If
the
New
Israeli
Shekel
appreciates
against
the
U.S.
dollar
or
if
the
value
of
the
New
Israeli
Shekel
declines
against
the
U.S.
dollar
at
a
time
when
the
rate
of
inflation
in
the
costof
Israeli
goods
and
services
exceeds
the
rate
of
decline
in
the
relative
value
of
the
New
Israeli
Shekel,
then
the
U.S.
dollar
cost
of
our
operations
in
Israel
would
increase
and
our
results
of
operations
would
beadversely
affected
Our
Israeli
operations
also
could
be
adversely
affected
if
we
are
unable
to
effectively
hedge
against
currency
fluctuations
in
the
future.
We
cannot
predict
any
future
trends
in
the
rate
of
inflation
inIsrael
or
the
rate
of
devaluation
(if
any)
of
the
New
Israeli
Shekel
against
the
U.S.
dollar.
The
Israeli
annual
rate
of
deflation
amounted
to
0.2%,
1.0%
,
and
0.2%
for
the
years
ended
December
31,
2016,
2015
and
2014,respectively.
The
annual
appreciation
(devaluation)
of
the
New
Israeli
Shekel
in
relation
to
the
U.S.
dollar
amounted
to
1.5%,
(0.3%)
and
(12.
0%)
for
the
years
ended
December
31,
2016,
2015
and
2014,
respectively.We
also
have
substantial
revenues
and
expenses
that
are
denominated
in
non-US
currencies
other
than
the
New
Israeli
Shekel,
particularly
the
Euro.
Therefore,
our
operating
results
and
cash
flows
are
also
subjectto
fluctuations
due
to
changes
in
the
relative
values
of
the
U.S.
dollar
and
those
foreign
currencies.
These
fluctuations
could
negatively
affect
our
operating
results
and
could
cause
our
revenues
and
net
income
or
lossto
vary
from
quarter
to
quarter.
Furthermore,
to
the
extent
that
our
revenues
increase
in
regions
such
as
Asia
Pacific,
where
our
sales
are
denominated
in
U.S.
dollars,
a
strengthening
of
the
dollar
against
othercurrencies
could
make
our
products
less
competitive
in
those
foreign
markets
and
collection
of
receivables
more
difficult.From
time
to
time
we
engage
in
currency
hedging
activities.
These
measures,
however,
may
not
adequately
protect
us
from
material
adverse
effects
due
to
the
impact
of
inflation
in
Israel
or
from
fluctuations
in
therelative
values
of
the
U.S.
dollar
and
other
foreign
currencies
in
which
we
transact
business,
and
may
result
in
a
financial
loss.
For
further
information,
please
see
“Item
11.
Quantitative
And
Qualitative
DisclosuresAbout
Market
Risk”
in
this
annual
report.Calculating our income tax rate is complex and subject to uncertainty. We currently receive Israeli government tax benefits in respect of our Israeli operations. If we do not meet several conditions for receiptof those benefits, or if the Israeli government otherwise decides to eliminate those benefits, they may be terminated or reduced, which would impact our income tax rate and increase our costs.The
computation
of
income
taxes
is
complex
because
it
is
based
on
the
laws
of
numerous
taxing
jurisdictions
and
requires
significant
judgment
on
the
application
of
complicated
rules
governing
accounting
for
taxprovisions
under
GAAP.
Income
taxes
for
interim
quarters
are
based
on
a
forecast
of
our
effective
tax
rate
for
the
year,
which
includes
forward-looking
financial
projections.
Such
financial
projections
are
based
onnumerous
assumptions,
including
the
expectations
of
profit
and
loss
by
jurisdiction.
It
is
difficult
to
accurately
forecast
various
items
that
make
up
the
projections,
and
such
items
may
be
treated
as
discrete
accounting.Examples
of
items
that
could
cause
variability
in
our
income
tax
rate
include
our
mix
of
income
by
jurisdiction,
changes
in
our
uncertain
tax
positions
,
the
application
of
transfer
pricing
rules,
and
tax
audits.
Futureevents,
such
as
changes
in
our
business
and
the
tax
law
in
the
jurisdictions
where
we
do
business,
could
also
affect
our
rate.One
important
assumption
that
goes
into
calculation
of
our
tax
rate
is
the
tax
benefit
that
we
receive
in
respect
of
some
of
our
operations
in
Israel,
referred
to
as
“Approved
Enterprise”
and
“Beneficiary
Enterprise”,under
the
Law
for
the
Encouragement
of
Capital
Investments,
5719-1959,
or
the
Investment
Law.
Based
on
an
evaluation
of
the
relevant
factors
under
the
Investment
Law,
including
the
level
of
foreign
(that
is,
non-Israeli)
investment
in
our
company,
we
have
estimated
that
our
effective
tax
rate
to
be
paid
with
respect
to
all
Israeli
operations
under
these
benefit
programs
is
7%
to
12%,
based
on
the
current
balance
of
activitybetween
our
Rehovot,
Israel
and
Kiryat
Gat,
Israel
facilities
and
the
available
level
of
benefits
under
the
law.
If
we
do
not
meet
the
requirements
for
maintaining
these
benefits,
they
may
be
reduced
or
cancelled
and
therelevant
operations
would
be
subject
to
Israeli
corporate
tax
at
the
standard
rate,
which
in
2017
is
set
at
24%
and
as
of
2018
will
be
23%
(the
corporate
tax
rate
was
26.5%
and
25%
in
2015
and
2016,
respectively).
Inaddition
to
being
subject
to
the
standard
corporate
tax
rate,
we
would
be
required
to
refund
any
tax
benefits
that
we
have
already
received
as
adjusted
by
the
Israeli
consumer
price
index,
plus
interest
or
other
monetarypenalties.
Even
if
we
continue
to
meet
the
relevant
requirements,
the
tax
benefits
that
our
current
“Approved
Enterprise”
and
“Beneficiary
Enterprise”
receive
may
not
be
continued
in
the
future
at
their
current
levels
orat
all.
If
these
tax
benefits
were
reduced
or
eliminated,
the
amount
of
taxes
that
we
pay
would
likely
increase,
as
all
of
our
operations
would
consequently
be
subject
to
corporate
tax
at
the
standard
rate,
which
maycause
our
effective
tax
rate
to
be
materially
different
than
our
estimates
and
could
adversely
affect
our
results
of
operations.
Additionally,
if
we
increase
our
activities
outside
of
Israel,
for
example,
via
acquisitions,
ourincreased
activities
may
not
be
eligible
for
inclusion
in
Israeli
tax
benefit
programs,
and
that
could
also
adversely
affect
our
effective
tax
rate
and
our
results
of
operations.17Table of ContentsThe
Israeli
government
may
furthermore
independently
determine
to
reduce,
phase
out
or
eliminate
entirely
the
benefit
programs
under
the
Investment
Law,
regardless
of
whether
we
then
qualify
for
benefits
underthose
programs
at
the
time,
which
would
also
adversely
affect
our
effective
tax
rate
and
our
results
of
operations.Certain Israeli governmental grants that we received for certain of our research and development activities in Israel may restrict our ability to transfer manufacturing operations or technology outside of Israelwithout obtaining a pre-approval from the relevant authorities and, in certain circumstances, payment of significant amounts to the authorities.Our
Israeli-based
research
and
development
efforts
were
and
are
financed
in
part,
through
grants
that
we
received
from
the
National
Technological
Innovation
Authority,
or
the
Authority
(formerly
operating
asOffice
of
the
Chief
Scientist
of
the
Ministry
of
Economy
of
the
State
of
Israel,
or
the
OCS).
Through
2006,
Objet
received
grants
from
the
OCS
of
approximately
$1.5
million,
which
it
repaid
in
its
entirety
(includinginterest
thereon)
by
the
end
of
2007.
More
recently,
we
have
received
additional
funding
from
the
Authority
of
approximately
$4.3
million,
in
the
aggregate
(as
of
December
31,
2016),
under
several
R&D
programs
tosupport
certain
research
and
development
projects
in
Israel.
Such
funding
is
not
subject
to
royalty
obligations
on
our
part.We
must
comply
with
the
requirements
of
the
Israeli
Encouragement
of
Research,
Development
and
Technological
Innovation
Law,
5744-1984,
or
the
Innovation
Law
(formerly
known
as
the
Encouragement
ofIndustrial
Research
and
Development
Law,
5744-1984,
or
the
Research
Law),
and
related
regulations,
with
respect
to
those
current
and
past
grants.When
a
company
develops
know-how,
technology
or
products
using
grants
provided
by
the
Authority,
the
terms
of
these
grants
and
the
Innovation
Law
restrict
the
transfer
of
such
know-how,
and
the
transfer
ofmanufacturing
or
manufacturing
rights
of
such
products,
technologies
or
know-how
outside
of
Israel.
Even
after
the
repayment
of
such
grants
in
full,
we
will
remain
subject
to
the
restrictions
set
forth
under
theInnovation
Law,
including:●Transfer of know-how outside of Israel .
Any
transfer
of
the
know-how
that
was
developed
with
the
funding
of
the
Authority,
outside
of
Israel,
requires
prior
approval
of
the
Authority,
and
the
payment
of
aredemption
fee.

●Local manufacturing obligation .
The
terms
of
the
grants
under
the
Innovation
Law
require
that
the
manufacturing
of
products
resulting
from
Authority-funded
programs
be
carried
out
in
Israel,
unless
a
priorwritten
approval
of
the
Authority
is
obtained
(except
for
a
transfer
of
up
to
10%
of
the
production
rights,
for
which
a
notification
to
the
Authority
is
sufficient).

●Certain reporting obligations .
We,
as
any
recipient
of
a
grant
or
a
benefit
under
the
Innovation
Law,
are
required
to
file
reports
on
the
progress
of
activities
for
which
the
grant
was
provided
as
well
as
on
ourrevenues
from
know-how
and
products
funded
by
the
Authority.
In
addition,
we
are
required
to
notify
the
Authority
of
certain
events
detailed
in
the
Innovation
Law.Therefore,
if
aspects
of
our
technologies
are
deemed
to
have
been
developed
with
OCS
funding,
the
discretionary
approval
of
an
OCS
committee
would
be
required
for
any
transfer
to
third
parties
outside
of
Israelof
know-how
or
manufacturing
or
manufacturing
rights
related
to
those
aspects
of
such
technologies.
We
may
not
receive
those
approvals.
Furthermore,
the
OCS
may
impose
certain
conditions
on
any
arrangementunder
which
it
permits
us
to
transfer
technology
or
development
out
of
Israel.The
transfer
of
OCS-supported
technology
or
know-how
outside
of
Israel
may
involve
the
payment
of
significant
amounts,
depending
upon
the
value
of
the
transferred
technology
or
know-how,
the
amount
of
OCSsupport,
the
time
of
completion
of
the
OCS-supported
research
project
and
other
factors.
Furthermore,
the
consideration
available
to
our
shareholders
in
a
transaction
involving
the
transfer
outside
of
Israel
oftechnology
or
know-how
developed
with
OCS
funding
(such
as
a
merger
or
similar
transaction)
may
be
reduced
by
any
amounts
that
we
are
required
to
pay
to
the
OCS.We
received
grants
from
the
OCS
prior
to
an
extensive
amendment
to
the
Research
Law
that
came
into
effect
as
of
January
1,
2016,
or
the
Amendment,
which
may
also
affect
the
terms
of
existing
grants.
TheAmendment
provides
for
an
interim
transition
period
(which
has
not
yet
expired),
after
which
time
our
grants
will
be
subject
to
terms
of
the
Amendment.
Under
the
Research
Law,
as
amended
by
the
Amendment,
theAuthority
is
provided
with
a
power
to
modify
the
terms
of
existing
grants.
Such
changes,
if
introduced
by
the
Authority
in
the
future,
may
impact
the
terms
governing
our
grants.It may be difficult to enforce a U.S. judgment against us and our officers and directors in Israel or the United States, or to serve process on our officers and directors.We
are
organized
in
Israel.
Most
of
our
officers
and
most
of
our
directors
(as
of
December
31,
2016)
reside
outside
of
the
United
States,
and
a
majority
of
our
assets
are
located
outside
of
the
United
States.Therefore,
a
judgment
obtained
against
us
or
any
of
our
executive
officers
and
directors
in
the
United
States,
including
one
based
on
the
civil
liability
provisions
of
the
U.S.
federal
securities
laws,
may
not
becollectible
in
the
United
States
and
may
not
be
enforced
by
an
Israeli
court.
It
also
may
be
difficult
for
you
to
effect
service
of
process
on
these
persons
in
the
United
States
or
to
assert
U.S.
securities
law
claims
inoriginal
actions
instituted
in
Israel.18Table of ContentsRisks related to an investment in our ordinary sharesIf certain of our shareholders sell a substantial number of our ordinary shares, the market price of our ordinary shares could decline.Former
MakerBot
stockholders
and
certain
MakerBot
employees,
former
Solid
Concepts
stockholders
and
option
holders,
and
certain
Solid
Concepts
employees,
and
certain
Harvest
Technologies
employees
andformer
stockholders,
may
resell
the
ordinary
shares
that
we
issued
or
may
issue
to
them
pursuant
to
the
MakerBot
transaction,
Solid
Concepts
acquisition
or
Harvest
Technologies
acquisition,
as
applicable,
under
Rule144
under
the
Securities
Act,
or
Rule
144,
which
allows
for
the
resale
of
the
foregoing
groups
of
shares.
Under
the
terms
of
the
MakerBot
and
Solid
Concepts
merger
agreements,
and
the
Harvest
Technologies
stockpurchase
agreement,
we
issued
at
the
closing
of
the
transactions
on
August
15,
2013,
July
14,
2014
and
August
1,
2014,
respectively,
3,921,660
ordinary
shares,
978,601
ordinary
shares
and
175,456
ordinary
shares(after
withholding
certain
shares
for
taxes,
where
applicable),
which
may
be
sold
or
may
have
already
been
sold,
in
whole
or
part,
to
the
public
following
the
closings.
Those
shares
together
constituted
approximately10%
of
our
issued
and
outstanding
shares,
in
the
aggregate,
as
of
the
closing
date
of
the
Harvest
Technologies
acquisition
(following
the
issuance
of
the
shares
in
the
Harvest
Technologies
acquisition).
We
havesubsequently
issued
since
the
respective
closings,
an
additional
635,939,
492,145
and
26,614
ordinary
shares
to
the
selling
shareholders
and/or
employees
pursuant
to
the
MakerBot
transaction,
Solid
Conceptsacquisition
and
Harvest
Technologies
acquisition,
respectively,
which
may
be
subsequently
resold
without
restriction
under
Rule
144.
We
may
also
issue
up
to
an
additional
approximately
360,000
ordinary
shares
andapproximately
32,500
(based
on
our
share
price
as
of
December
31,
2016)
ordinary
shares
to
the
selling
shareholders
and/or
employees
in
respect
of
periods
through
mid-2017
and
early
2018
pursuant
to
the
terms
ofthe
Solid
Concepts
merger
agreement
and
Harvest
Technologies
stock
purchase
agreement,
respectively,
which
may
be
subsequently
resold
without
restriction
under
Rule
144.
Sales
of
a
significant
number
of
theforegoing
shares
in
a
short
period
of
time
could
have
the
effect
of
depressing
the
market
price
of
our
ordinary
shares.The market price of our ordinary shares may be subject to fluctuation, regardless of our operating results and financial condition. As a result, our shareholders could incur substantial losses.The
market
price
of
our
ordinary
shares
since
the
Stratasys-Objet
merger
has
been
subject
to
substantial
fluctuation.
From
the
start
of
2015
through
the
early
part
of
2017
(through
February
28,
2017
),
our
ordinaryshares
have
traded
with
closing
prices
that
have
ranged
from
$15.24
to
$81.05
.
The
price
of
our
ordinary
shares
may
continue
to
be
subject
to
substantial
fluctuation
regardless
of
our
operating
results
or
financialcondition
due
to
a
number
of
factors,
including:●whether
we
achieve
the
perceived
benefits
of
the
mergers
or
acquisitions
that
we
consummate
as
rapidly
or
to
the
extent
anticipated
by
financial
or
industry
analysts;

●whether
the
effects
on
our
business
and
prospects
of
the
mergers
or
acquisitions
that
we
consummate
are
consistent
with
the
expectations
of
financial
or
industry
analysts;

●variations
in
our
and
our
competitors’
results
of
operations
and
financial
condition;

●market
acceptance
of
our
products;

●the
mix
of
products
that
we
sell,
and
related
services
that
we
provide,
during
any
period;

●changes
in
earnings
estimates
or
recommendations
by
securities
analysts;

●development
of
new
competitive
systems
and
services
by
others;

●our
announcements
of
technological
innovations
or
new
products;

●delays
between
our
expenditures
to
develop
and
market
new
or
enhanced
systems
and
consumables
and
the
generation
of
sales
from
those
products;

●developments
concerning
intellectual
property
rights;

●changes
in
the
amount
that
we
spend
to
develop,
acquire
or
license
new
products,
technologies
or
businesses;

●changes
in
our
expenditures
to
promote
our
products
and
services;

●changes
in
the
cost
of
satisfying
our
warranty
obligations
and
servicing
our
installed
base
of
systems;

●success
or
failure
of
research
and
development
projects
of
the
combined
company
or
its
competitors;

●the
general
tendency
towards
volatility
in
the
market
prices
of
shares
of
technology
companies;
and

●general
market
conditions
and
other
factors,
including
factors
unrelated
to
our
operating
performance.These
factors
and
any
corresponding
price
fluctuations
may
materially
and
adversely
affect
the
market
price
of
our
ordinary
shares
and
result
in
substantial
losses
being
incurred
by
our
shareholders.Market
prices
for
securities
of
technology
companies
historically
have
been
very
volatile.
The
market
for
these
securities
has
from
time
to
time
experienced
significant
price
and
volume
fluctuations
for
reasonsunrelated
to
the
operating
performance
of
any
one
company.
In
the
past,
following
periods
of
market
volatility,
public
company
shareholders
have
often
instituted
securities
class
action
litigation.
Such
securitieslitigation
could
result
in
substantial
costs
and
divert
the
resources
and
attention
of
our
management
from
our
business.19Table of ContentsRaising additional capital by issuing securities may cause dilution to our shareholders, and may furthermore be difficult in the current market environment.We
may
need
or
desire
to
raise
substantial
capital
in
the
future.
Our
future
capital
requirements
will
depend
on
many
factors,
including,
among
others:●the
extent
to
which
we
acquire
or
invest
in
businesses,
products
or
technologies
and
other
strategic
relationships;

●our
degree
of
success
in
capturing
a
larger
portion
of
additive
manufacturing
demand;

●the
costs
of
establishing
or
acquiring
sales,
marketing
and
distribution
capabilities
for
our
products;

●the
costs
of
preparing,
filing
and
prosecuting
patent
applications,
maintaining
and
enforcing
our
issued
patents
and
defending
intellectual
property-related
claims;
and

●the
costs
of
financing
unanticipated
working
capital
requirements
and
responding
to
competitive
pressures.If
we
raise
funds
by
issuing
equity
or
convertible
debt
securities,
it
will
reduce
the
percentage
ownership
of
our
then-existing
shareholders,
and
the
holders
of
such
new
securities
may
have
rights,
preferences
orprivileges
senior
to
those
possessed
by
our
then-existing
shareholders.The
current
market
price
for
our
ordinary
shares,
which
has
declined
significantly
since
its
all-time
high
in
periods
following
the
Stratasys-Objet
merger,
also
adversely
impacts
our
ability
to
raise
funds
in
thecapital
markets.We do not anticipate paying any cash dividends in the foreseeable future. Therefore, if our share price does not appreciate, our shareholders may not recognize a return, and could potentially suffer a loss, ontheir investment in our ordinary shares.We
intend
to
retain
all
available
funds
and
any
future
earnings
to
fund
the
development
and
growth
of
our
business.
As
a
result,
capital
appreciation,
if
any,
of
our
ordinary
shares
will
be
investors’
sole
source
of
areturn
on
their
investment
for
the
foreseeable
future.Even if we decide to pay dividends on our ordinary shares, we may be restricted from doing so or payment of such dividends may have adverse consequences for our company.Under
the
Companies
Law,
dividends
may
only
be
paid
out
of
our
profits
and
other
surplus
funds
(as
defined
in
the
Companies
Law)
as
of
the
end
of
the
most
recent
year
or
as
accrued
over
a
period
of
the
mostrecent
two
years,
whichever
amount
is
greater,
provided
that
there
is
no
reasonable
concern
that
payment
of
a
dividend
will
prevent
us
from
satisfying
our
existing
and
foreseeable
obligations
as
they
become
due.
In
theevent
that
we
do
not
meet
the
profit
and
surplus
funds
criteria,
we
can
seek
the
approval
of
an
Israeli
court
in
order
to
distribute
a
dividend.
The
court
may
approve
our
request
if
it
is
convinced
that
there
is
noreasonable
concern
that
the
payment
of
a
dividend
will
prevent
us
from
satisfying
our
existing
and
foreseeable
obligations
as
they
become
due.
Due
to
the
acquisition
method
of
accounting
utilized
for
the
Stratasys-Objet
merger
and
the
MakerBot
transaction
under
GAAP,
pursuant
to
which
we
were
deemed
to
have
acquired
Objet’s
assets,
we
have
incurred
and
will
continue
to
incur
significant
annual
amounts
of
depreciation
andamortization
expense
in
respect
of
those
assets
(see
note
2
to
our
consolidated
financial
statements
appearing
in
this
annual
report
for
more
information
on
the
method
of
accounting
for
the
MakerBot
transaction).
Weare
also
subject
to
the
risk
of
impairment
charges
from
time
to
time
to
our
acquired
assets,
as
occurred
in
2015,
when
we
incurred
over
$1.2
billion
in
impairment
charges.
These
significant
annual
expenses
underGAAP
have
reduced,
and
may
continue
to
reduce
or
eliminate,
our
profits
and
surplus
funds
as
determined
under
the
Companies
Law,
and,
hence,
may
restrict
our
ability
to
pay
dividends
(absent
court
approval).In
general,
the
payment
of
dividends
may
also
be
subject
to
Israeli
withholding
taxes.
In
addition,
because
we
receive
certain
benefits
under
the
Israeli
law
relating
to
“Approved
Enterprise”
and
“BeneficiaryEnterprise”,
our
payment
of
dividends
(out
of
tax-exempt
income)
may
subject
us
to
certain
Israeli
taxes
to
which
we
would
not
otherwise
be
subject.
See
“Risks
related
to
our
operations
in
Israel—The
government
taxbenefits
that
we
currently
receive
require
us
to
meet
several
conditions
and
may
be
terminated
or
reduced
in
the
future,
which
would
increase
our
costs.”We are a foreign private issuer under the rules and regulations of the SEC and are therefore exempt from a number of rules under the Exchange Act and are permitted to file less information with the SECthan a domestic U.S. reporting company, which will reduce the level and amount of disclosure that you receive.As
a
foreign
private
issuer
under
the
Exchange
Act,
we
are
exempt
from
certain
rules
under
the
Exchange
Act,
including
the
proxy
rules,
which
impose
certain
disclosure
and
procedural
requirements
for
proxysolicitations.
Moreover,
we
are
not
required
to
file
periodic
reports
and
financial
statements
with
the
SEC
as
frequently
or
as
promptly
as
domestic
U.S.
companies
with
securities
registered
under
the
Exchange
Act;and
are
not
required
to
comply
with
Regulation
FD,
which
imposes
certain
restrictions
on
the
selective
disclosure
of
material
information.
In
addition,
our
officers,
directors
and
principal
shareholders
are
exempt
fromthe
reporting
and
“short-swing”
profit
recovery
provisions
of
Section
16
of
the
Exchange
Act
and
the
rules
under
the
Exchange
Act
with
respect
to
their
purchases
and
sales
of
our
ordinary
shares.
Accordingly,
youreceive
less
information
about
our
company
and
trading
in
our
shares
by
our
affiliates
than
you
would
receive
about
a
domestic
U.S.
company,
and
are
afforded
less
protection
under
the
U.S.
federal
securities
laws
thanyou
would
be
afforded
in
holding
securities
of
a
domestic
U.S.
company.20Table of ContentsAs
a
foreign
private
issuer,
we
are
also
permitted,
and
have
begun,
to
follow
certain
home
country
corporate
governance
practices
instead
of
those
otherwise
required
under
the
Listing
Rules
of
the
NASDAQ
StockMarket
for
domestic
U.S.
issuers.
We
have
informed
NASDAQ
that
we
follow
home
country
practice
in
Israel
with
regard
to,
among
other
things,
director
nomination
procedure
and
approval
of
compensation
ofofficers.
In
addition,
we
have
opted
to
follow
home
country
law
instead
of
the
Listing
Rules
of
the
NASDAQ
Stock
Market
that
require
that
a
listed
company
obtain
shareholder
approval
for
certain
dilutive
events,such
as
the
establishment
or
amendment
of
certain
equity-based
compensation
plans,
an
issuance
that
will
result
in
a
change
of
control
of
the
company,
certain
transactions
other
than
a
public
offering
involvingissuances
of
a
20%
or
greater
interest
in
the
company,
and
certain
acquisitions
of
the
stock
or
assets
of
another
company.
Following
our
home
country
governance
practices
as
opposed
to
the
requirements
that
wouldotherwise
apply
to
a
United
States
company
listed
on
The
NASDAQ
Global
Select
Market
may
provide
our
shareholders
with
less
protection
than
they
would
have
as
shareholders
of
a
domestic
U.S.
company.Our
status
as
a
foreign
private
issuer
is
subject
to
an
annual
review
and
test,
and
will
be
tested
again
as
of
June
30,
2017
(the
last
business
day
of
our
second
fiscal
quarter
of
2017).
If
we
lose
our
status
as
a
foreignprivate
issuer,
we
will
no
longer
be
exempt
from
such
rules.
Among
other
things,
beginning
on
January
1,
2018,
we
would
be
required
to
file
periodic
reports
and
financial
statements
on
a
periodic
basis
(including
bothan
annual
report
in
respect
of
2017
and
quarterly
reports
in
respect
of
each
of
the
quarters
of
2018)
as
if
we
were
a
company
incorporated
in
the
U.S.,
which,
among
other
things,
could
result
in
increased
complianceand
reporting
costs
to
us.If we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as they apply to a foreign private issuer, or if our internal controls over financialreporting are not effective, the reliability of our financial statements may be questioned and our share price may suffer.We
are
subject
to
the
requirements
of
Section
404
of
the
Sarbanes-Oxley
Act,
or
Section
404,
which
requires
a
company
that
is
subject
to
the
reporting
requirements
of
the
U.S.
securities
laws
to
conduct
acomprehensive
evaluation
of
its
and
its
subsidiaries’
internal
controls
over
financial
reporting.
To
comply
with
this
statute,
we
are
required
to
document
and
test
our
internal
control
procedures,
and
our
management
isrequired
to
assess
and
issue
a
report
concerning
our
internal
controls
over
financial
reporting,
in
each
case
on
an
annual
basis.
In
addition,
our
independent
registered
public
accounting
firm
is
required
to
issue
anopinion
on
the
effectiveness
on
our
internal
control
over
financial
reporting
pursuant
to
Section
404.We
have
prepared
for
compliance
with
Section
404
by
strengthening,
assessing
and
testing
our
system
of
internal
controls
to
provide
the
basis
for
our
management’s
report.
The
continuous
process
of
strengtheningour
internal
controls
and
complying
with
Section
404
is
complicated
and
time-consuming.
If
our
business
continues
to
grow
internationally,
our
internal
controls
will
become
more
complex
and
will
requiresignificantly
more
resources
and
attention
to
ensure
that
they
remain
effective
overall.
Over
the
course
of
testing
our
internal
controls,
our
management
may
identify
material
weaknesses,
which
may
not
be
remedied
ina
timely
manner
on
an
ongoing
basis.
If
our
management
cannot
favorably
assess
the
effectiveness
of
our
internal
controls
over
financial
reporting,
or
if
our
independent
registered
public
accounting
firm
identifiesmaterial
weaknesses
in
our
internal
controls,
investor
confidence
in
our
financial
results
may
weaken,
and
our
share
price
may
suffer.If we are classified as a passive foreign investment company, or PFIC, our U.S. shareholders may suffer adverse tax consequences.Generally,
if
for
any
taxable
year,
after
applying
certain
look-through
rules,
75%
or
more
of
our
gross
income
is
passive
income,
or
at
least
50%
of
the
value
of
our
assets
are
held
for
the
production
of,
or
produce,passive
income,
we
may
be
characterized
as
a
PFIC
for
U.S.
federal
income
tax
purposes.
Passive
income
for
this
purpose
generally
includes,
among
other
things,
certain
dividends,
interest,
royalties,
rents
and
gainsfrom
commodities
and
securities
transactions
and
from
the
sale
or
exchange
of
property
that
gives
rise
to
passive
income.
If
we
are
a
PFIC,
gain
realized
by
a
U.S.
shareholder
on
the
sale
of
our
ordinary
shares
may
betaxed
as
ordinary
income
(rather
than
as
capital
gain
income),
and
an
interest
charge
added
to
the
tax.
Rules
similar
to
those
applicable
to
the
taxation
of
gains
realized
on
the
disposition
of
our
stock
would
apply
todistributions
exceeding
certain
thresholds.Although
we
do
not
believe
that
we
were
a
PFIC
in
2016,
we
cannot
assure
you
that
the
IRS
will
agree
with
that
conclusion
or
that
we
will
not
become
a
PFIC
in
2017
or
in
a
subsequent
year.
The
tests
fordetermining
PFIC
status
are
applied
annually,
and
it
is
difficult
to
make
accurate
predictions
of
our
future
income
and
the
future
value
of
our
assets.
U.S.
shareholders
should
consult
with
their
own
U.S.
tax
advisorswith
respect
to
the
U.S.
tax
consequences
of
investing
in
our
ordinary
shares.
For
a
discussion
of
how
we
might
be
characterized
as
a
PFIC
and
related
tax
consequences,
please
see
Item
10.E,
“Additional
Information—Taxation—U.S.
Federal
Income
Tax
Considerations—Tax
Consequences
if
We
Are
a
Passive
Foreign
Investment
Company”.21Table of ContentsITEM 4. INFORMATION ON THE COMPANY.A. History and Development of the CompanyOur
legal
and
commercial
name
is
Stratasys
Ltd.,
and
we
are
the
product
of
the
2012
merger
of
two
leading
additive
manufacturing
companies,
Stratasys,
Inc.
and
Objet
Ltd.
Stratasys,
Inc.
was
incorporated
inDelaware
in
1989,
and
Objet
Ltd.
was
incorporated
in
Israel
in
1998,
under
the
name
Objet
Geometries
Ltd.,
which
was
changed
in
2011
to
Objet
Ltd.
On
December
1,
2012,
the
two
companies
completed
theStratasys-Objet
merger,
pursuant
to
which
Stratasys,
Inc.
became
an
indirect,
wholly-owned
subsidiary
of
Objet
Ltd.,
and
Objet
Ltd.
changed
its
name
to
Stratasys
Ltd.
Also,
as
part
of
that
transaction,
the
ordinaryshares
of
Stratasys
Ltd.
were
listed
on
the
NASDAQ
Global
Select
Market
under
the
trading
symbol
“SSYS”,
in
place
of
the
listing
of
the
common
stock
of
Stratasys,
Inc.,
which
had
also
traded
under
that
symbol.
OnAugust
15,
2013
we
acquired
Cooperation
Technology
Corporation,
or
MakerBot,
which
was
the
direct
parent
company
of
MakerBot
Industries,
LLC,
a
leader
in
desktop
3D
printing,
and
which
owned
and
operatedThingiverse.com,
a
website
dedicated
to
the
sharing
of
user-created
digital
design
files.
The
business
of
MakerBot
(including
Thingiverse.com)
is
now
operated
by
a
subsidiary
of
our
company.
In
July
2014
and
August2014,
we
completed
the
acquisitions
of
Solid
Concepts
and
Harvest
Technologies,
respectively,
two
leading
providers
of
additive
manufacturing
services.
Following
those
last
two
acquisitions,
in
2015,
we
introducedour
branded
Stratasys
Direct
Manufacturing,
or
SDM,
service,
which
significantly
broadened
and
increased
our
production
and
offering
of
AM
parts,
which
are
used
by
our
customers
as
prototypes,
benchmarks
andend-use
parts.We
have
dual
headquarters.
Our
registered
office
and
one
of
our
two
principal
places
of
business
is
located
at
1
Holtzman
Street,
Science
Park,
P.O.
Box
2496,
Rehovot
76124,
Israel,
and
our
telephone
number
atthat
office
is
(+972)-74-745-4314.
Our
other
principal
place
of
business
is
located
at
7665
Commerce
Way,
Eden
Prairie,
Minnesota,
and
our
telephone
number
there
is
(952)
937-3000.
Our
agent
in
the
United
States
isS.
Scott
Crump,
our
Chairman
of
the
Executive
Committee,
whose
address
is
c/o
Stratasys
Inc.
at
the
address
of
our
Eden
Prairie,
Minnesota
headquarters.
Our
World
Wide
Web
address
is
www.stratasys.com.
Theinformation
contained
on
that
web
site
(or
on
our
other
web
sites,
including
www.objet.com)
is
not
a
part
of
this
annual
report.
As
an
Israeli
company,
we
operate
under
the
provisions
of
Israel’s
Companies
Law,
5759-1999.In
2016,
2015
and
2014,
our
capital
expenditures
amounted
to
$
47.1
million,
$87.0
million
and
$62.3
million,
respectively,
of
which
$
45.1
million,
$84.3
million
and
$60.5
million,
respectively,
was
principallyrelated
to
the
purchase
(or
construction)
of
property,
plant
and
equipment.
During
2016,
our
principal
property
and
equipment
investment
was
the
construction
of
our
new
facility
at
our
new
property
in
Rehovot,
Israel,which
we
own,
and
where
we
moved
our
Israeli
headquarters
during
January,
2017.
This
new
facility,
towards
which
we
paid
$
18.2
million
during
2016,
also
houses
research
and
development
facilities.
As
ofDecember
31,
2016
we
invested
in
our
new
facility
in
Israel
and
its
related
equipment
approximately
$58.4
million.
Our
remaining
capital
expenditures
in
2016
related
primarily
to
manufacturing
and
engineeringdevelopment
equipment,
leasehold
improvements
and
computer
systems
and
software
applications.Other
purchases
of
property
and
equipment
that
we
have
made
over
2015
and
2014
have
been
mainly
for
facilities
expansion,
manufacturing
equipment
and
information
technology,
primarily
for
our
facilities
in
theUnited
States,
Israel
and
Germany.
These
expenditures
were
financed
internally
from
our
working
capital.B. Business overviewWe
are
a
leading
global
provider
of
3D
printing
and
additive
manufacturing,
or
AM,
solutions
for
the
creation
of
parts
used
in
the
processes
of
designing
and
manufacturing
products
and
for
the
direct
manufactureof
end
parts.
Our
solutions
include
products
ranging
from
entry-level
desktop
3D
printers
to
systems
for
rapid
prototyping,
or
RP,
and
large
production
systems
for
direct
digital
manufacturing,
or
DDM.
We
alsodevelop,
manufacture
and
sell
materials
for
use
with
our
systems
and
provide
related
services
offerings.
We
believe
that
the
range
of
3D
printing
consumable
materials
that
we
offer,
consisting
of
15
fused
depositionmodeling
(FDM),
cartridge-based
materials,
26
PolyJet
cartridge-based
materials,
five
smooth
curvature
printing
(SCP)
inkjet-based
materials,
158
non-color
digital
materials,
and
over
1,500
color
variations,
as
well
asour
four
SolidScape
non-toxic
thermoplastic
modeling
materials,
is
the
widest
in
the
industry.
Our
services
offerings
include
Stratasys
Direct
Manufacturing
printed
parts
service
as
well
as
our
professional
services.3D
printing,
which
is
also
referred
to
as
additive
manufacturing,
is
transforming
prototype
development
manufacturing
processes
and
is
displacing
(or,
in
certain
cases,
complementing)
certain
segments
oftraditional,
or
subtractive,
manufacturing
methodologies
such
as
metal
extrusion,
computer-controlled
machining
and
manual
modeling
techniques.
With
respect
to
product
design
and
prototype
development,
3Dprinting
significantly
improves
the
design
process,
reduces
the
time
required
for
product
development
and
facilitates
creativity,
while
keeping
the
most
or
all
of
the
design
process
in-house.
3D
printing
also
enables
thedirect
manufacture
of
parts
that
are
subsequently
incorporated
into
a
user’s
end
product.
In
addition,
manufacturers
are
increasingly
using
3D
printing
systems
to
produce
manufacturing
tools
such
as
jigs
and
fixtures,that
aid
in
their
production
and
assembly
processes.
While
3D
printing
has
historically
been
focused
on
design
and
manufacturing
applications,
3D
printing
is
beginning
to
show
signs
of
broader
adoption
throughsimplification,
with
the
growth
of
entry-level
desktop
3D
printers.Our
products
and
services
are
used
in
different
applications
by
customers
in
a
broad
array
of
industries,
including
aerospace,
automotive,
consumer
electronics,
consumer
goods,
medical
processes
and
medicaldevices,
education,
dental,
jewelry
and
more.
Our
customers
range
from
individuals
and
smaller
businesses
to
large,
global
enterprises,
and
we
include
a
number
of
Fortune
100
companies
among
our
customers.We
offer
a
broad
range
of
systems,
consumables
and
services
for
3D
printing
and
additive
manufacturing.
Our
wide
range
of
solutions,
based
on
our
proprietary
3D
printing
technologies
and
materials,
enhance
theability
of
designers,
engineers
and
manufacturers
to:●visualize
and
communicate
product
ideas
and
designs;

●verify
the
form,
fit
and
function
of
prototypes;22Table of Contents●manufacture
tools,
jigs,
fixtures,
casts
and
injection
molds
used
in
the
process
of
manufacturing
end-products;

●manufacture
customized
and
short-run
end-products
more
efficiently
and
with
greater
agility;
and

●produce
objects
that
could
not
otherwise
be
manufactured
through
subtractive
manufacturing
methodologies.The
primary
focus
of
our
3D
printing
solutions
has
been
for
use
for
prototyping,
tooling
and
manufacturing,
and
within
the
vertical
markets
of
auto,
aero,
medical,
dental,
jewelry
and
education.
Our
portfolio
offersa
variety
of
performance
options
for
our
customers,
depending
on
their
desired
application,
as
well
as
on
the
nature
and
size
of
the
designs,
prototypes
or
end-products
they
seek
to
produce.
Our
wide
range
of
systemsallows
us
to
offer
our
customers
systems
at
a
number
of
different
price
points,
depending
on
the
features
that
our
customers
desire.We
benefit
from
recurring
revenues
from
the
sale
of
resin
and
plastic
consumables
and
related
services.
We
provide
products
and
services
to
our
global
customer
base
throughout
our
offices
in
North
America
andinternationally,
including:
Baden-Baden,
Germany;
Hong
Kong;
São
Paulo,
Brazil;
Shanghai,
China;
and
Tokyo,
Japan,
as
well
as
through
our
worldwide
network
of
approximately
200
agents
and
resellers.Additionally,
through
our
MakerBot
subsidiary,
we
deploy
an
online
sales
channel.
We
have
approximately
2,500
employees
and
hold
more
than
1,200
granted
patents
or
pending
patent
applications
worldwide.Industry overviewHistorically,
prototype
development
and
customized
manufacturing
have
been
performed
by
traditional
methods
using
metal
extrusion,
computer-controlled
machining
and
manual
modeling
techniques,
in
whichblocks
of
material
are
carved
or
milled
into
specific
objects.
These
subtractive
manufacturing
methodologies
have
numerous
limitations.
They
often
require
specialist
technicians
and
can
be
time-
and
labor-intensive.The
time
intensity
of
traditional
modeling
can
leave
little
room
for
design
error
or
subsequent
redesign
without
meaningfully
impacting
a
product’s
time-to-market
and
development
cost.
As
a
result,
prototypes
havetraditionally
been
created
only
at
selected
milestones
late
in
the
design
process,
which
prevents
designers
from
truly
visualizing
and
verifying
the
design
of
an
object
in
the
preliminary
design
stage.
The
inability
toiterate
a
design
rapidly
hinders
collaboration
among
design
team
members
and
other
stakeholders
and
reduces
the
ability
to
optimize
a
design,
as
time-to-market
and
optimization
become
necessary
trade-offs
in
thedesign
process.3D
printing
addresses
the
inherent
limitations
of
traditional
modeling
technologies
through
its
combination
of
functionality,
quality,
ease
of
use,
speed
and
cost.
3D
printing
can
be
significantly
more
efficient
andeffective
than
traditional
model-making
techniques
for
use
across
the
design
process,
from
concept
modeling
and
design
review
and
validation,
to
fit
and
function
prototyping,
pattern
making
and
tooling,
to
directmanufacturing
of
repeatable,
cost-effective
parts,
short-run
parts
and
customized
end
products.
Introducing
3D
modeling
earlier
in
the
design
process
to
evaluate
fit,
form
and
function
can
result
in
faster
time-to-marketand
lower
product
development
costs.For
customized
manufacturing,
3D
printers
eliminate
the
need
for
complex
manufacturing
set-ups
and
reduce
the
cost
and
lead-time
associated
with
conventional
tooling.
DDM
involves
the
use
of
3D
productionsystems
for
the
direct
manufacture
of
parts
that
are
subsequently
incorporated
into
the
user’s
end
product
or
manufacturing
process.
DDM
is
particularly
attractive
in
applications
that
require
short-run
or
low-volumeparts
or
rapid
turn-around,
and
for
which
tooling
would
not
be
appropriate
due
to
small
volumes.
DDM
also
enables
the
production
of
objects
that
have
been
topologically
designed,
or
designed
on
the
basis
of
acomputerized
determination
of
where
to
place
the
key
components
of
the
object
and
how
to
connect
them,
a
process
that
is
generally
unavailable
using
conventional
subtractive
manufacturing
methodologies.The
first
commercial
3D
printers
were
introduced
in
the
early
1990s,
and
since
the
early
2000s,
3D
printing
technology
has
evolved
significantly
in
terms
of
price,
variety
and
quality
of
materials,
accuracy,
abilityto
create
complex
objects,
ease
of
use
and
suitability
for
office
environments.
3D
printing
is
already
replacing
traditional
prototype
development
methodologies
across
various
industries
such
as
architecture,automotive,
aerospace
and
defense,
electronics,
medical,
footwear,
toys,
educational
institutions,
government
and
entertainment,
underscoring
its
potential
suitability
for
an
even
broader
range
of
industries.Additionally,
3D
printing
has
created
new
applications
for
model-making
in
certain
new
market
categories,
such
as:
education,
where
institutions
are
increasingly
incorporating
3D
printing
into
their
engineering
anddesign
course
programs;
dental
and
orthodontic
applications,
where
3D
printed
models
are
being
used
as
replacements
for
traditional
stone
models,
implants
and
surgical
guides
and
for
crowns
and
bridges
for
casting;and
jewelry,
where
3D
printers
are
being
used
to
produce
custom-designed
pieces
of
jewelry.
Furthermore,
3D
printing
is
being
used
in
many
industries
for
the
direct
digital
manufacturing
of
end-use
parts.Desktop
3D
printer
usage
has
shown
rapid
growth,
with
the
introduction
and
adoption
of
affordable
entry-level
3D
printers
and
increased
availability
and
content.
These
entry-level
desktop
printers
have
increasedmarket
adoption
by
professional
designers
and
education
institutes.
We
expect
that
the
adoption
of
3D
printing
will
continue
to
increase
in
the
future,
in
terms
of
design
applications,
on
the
one
hand,
and
DDMapplications,
on
the
other
hand.
We
believe
that
the
expansion
of
the
market
will
be
spurred
by
increased
proliferation
of
3D
content
and
3D
authoring
tools
(3D
computer-aided-design,
or
CAD,
and
other
simplified3D
authoring
tools),
as
well
as
increased
availability
of
3D
scanners.
We
also
believe
that
increased
adoption
of
3D
printing
will
be
facilitated
by
continued
improvements
in
3D
printing
technology
and
greateraffordability
of
entry-level
systems.
We
are
active
in
facilitating
the
growth
of
the
3D
printing
market
by
bringing
intuitive,
design-to-3D
print
solutions
to
the
market.
We
also
believe
that
the
increasing
adoption
of3D
printing
in
manufacturing
processes
serves
as
an
important
source
of
growth
in
the
3D
printing
industry.23Table of ContentsStratasys solutionsRange of solutionsWe
provide
an
integrated
solutions
offering
for
different
vertical
markets
focusing
on
aerospace,
automotive,
healthcare
and
education
that
includes
compatible
products
and
services
that
are
designed
for
ourcustomers’
use
cases
and
effectively
solve
their
specific
applicative
needs.
Our
solutions
consists
of
a
broad
range
of
3D
printing
systems,
consumables,
software,
paid
parts,
and
strategic
consulting
and
professionalservices.Our
solutions
allow
our
end-users
to
print
3D
models
and
parts
that
enhance
their
ability
to
visualize,
verify
and
communicate
product
designs,
thereby
improving
the
design,
development
and
validation
processesand
reducing
time-to-market.
Our
systems
create
visual
aids
for
concept
modeling
and
functional
prototyping
to
test
fit,
form
and
function,
permitting
rapid
evaluation
of
product
designs.
Using
presentation
modelsdeveloped
with
our
systems,
designers
and
engineers
can
typically
conduct
design
reviews
and
identify
potential
design
flaws
earlier
in
the
process
and
improvements
before
incurring
significant
costs
due
to
re-toolingand
rework,
allowing
them
to
optimize
a
design
rapidly
and
cost-effectively.Our
systems
also
aid
in
the
communication
of
ideas
otherwise
communicated
in
abstract
or
2D
media.
For
example,
a
model
produced
with
our
systems
may
be
used
as
a
sales
tool,
as
a
model
or
part
display
orsimply
for
use
in
conducting
a
focus
group.
It
may
also
be
used
for
collaboration
in
the
product
design
and
manufacturing
cycles
at
multiple
locations
more
quickly,
enabling
visualization,
touch
and
feel,
which
can
becritical
to
the
product
evaluation
or
sales
process.Our
solutions
also
empower
our
end-users
to
quickly
and
efficiently
manufacture
parts
that
are
subsequently
incorporated
into
the
user’s
manufacturing
processes
and
improve
its
effectiveness.
For
instance,
oursolutions
enable
the
production
of
manufacturing
tools
such
as
jigs,
fixtures,
casts
and
injection
molds
that
aid
in
the
production
and
assembly
process.Additive
Manufacturing
of
end-use-parts,
using
our
solutions,
is
also
particularly
attractive
in
applications
that
require
short-run
or
low-volume
parts
that
require
rapid
turn-around,
and
for
which
tooling
would
notbe
cost-efficient
due
to
small
volumes,
such
as
various
applications
in
the
aerospace,
automotive,
medical,
dental
and
jewelry
industries.
Our
solutions
also
enable
the
production
of
objects
that
generally
could
nototherwise
be
manufactured
through
subtractive
manufacturing
methodologies.Our
solutions
offering
is
characterized
by
the
following
distinguishing
qualities:●material
properties
of
printed
objects,
such
as
heat
resistance,
toughness,
brittleness,
elongation-to-break,
color
and
flexibility;

●quality
of
printed
objects
measured
by,
among
other
things,
resolution,
accuracy
and
surface
quality;

●multiple
production-grade
modeling
materials;

●reliability
of
printing
systems;

●speed
of
printing,
including
a
one-step
automated
modeling
process;

●customer
service;

●ability
to
be
used
in
an
office
environment;

●ease
of
use;
and

●automatic,
hands-free
support
removal.Range of technologies and differentiating factorsOur
solutions
are
driven
by
our
proprietary
technologies,
brought
together
through
the
combination
of
our
constituent
companies,
each
of
which
was
a
leader
in
the
3D
printing
industry.
We
hold
more
than
1,200granted
or
pending
patents
internationally,
and
our
3D
printing
systems
utilize
our
patented
FDM
®
and
inkjet-based
PolyJet
™
technologies
to
enable
the
production
of
prototypes,
tools
used
for
production
andmanufactured
goods
directly
from
3D
CAD
files
or
other
3D
content.
We
believe
that
our
broad
range
of
product
and
service
offerings
is
a
function
of
our
3D
printing
technology
leadership.A
key
attribute
of
our
FDM
®
3D
printing
technology
is
its
ability
to
use
a
variety
of
production
grade
thermoplastic
building
materials
that
feature
surface
resolution,
chemical
and
heat
resistance,
color,
andmechanical
properties
necessary
for
production
of
functional
prototypes
and
parts
for
a
variety
of
industries
with
specific
demands
and
requirements.
Use
of
these
materials
also
enables
the
production
of
highly
durableend
parts
as
well
as
objects
with
soluble
cores
for
the
manufacture
of
hollow
parts,
the
manufacture
of
which
were
previously
dependent
on
slower
and
more
expensive
subtractive
manufacturing
technologies.24Table of ContentsWe
believe
that
this
technology
is
differentiated
by
a
number
of
factors
that
make
it
appropriate
for
3D
printing
and
additive
manufacturing.
These
factors
include:●the
ability
to
use
FDM
®
systems
in
an
office
environment
due
to
the
absence
of
hazardous
emissions;

●the
relative
absence
of
post-production
processing;

●minimal
material
waste;

●better
processing
and
build
repeatability;

●ease
of
use,
with
minimal
system
set
up
requirements;

●no
need
for
costly
replacement
lasers
and
laser
parts;
and

●a
high
degree
of
precision
and
reliability.We
believe
that
our
inkjet-based
3D
printing
technology
is
primarily
differentiated
from
other
competing
technologies
in
its
ability
to
scale
and
deliver
high-resolution
and
multi-material,
full-color
3D
printing.
Oureasy-to-use,
PolyJet
™
3D
printers
create
high-resolution,
smooth
surface
finish
models
that
have
the
look,
feel
and
functionality
of
the
final
designed
product.
We
offer
a
wide
variety
of
office-friendly
resinconsumables,
including
rigid
and
flexible
(rubber-like)
materials
and
bio-compatible
materials
for
medical
applications.
Using
our
PolyJet
™
digital
materials
technology,
our
solutions
also
offer
the
only
3D
printingsystems
that
deposit
multiple
materials
simultaneously.
This
enables
users,
in
a
single
build
process,
to
print
parts
and
assemblies
made
of
multiple
materials
that
each
retain
their
distinct
mechanical
and
physicalproperties.
For
example,
users
can
print
objects
with
both
rigid
and
flexible
portions
in
a
single
build,
or
mix
different
base
colors
in
order
to
achieve
desired
color
tone.
The
PolyJet
™
technology
also
enables
on-demand
mixing
of
a
wide
variety
of
resins
to
create
a
wide
range
of
pre-defined
digital
materials,
which
are
composite
materials
with
modified
physical
or
mechanical
and
color
properties
that
result
from
thecombination
of
multiple
materials.
The
wide
range
of
colors
in
which
objects
can
be
printed
(over
1,500,
as
noted
below)
is
another
one
of
the
key
differentiating
attributes
for
our
3D
printers.Our
PolyJet
inkjet-based
3D
printing
technology
is
also
currently
distinguished
by
its
ability
to
offer
a
wide
variety
of
materials
including
multi-material
printing
within
a
single
part,
in
an
office
environmentsystem.We
also
offer
Smooth
Curvature
Printing,
or
SCP,
ink-jetting
technology
through
our
Solidscape
brand
to
produce
wax-like
patterns
for
lost-wax
casting,
investment
casting
and
mold
making
applications.
TheSolidscape
high-precision
3D
printer
creates
solid
parts
through
an
additive,
layer-by-layer
process,
using
our
SCP
ink-jetting
technology
and
high-precision
milling
of
each
layer.
The
parts
produced
are
extremelyhigh
resolution
with
very
precise
details
and
fine
surface
finish.We
offer
15
FDM
cartridge-based
materials,
26
PolyJet
cartridge-based
materials,
five
SCP
inkjet-based
materials,
158
non-color
digital
materials,
and
over
1,500
color
variations
for
our
3D
printers,
which
webelieve
is
the
widest
range
of
materials
in
the
industry.CustomersWe
have
a
diverse
set
of
customers
worldwide,
with
no
single
customer
or
group
of
affiliated
customers
nor
any
individual
sales
agent
or
group
of
affiliated
sales
agents
accounting
for
more
than
10%
of
our
salesin
2016,
2015
or
2014.
Our
solutions
are
used
across
a
wide
array
of
applications
in
a
variety
of
different
industries.Our competitive strengthsWe
believe
that
the
following
are
our
key
competitive
strengths:●Differentiated product offerings with superior model quality. Our
portfolio
of
3D
printing
systems
is
differentiated
through
a
combination
of
superior
printing
qualities,
accuracy,
print
speed,
the
ability
to
printa
range
of
materials
with
varying
levels
of
strength,
chemical
and
heat
resistance,
color
and
mechanical
properties,
the
ability
to
print
multiple
materials
simultaneously
and
suitability
for
office
environments.
Ouroffering
spans
the
spectrum
from
entry-level
desktop
printers
to
high-end
solutions
for
complex
operations.
Our
FDM-based
systems
enable
highly
precise
printing
of
15
different
engineering
and
high-performancethermoplastic
materials,
enabling
a
wide
range
of
DDM
applications
with
little
or
no
post-production
processing.
Our
PolyJet
inkjet-based
systems
jet
ultra-thin
layers
of
material
and
enables
voxel
level
control
ofthe
deposited
materials,
part
realism
(multi
materials
and
colors),
high
accuracy
and
resolution
and
smooth
finish
to
printed
models.
For
use
with
these
systems
we
offer
a
wide
variety
of
office-friendly
resinconsumables,
including
rigid,
flexible
(rubber-like),
transparent
and
color
materials.
We
believe
that
we
offer
the
only
printing
system
that
utilizes
the
simultaneous
jetting
of
up
to
six
materials
to
enable
end-usersto
print
models
with
rigid,
flexible
and
color
materials,
in
virtually
unlimited
combinations,
in
a
single
build.
Our
SolidScape
SCP
ink-jetting
technology
offers
high-precision
milling
of
each
printed
layer,
enablingextremely
high
resolution
with
precise
details
and
fine
surface
finish.
We
also
offer
the
only
multi-color,
multi-material
3D
printing
system
in
the
market.

●Integrated solutions offering/ecosystem. We
provide
an
integrated
solutions
offering
that
includes
compatible
products
and
services
that
are
designed
to
meet
the
full
gamut
of
our
clients’
needs
in
an
efficientmanner,
consisting
of
a
broad
range
of
systems,
consumables
and
services,
including:

●3D
printers

●Materials25Table of Contents●Professional
services

●Parts
on
demand

●Vertical
applications

●Strategic
consulting

●Partnerships
and
alliances

●Enhanced
collaboration
among
industry
professionals,
via
our
GrabCAD
community,
which
provides
engineers
and
designers
a
resource
for
CAD
models
and
helps
them
communicate
ideas
and
sharedesigns.
●Proprietary technology platforms with multidisciplinary technological expertise. We
believe
that
our
proprietary
3D
FDM
and
3D
inkjet-based
PolyJet
printing
engines
offer
end
users
the
versatility
anddifferentiated
features
necessary
for
a
wide
variety
of
current
and
potential
applications.
We
combine
our
proprietary
hardware
platforms,
featuring
widely-deployed
inkjet
printer
heads
or
easy-to-use
extrusionheads
with
integrated
software
and
a
wide
range
of
proprietary
materials
to
develop
and
produce
leading
3D
printing
systems.
This
allows
us
to
offer
a
spectrum
of
3D
printers
and
printing
systems
of
varyingfeatures,
capacities
and
price
points,
and
to
migrate
the
advanced
features
of
our
high-end
products
to
our
entry-level
products
with
greater
efficiency.
Our
3D
printing
solutions
integrate
innovations
in
a
wide
rangeof
scientific
disciplines,
such
as
physics,
chemistry,
and
mechanical
and
electrical
engineering,
as
well
as
software
development.
We
have
made
significant
investments
in
developing
and
integrating
technologiesinto
our
hardware
platform,
software
and
proprietary
consumables.
We
believe
that
we
have
a
strong
base
of
technology
know-how.
Our
patent
portfolio
consists
of
more
than
1,200
granted
or
pending
patentsinternationally.
We
believe
that
we
have
a
culture
of
innovation,
and
we
expect
to
continue
to
enhance
our
solutions
both
to
further
drive
market
adoption
of
3D
printing
and
to
broaden
our
market
reach.

●Leading Direct Manufacturing Business. Our
Stratasys
Direct
Manufacturing
service
business
is
one
of
the
largest
and
leading
AM
parts
service
providers
globally.
This
unit’s
knowledge
of
and
experience
inAM,
including
materials
and
systems
knowhow,
and
AM
end-use
parts
production
is
expected
to
enhance
our
DDM
offering
suite.
This
unit
offers
a
wide
array
of
underlying
printing
technologies
and
materials.Furthermore,
Stratasys
Direct
Manufacturing
enables
us
to
offer
a
broader
solution
to
our
customers,
catering
to
more
of
their
3D
printing
needs,
whether
by
supply
of
3D
printers
or
of
3D
printed
parts.
We
believethis
offering
creates
better
customer
intimacy
and
a
competitive
advantage
for
Stratasys.

●Large and growing installed base. Our
differentiated
offerings
have
led
to
a
large
and
growing
installed
base.
The
significant
installed
base
has
resulted
in
greater
distribution
reach
and
enhanced
opportunities
forcross
selling,
given
the
significantly
broadened
and
complementary
product
offerings.
It
furthermore
presents
us
with
an
opportunity
to
generate
recurring
revenues
from
sales
of
consumables
to
the
installed
base.

●Leading position in desktop 3D printing. Our
MakerBot
Desktop
3D
printers
provide
accessible
desktop
3D
printers
and
materials
and
leading
content
creation
and
sharing
solutions.
We
believe
that
the
desktop3D
printing
category
is
poised
for
future
growth
driven
by
broader
adoption
of
3D
printing
and
an
increase
the
in
number
of
applications
where
3D
printing
is
used.
We
believe
our
installed
base,
brand
awarenessand
portfolio
of
solutions
in
this
category
positions
us
to
capitalize
on
the
continued
growth
of
this
category.

●Diverse, global customer base. We
have
a
broad
customer
base,
ranging
from
global
market
leading
brands
to
small
businesses
and
professionals
and
individuals.
Our
end-users
include
companies
across
a
widerange
of
industries
and
applications,
including
automotive,
aerospace,
architecture,
consumer
products,
educational
institutions,
defense,
medical
analysis,
medical
systems,
electronics,
and
heavy
equipment.

●Extensive global reach. With
approximately
200
channel
partners
around
the
world,
we
are
well
positioned
to
leverage
the
extensive
geographic
reach
of
our
marketing
and
sales
organization
to
serve
customersand
grow
awareness
of
3D
printing
for
RP
and
DDM.
In
addition,
through
our
MakerBot
subsidiary
we
deploy
an
online
sales
channel.

●Increased accessibility and ease of use for customers. Our
newly
launched
GrabCAD
Print
software
provides
easy
and
accessible
3D
printing
workflow.
Some
of
our
3D
printing
systems
may
be
accessedthrough
Solidworks,
PTC
and
Adobe
computerized
design
solutions,
which
enable
wider
adoption
of
our
3D
printing
solutions
by
designers
and
manufacturers
in
a
simplified
and
more
accessible
manner.
We
arecollaborating
with
the
above
and
other
leading
Computer
Aided
Design
and
Product
Lifecycle
Management
solution
providers
to
further
enable
greater
ease
of
use
across
the
design
to
production
work-flow.Our growth strategyThe
key
elements
of
our
strategy
for
growth
include
the
following:●Identifying new vertical applications for our proprietary 3D printing technologies. We
believe
that
the
proliferation
of
3D
content,
advancements
in
AM
technology
platforms
and
the
introduction
of
improvedmaterials
will
continue
to
drive
growth
in
3D
printing.
We
intend
to
invest
in
the
identification
of
new
applications
(especially
DDM
applications)
for
which
our
proprietary
printing
technologies
and
materials
areappropriate.
In
addition,
we
seek
relevant
niche
applications
where
AM
can
provide
substantial
value,
and
develop
a
comprehensive
solution
to
address
these
opportunities.
We
also
intend
to
encourage
existing
andpotential
customers
to
identify
new
applications
in
part
by
increasing
awareness
of
the
features
of
our
technology
and
product
offerings.26Table of Contents●Increasing adoption of AM manufacturing solutions. We
believe
that
the
adoption
of
3D
printing
for
manufacturing
applications
can
be
accelerated
through
working
intimately
with
our
customers
and
the
3Dprinting
ecosystem,
to
reduce
the
complexity
of
using
our
solutions.
We
are
investing
in
developing
professional
services
capabilities
to
enhance
our
customers’
ability
to
use
our
solutions.
In
addition,
wecollaborate
with
strategic
partners
in
our
ecosystem
to
streamline
the
integration
of
3D
printing
solutions
into
the
business
processes
of
our
customers.

●Leveraging our global reach to expand the customer base and further penetrate existing customers. We
have
a
network
of
more
than
200
resellers
and
selling
agents
around
the
world
and
various
onlinechannels.
We
intend
to
reach
new
customers
and
increase
sales
to
existing
customers
by
providing
access
to
new
solutions
that
address
customers’
specific
needs.
These
solutions
include
those
offered
by
ourStratasys
Direct
Manufacturing
service.
As
part
of
this
strategy
we
intend
to
grow
awareness
of
3D
printing
solutions
for
RP
and
DDM
and
to
develop
industry
specific
sales
channels
as
part
of
our
effort
tocommercialize
a
broader
range
of
new
DDM
applications.
Additionally,
we
expect
to
significantly
expand
our
online
presence
and
leverage
our
sales
channel
to
the
broader
public.

●Driving further adoption through desktop systems. We
expect
to
drive
market
adoption
through
increased
sales
of
our
desktop
systems.
These
systems
are
expected
to
penetrate
a
broad
and
largely
untappedaddressable
market,
targeting
small
design
teams
within
large
organizations,
small
and
medium-sized
businesses,
educational
institutes
and
individuals.
We
expect
to
leverage
our
growing
Thingiverse
communityto
accelerate
adoption.
We
expect
to
incorporate
certain
additional
features
of
our
high-end
series
of
printers
into
our
entry-level
series
over
time.

●Maintaining and extending our technology lead. Our
multidisciplinary
technological
leadership,
as
evidenced
by
our
more
than
1,200
granted
or
pending
patents
internationally,
underpins
our
proprietaryhardware,
integrated
software
and
range
of
3D
printing
materials.
We
will
seek
to
extend
our
technological
capabilities
by
continuing
to
invest
in
our
R&D
efforts,
which
focus
on
enhancing
our
3D
PolyJet
andFDM
printing
technologies
as
well
as
developing
new
innovative
solutions
for
3D
printing.
In
addition,
we
will
continue
developing
consumables
that
offer
an
even
broader
array
of
physical,
mechanical
andaesthetic
properties,
thereby
broadening
user
applications.
We
believe
that
by
enhancing
our
AM
technological
capabilities
and
by
developing
and
introducing
new
materials
for
our
3D
printing
and
productionsystems,
we
will
be
able
to
increase
both
the
size
of,
and
our
share
of,
the
3D
printing
marketplace.

●Continuing servicing our installed base. Today
our
company
has
the
largest
AM
solutions
installed
base
in
the
industry.
We
consider
the
relationship
with
our
customers
to
be
a
valuable
asset,
as
reflected
in
ourcustomer
satisfaction
surveys.
We
plan
to
continue
nurturing
these
relationships
to
enhance
the
intimacy
with
our
customers,
which
will
allow
us
to
address
their
needs
better
through
innovative
and
holisticprototyping
and
manufacturing
solutions
of
printers
and
materials,
AM
printed
parts
service
and
advanced
professional
services.

●Integrated solutions offering. Due
in
major
part
to
a
series
of
acquisitions,
we
have
in
place
an
offering
of
solutions
that
includes
a
complete
gamut
of
compatible
systems,
consumables
and
services
(parts
on-demand,
professional
and
expert
consulting
services
that
are
designed
to
meet
our
clients’
needs
in
an
integrated,
complete
manner.
We
intend
to
leverage
that
as
a
basis
for
generating
additional
sales
and
revenuesfrom
existing
customers
and
attracting
new
customers.

●Growing through complementary acquisitions. We
intend
to
selectively
pursue
acquisitions
to
expand
our
product
offerings,
go
to
market
and
overall
growth
and
market
penetration.
Accordingly,
we
mayconsider
acquisitions
and
investments
in
order
to
effect
and
accelerate
our
other
growth
strategies.

●Expert services – We
intend
to
help
companies
to
increase
their
adoption
of
3D
printing
by
helping
them
to
identify
new
applications
for
our
technology
and
by
developing
robust
business
cases
for
investment
bythem
in
our
technology.

●Enhanced collaboration. Our
GrabCAD
community,
which
fosters
collaboration
among
engineers
and
designers
and
helps
them
to
communicate
ideas
and
share
designs,
enhances
the
likelihood
that
we
can
drawfrom
these
new
collaborations
and
enhance
awareness,
and,
as
a
result,
sales,
of
our
integrated
solutions.Products and servicesOur productsWe
offer
a
dedicated
range
of
products
for
applications
such
as
rapid
prototyping
(RP),
tooling,
as
well
as
manufacturing
parts.
Our
products
include
3D
printing
systems,
consumable
materials,
software
andservices.27Table of ContentsCollectively,
this
portfolio
of
products
offers
a
broad
range
of
performance
options
for
users,
depending
on
their
desired
application,
as
well
as
on
the
nature
and
size
of
the
designs,
prototypes
or
final
parts
theyseek
to
produce.
Our
products
are
available
at
a
variety
of
different
price
points
and
include
entry-level
desktop
3D
printers,
a
range
of
systems
for
RP,
and
large
production
systems
for
additive
manufacturing.
We
alsooffer
a
range
of
3D
printing
materials
consisting
of
15
FDM
cartridge-based
materials,
26
PolyJet
cartridge-based
materials,
five
SCP,
inkjet-based
materials,
hundreds
of
thousands
of
digital
materials,
and
over
1,500color
variations.
The
performance
of
our
different
systems
varies
in
terms
of
capabilities,
which
are
related
to
the
following
features:●print
speed;

●resolution;

●materials;

●resin
cartridge
capacity
/
filament
spool
size;

●maximum
model
(or
tray)
size;
and

●duty
cycle,
or
the
number
of
parts
that
a
printer
can
produce
over
a
given
period
of
time
without
requiring
maintenance.Our
systems
also
integrate
our
software
and
are
supported
by
services
that
we
provide
to
our
customers,
both
directly
and
through
our
reseller
channel.Printing systemsOur
3D
printing
systems
,
which
are
based
on
our
proprietary
FDM
and
PolyJet
technologies,
are
described
below:We
offer
a
series
of
printing
systems
suitable
for
RP,
from
design
validation,
visualization
and
communication
to
form,
fit
and
functional
performance
testing.
These
systems
are
targeted
at
work
groups
and
offers
avariety
of
products
that
provide
customers
with
a
broad
range
of
choices
of
features
such
as
printing
capacity,
production
speed
and
price.
The
Objet
systems
offer
high
accuracy
and
print
quality
using
a
variety
ofPolyJet
materials.
The
new
F123
product
line
allows
users
to
create
parts
in
PLA,
ABS
plus,
ASA
and
PC-ABS
materials.
These
materials
enable
production
of
parts
with
the
strength
required
for
true
form,
fit
andfunctional
testing.
The
F123
is
designed
to
enable
ease
of
use
and
ease
of
maintenance
and
offers
easy-to-use
but
functionality-rich
user
experience
by
using
the
GrabCAD
Print
software.We
also
offer
printing
systems
typically
used
for
Additive
Manufacturing
–
production
tooling
and
end
parts
applications
-
and
high
performance
Prototyping
applications.Our
FDM
technology
based
systems
produce
durable,
production-grade
thermoplastic
heated
parts
suitable
for
RP
manufacturing,
tooling
and
end-used
parts
use
cases.Our
PolyJet
technology
based
high-end
printing
systems
offer
the
ability
to
print
multiple
materials
including
color
printing
in
a
single
part
build.We
also
offer
our
Solidscape
line
of
3D
printers,
materials
and
software
for
Additive
Manufacturing
applications.
This
line
of
products
combines
patent-protected,
SCP
high-precision
ink-jetting
technology
andhigh-precision
milling
of
each
layer,
with
our
proprietary
graphical
front-end
ModelWorks
software.
Objects
created
with
these
3D
printers
are
wax
patterns
and
feature
extremely
high
resolution
and
accuracy;
areused
primarily
for
casting
in
metal
jewelry,
dental
and
industrial
parts.Our
MakerBot
Replicator
series
represents
our
desktop
3D
printers,
compact,
and
professional-grade
3D
printers.
Our
desktop
and
compact
3D
printers
are
affordable,
and
designed
for
easy,
desktop
use
and
aretypically
used
by
individuals
operating
alone
or
within
an
enterprise.
Our
larger,
professional
3D
printer
has
a
large
build
volume
ideal
for
industrial
prototypes,
models
and
products.Consumable materialsWe
sell
a
broad
range
of
3D
printing
materials,
consisting
of
15
FDM
cartridge-based
materials,
26
PolyJet
cartridge-based
materials,
five
SCP
inkjet-based
materials
and
158
non-color
digital
materials,
and
over1,500
color
variations
for
use
in
our
3D
printers
and
production
systems.
The
sale
of
these
materials
provides
us
with
a
recurring
revenue
stream
from
users
of
our
3D
printers
and
production
systems.The
materials
we
sell
are
described
below:FDM-based materialsThe
modeling
and
support
filament
used
in
the
FDM-based
3D
printers
and
production
systems
features
a
wide
variety
of
production
grade
thermoplastic
materials.
We
continue
to
develop
filament
modelingmaterials
that
meet
our
customers’
needs
for
increased
speed,
strength,
accuracy,
surface
resolution,
chemical
and
heat
resistance,
color,
and
mechanical
properties.
These
materials
are
processed
into
our
proprietaryfilament
form,
which
is
then
utilized
by
our
FDM
systems.
Our
spool-based
system
has
proven
to
be
a
significant
advantage
for
our
products,
because
it
allows
the
user
to
quickly
change
material
by
simply
mountingthe
lightweight
spool
and
feeding
the
desired
filament
into
the
FDM
devices
that
are
office
friendly.
Currently,
we
have
a
variety
of
build
materials
in
multiple
colors
commercially
available
for
use
with
our
FDMtechnology.28Table of ContentsEach
material
has
specific
characteristics
that
make
it
appropriate
for
various
applications.
The
ability
to
use
different
materials
allows
the
user
to
match
the
material
to
the
end
use
application,
whether
it
is
a
patternfor
tooling,
a
concept
model,
a
functional
prototype,
a
manufacturing
tool,
or
a
DDM
end
use
part.PolyJet-based materialsOur
resin
consumables,
which
consist
of
our
PolyJet
family
of
proprietary
acrylic-based
photopolymer
materials,
are
designed
for
use
with
our
PolyJet
printing
systems
and
enable
users
of
those
products
to
createhighly
accurate,
finely
detailed
3D
models
and
parts
for
a
wide
range
of
prototype
development
and
customized
manufacturing
applications.
The
wide
variety
of
resins
within
the
PolyJet
family
is
characterized
bytransparent,
colored,
or
opaque
visual
properties
and
flexible,
rigid
or
other
physical
properties.
Support
materials
that
are
used
together
with
the
model
materials
enable
the
3D
printing
of
models
with
a
wide
array
ofcomplex
geometries.
Our
PolyJet
materials
are
produced
in-house
and
are
specially
designed
for
our
printing
systems.We
have
invested
significant
research
and
development
efforts
in
optimizing
our
PolyJet
materials
for
use
with
inkjet
technology.
These
efforts
are
reflected
in
the
properties
of
these
materials,
which
enable
themto
be
packaged,
stored,
combined
and
readily
cured
upon
printing.
Our
PolyJet
materials
are
packaged
in
cartridges
for
safe
handling
and
are
suitable
for
use
in
office
environments.
The
polymerized
materials
can
alsobe
machined,
drilled,
chrome-plated
or
painted
in
most
cases.SCP inkjet-based materialsOur
Solidscape
inkjet-based
materials
feature
excellent
lost
wax
casting
qualities,
including
fast
melt
out,
no
ash
or
residue,
and
no
thermal
expansion.
Currently,
we
have
four
modeling
materials
commerciallyavailable
for
use
with
our
Solidscape
technology.
These
include
materials
formulated
specifically
for
particular
industries,
such
as
a
thermalpolyester
formula
developed
to
help
retail
jewelers
and
manufacturers
meetthe
demand
for
finished
goods
using
less
precious
materials
and
a
thermalpolyester
material
formulated
to
deliver
high
casting
yields
for
dental
applications.SoftwareWe
offer
downloadable
professional
3D
printing
workflow
software
as
well
as
suites
of
software
with
our
various
3D
printing
systems;
each
is
designed
to
make
the
process
of
creating
high-quality,
highly
detailedand
accurate
models
more
efficient.
Our
software
supports
commonly
used
3D
file
formats
and
converts
three-dimensional
CAD
databases
into
the
appropriate
code
to
operate
our
3D
printing
systems.
Our
softwarealso
provides
a
wide
range
of
features,
including
automatic
support
generation,
part
scaling,
positioning
and
nesting,
as
well
as
geometric
editing
capabilities.Our
different
software
suites
are
specifically
designed
for
our
different
3D
printing
systems
and
their
different
applications.
Accordingly,
certain
software
focuses
on
increasing
build
speed
and
improving
thedesign
engineer’s
control
and
efficiency
over
the
entire
build
process.
Other
software
suites
offer
simple
“click
&
build”
preparation
and
print
tray
editing,
and
provide
easy,
accurate
job
timing
estimation
and
full
jobcontrol,
including
queue
management.
Similarly,
we
offer
software
that
allows
users
to
make
adjustments
to
3D
printing
properties.Jobs
enter
the
queue
either
according
to
our
software
the
parameters
configured
by
the
system
administrator,
or
in
chronological
order.
The
queue
is
therefore
easily
managed,
as
each
user
has
access
to
his
or
herjobs
and
the
administrator
can
set
and
adjust
parameters
and
access
permissions.
In
configurations
of
multiple
printing
systems
on
the
network,
each
user
automatically
receives
the
parameters
of
the
selected
system,such
as
tray
size,
loaded
materials,
and
queue
status,
helping
ensure
easy,
error-free
tray
setup.Online CommunityThingiverse.comThingiverse
is
our
online
community
for
sharing
downloadable,
digital
3D
designs.
The
Thingiverse
platform
enables
users
to
share
and
customize
their
digital
designs.
We
believe
that
Thingiverse
is
the
largestrepository
of
free
3D
printable
content
available
to
consumers.
Thingiverse
includes
more
than
1
million
public
designs
available
for
downloading.
We
have
had
more
than
1
million
uploads
and
more
than
200
milliondownloads
of
designs
via
this
platform.GrabCAD CommunityWe
operate
the
GrabCAD
Community
for
mechanical
engineers
and
designers,
where
members
can
upload
and
download
free
CAD
models,
download
our
GrabCAD
Print
software,
post
and
answer
mechanicalengineering
questions,
and
participate
in
design
challenges.
This
community
had
more
than
3.25
million
members
and
more
than
1.5
million
CAD
files
available
for
free
download
at
the
end
of
2016.
The
GrabCADcommunity
provides
engineers
and
designers
a
resource
for
CAD
models
helping
them
communicate
ideas
and
share
designs.29Table of ContentsOur servicesSupport services and warrantyCustomer supportOur
customer
support
department
provides
on-site
system
installation,
basic
and
advanced
operation
training,
a
full
range
of
maintenance
and
repair
services
and
remote
technical
support
to
users
of
our
products.We
provide
support
to
our
customers
directly
and
through
our
resellers,
ensuring
that
support
and
parts
may
be
readily
obtained
worldwide.
We
also
offer
training
to
our
customers,
particularly
on
our
high-performancesystems.
Our
support
network
consists
of
the
following:●Stratasys-certified
engineers
providing
worldwide,
on-site
installation,
training
and
support.

●Direct
support
engineers
through
our
company.

●Indirect
support
engineers
through
certified
partners,
including
third-party
service
organizations
or
selected
resellers
who
provide
support
for
our
systems.

●Phone
and
direct
on-site
company
support
in
eight
languages,
and
resellers
indirect
support
in
local
languages.

●Service
logistics
in
key
regional
centers.

●Training
facilities
and
resources
in
regional
centers.

●Computerized
management
system
and
knowledge
distribution
platform
to
ensure
high-quality
support
for
our
customers,
including
secure
remote
access
to
a
customer
service
database
containing
servicehistory
and
technical
documentation
to
aid
in
troubleshooting
and
repairing
systems.

●Support,
tools
and
up-to-date
information
to
our
direct
customer
and
distribution
channels
from
our
product
support
engineering
team.Our
goal
is
to
ensure
maximum
uptime
and
productivity
for
our
AM
systems.
In
order
to
do
so,
we
regularly
update
the
technical
documentation
related
to
our
systems,
offer
extensive
training
courses
for
operatorsand
promote
proactive
knowledge
sharing
designed
to
help
users
maximize
the
value
of
their
equipment
and
to
expand
the
applications
for
which
they
employ
our
3D
printing
and
production
systems.We
offer
services
on
a
time
and
materials
basis
as
well
as
through
a
number
of
post-warranty
maintenance
contracts
with
varying
levels
of
support
and
pricing,
as
described
below
under
“Extended
supportprograms.”Customer
support
is
represented
on
cross-functional
product
development
teams
within
our
company
to
ensure
that
products
are
designed
for
serviceability
and
to
provide
our
internal
design
and
engineeringdepartments
with
feedback
on
field
issues.
Failure
analysis,
corrective
action,
and
continuation
engineering
efforts
are
driven
by
data
collected
in
the
field.
Ongoing
customer
support
initiatives
include
development
ofadvanced
diagnostic
and
troubleshooting
techniques
and
comprehensive
preventative
maintenance
programs,
an
expanded
training
and
certification
program
for
Stratasys
and
Stratasys
partners’
technical
personnel,and
improved
communication
between
the
field
and
the
factory.Basic warrantyOur
printing
systems
are
sold
with
warranties
that
range
from
90
days
to
three
years
from
installation,
depending
upon
the
product
line
and
geographic
location.
Warranties
are
generally
accompanied
by
on-sitemaintenance
support.
Receipt
of
maintenance
and
repair
services
after
the
warranty
period
is
subject
to
the
terms
of
our
extended
support
programs,
to
the
extent
purchased
by
the
end-user,
as
described
below.Extended support programsRecognizing
that
our
end-users
have
varying
support
needs,
we
offer
a
range
of
support
programs
that
enable
our
end-users
to
continue
to
receive
maintenance
services
beyond
the
initial
warranty
period.
Thesesupport
programs
contain
varying
degrees
of
the
support
services
described
above
and
are
priced
accordingly.LeasingWe
offer
our
customers
the
option
to
lease
or
rent
3D
printers
and
3D
production
systems.
We
also
offer
a
‘Try
Before
You
Buy’
program,
which
provides
businesses
the
ability
to
try
out
a
3D
printer
prior
todeciding
whether
or
not
it’s
the
right
fit
for
their
company.
The
potential
purchasers
of
a
3D
printer
receive
customer
support
from
our
company
during
the
trial
period.Expert ServicesStratasys
Expert
Services
brings
together
our
strategic
consulting
and
applications
engineering
capabilities
to
provide
a
portfolio
of
fee-paying
services
to
our
global
customer
base.
The
Expert
Services
portfoliohas
been
designed
to
support
companies
across
all
vertical
markets
and
at
all
levels
of
3D
printing
maturity.
The
Expert
Services
portfolio
of
services
has
been
designed
to
help
companies
drive
both
top
line
salesgrowth
through
3D
printing
adoption
and
to
increase
bottom
line
profitability.For
novice
users,
Stratasys
Expert
Services
offers
a
highly
structured
opportunity-screening
process
to
identify
where
3D
printing
could
be
applied
within
an
enterprise.
The
expert
services
team
then
deliversinnovation
workshops,
facility
walkthroughs
and
data
analytical
services
to
find
the
most
valuable
and
profitable
areas
of
a
business
to
apply
3D
printing
technology.
Using
our
team
of
experienced
consultants
we
thenhelp
companies
to
identify
the
most
appropriate
technology
solutions,
investment
cases
and
supply
chain
models.
For
more
established
3D
printing
users,
Stratasys
Expert
Services
team
also
provides
specialist
designoptimization
services,
safety
and
environmental
management
services,
and
production
quality
management
services.30Table of ContentsStratasys Direct Manufacturing paid-parts serviceStratasys
Direct
Manufacturing
was
formed
on
January
1,
2015
from
our
three
AM
service
companies
–
RedEye
(formerly
a
business
unit
of
Stratasys,
Inc.)
and
the
acquired
businesses
known
as
HarvestTechnologies
and
Solid
Concepts
–
and
is
a
provider
of
3D
printing
and
custom
AM
services.
Stratasys
Direct
Manufacturing
offers
AM
capabilities
encompassing
a
wide
range
of
technologies
allowing
for
plastic
andmetal
parts
for
rapid
prototyping
and
production
processes.
Our
Stratasys
Direct
Manufacturing
paid-parts
service
produces
prototypes
and
end-use
parts
for
customers
from
a
customer-provided
CAD
file.
This
allowsthe
customer
to
benefit
from
our
process-related
knowhow,
capitalize
on
the
variety
of
materials
and
machine
types
available
through
our
service
center,
and
take
advantage
of
additional
capacity
using
the
latest
inproven
RP
and
DDM
technologies
and
processes.
Our
Stratasys
Direct
Manufacturing
business
operates
a
website
service,
www.stratasysdirect.com,
which
enables
our
customers
to
obtain
quotes
and
order
partsaround
the
clock,
seven
days
a
week.
Stratasys
Direct
Manufacturing
also
provides
companies
with
access
to
an
Expert
Services
team,
which
helps
companies
to
identify
and
evaluate
new
applications
for
3D
printing.Key Portfolio Additions & Innovations in 2016 and Early 2017To
further
strengthen
our
leadership
position
and
following
our
strategy
to
deepen
the
focus
on
additive
manufacturing,
tooling
and
rapid
prototyping
for
specific
vertical
market,
we
announced
a
variety
ofinnovations
in
2016
across
multiple
applications
for
various
key
vertical
markets,
such
as
automotive,
aerospace,
consumer
products
and
healthcare.Stratasys J 750 fist true color 3D printerIn
April
2016,
we
introduced
what
we
believe
to
be
an
industry-first
with
our
market-disruptive
3D
printer,
the
J750.
The
new
solution
breaks
restrictive
technology
barriers,
enabling
customers
for
the
first
time
tomix-and-match
full
color
gradients
alongside
a
wide
range
of
materials
to
achieve
one-stop
realism
without
post-processing.
This,
together
with
the
system's
superior
versatility,
makes
the
J750
a
choice
3D
printingsolution
for
product
designers,
engineers
and
manufacturers,
as
well
as
service
bureaus.As
the
premier
addition
to
the
Objet
Connex
multi-color,
multi-material
series
of
3D
Printers,
the
Stratasys
J
750
allows
customers
to
choose
from
more
than
360,000
different
color
shades
plus
multiple
materialproperties
-
ranging
from
rigid
to
flexible
and
opaque
to
transparent.
Prototypes
can
include
a
vast
array
of
colors,
materials
and
material
properties
in
the
same
part,
speeding
production
of
realistic
models,
prototypesand
parts
for
virtually
any
application
need
-
as
well
as
delivering
incomparable
3D
printing
versatility
to
produce
tooling,
molds,
jigs
and
fixtures
and
more.The Stratasys F123 Series – Smarter Prototyping for WorkgroupsIn
February
2017,
we
introduced
the
F123
Series,
a
new
comprehensive
rapid
prototyping
solution
that
answers
the
specific
needs
of
professional
designers
and
engineers
in
the
workgroup
and
office
setting.
Forthe
first
time,
the
F123
Series
enables
end-to-end
rapid
prototyping
for
every
stage
of
the
prototyping
process:
Rapid,
economically-effective
concept
verification
models
in
PLA
material
and
fast-draft
mode;
advanceddesign
validation
prototypes
using
a
0.005
in.
slice
resolution
and
soluble
support
for
unmatched
precision,
repeatability
and
aesthetics.
Functional
performance
testing
is
enabled
with
a
wide
range
of
functional
FDMmaterials
including
ABS,
ASA,
and
PC-ABS.Utilizing
over
30
patented
inventions
selected
from
the
entire
Stratasys
FDM
range
together
with
several
new
patents
pending,
the
F123
Series
offers
wide-ranging
engineering
and
interface
usability
enhancementsto
answer
the
needs
of
design
workgroups:
Engineering
grade
quality
prototyping
results
-
but
easy
enough
for
anyone
to
learn
and
operate.
Professional
levels
of
productivity
-
but
quiet
and
unobtrusive
enough
towork
in
the
office
environment.
The
system
incorporates
GrabCAD
Print
software
that
enables
printing
straight
from
native
CAD
files,
as
well
as
the
ability
to
manage
jobs
in
real-time
and
from
remote.
The
F123Series
comes
in
a
range
of
3
versatile
platform
sizes.GrabCad PrintIn
May
2016,
we
announced
a
software
strategy
designed
to
make
3D
printing
significantly
easier,
more
intuitive,
and
highly-accessible
to
more
applications
and
users.
The
approach
is
powered
by
the
popularGrabCAD
Software
as
a
Service
(SaaS)
platform
and
supported
by
a
nearly
3.5
million-professional
design,
engineering,
manufacturing
and
student
community
members.GrabCAD
Print
is
the
first
application
released
under
this
new
investment
underscoring
the
critical
nature
of
software
as
an
essential
ingredient
of
our
solutions
based
go--to-market
strategy.
A
cloud-basedenvironment
for
job
preparation,
scheduling,
and
monitoring,
GrabCAD
Print
also
includes
innovative
business
intelligence
capabilities
to
provide
users
with
actionable,
end-to-end
print
job
visibility
and
reports.31Table of ContentsLaunched
in
November
2016
after
a
five-month
beta
trial
period,
GrabCAD
Print
offers
compatibility
with
a
broad
range
of
Stratasys
3D
printers.
In
addition,
because
the
GrabCAD
platform
is
open
architected,industry-leading
CAD
solution
providers
such
as
PTC,
Dassault
Systèmes’
SOLIDWORKS,
and
Siemens
PLM
Software
are
collaborating
with
us
to
further
simplify
key
functions
in
CAD-to-3D
print
workflow
andimprove
quality
of
3D
printed
parts.Easier to Manufacture Complex Hollow Composite Parts with New Sacrificial Tooling SolutionSacrificial
tooling,
a
process
in
which
3D
printed
molds
are
wrapped
in
composite
material
and
then
removed
after
part
curing,
enables
manufacturers
to
rapidly
and
cost-effectively
create
complex,
hollowcomposite
parts.
We
are
improving
this
process
with
a
new
sacrificial
tooling
solution,
consisting
of
our
new
ST-130
material
and
new
fill
patterns.
Together,
the
new
material
and
fill
patterns
provide
fasterdissolution,
rapid
build
speed,
better
autoclave
performance
and
greatly
improved
tool
quality.Tough PC-ABS Material Now Available on More Stratasys 3D PrintersWith
its
high
durability
and
smooth
matte
finish,
PC-ABS
is
a
natural
choice
for
challenging
applications,
such
as
power-tool
prototyping
and
industrial
equipment
manufacturing.
Owners
of
the
F370,
Fortus380mc
and
450mc
3D
Printers
will
now
have
the
ability
to
leverage
PC-ABS,
reducing
time-to-market
and
high
tooling
costs
for
low-volume
and
custom
production
builds.
3D
printing
in
real
engineeringthermoplastics
results
in
stronger
parts,
more
confident
testing
and
prototypes
that
mimic
the
material
properties
of
the
final
product.Next Generation Production line enhancement for Fortus 900 mcThe
Stratasys
Fortus
900mc
next
Generation
offers
a
streamlined
workflow
and
easier
job-monitoring
with
an
internal
camera
and
GrabCAD
Print
Software.
Standard
certifications
are
included,
eliminating
theeffort
and
cost
to
qualify
the
3D
printer
for
the
user's
production
floor.New FDM Material Nylon 6Stratasys
Nylon
6
combines
the
strength
of
ULTEM
9085
™
with
the
toughness
of
Nylon
12.
It
affords
a
higher
strength
and
stiffness
as
well
as
a
better
3D
printed
appearance
than
Nylon
12.
Nylon
6
is
one
of
themost
widely
used
thermoplastics
applied
in
traditional
manufacturing.
For
FDM
3D
printing,
Stratasys
Nylon
6
is
specially
formulated
to
control
the
right
balance
between
mature
Nylon
6
properties
and
controlledshrinkage
effects
during
the
FDM
3D
printing
process.Stratasys Manufacturing Aids PackageOur
Manufacturing
Aids
Package
offers
assistance
to
manufacturers
seeking
to
create
custom
manufacturing
tools.
The
materials-and-services
package
includes
40
hours
of
design
work
from
Stratasys
ProfessionalServices
to
make
producing
a
first
tool
easy.To
create
strong,
lightweight
tools,
the
kit
includes
canisters
of
thermoplastic
build
material
and
support
material.
Build
material
includes
Nylon
6
-
our
newest
engineering-grade
material
-
as
well
as
PC
and
ASAplastic.
ASA
is
available
in
a
choice
of
ten
colors.
The
Manufacturing
Aids
Package
includes
our
new
SR-35
advanced
soluble
support
material
which
offers
faster
dissolve
time
and
extended
bath
life
compared
to
ourprevious
SR-30
soluble
support
material.Next generation manufacturing technologies: Infinite- Build 3 D Demonstrator and Robotic Composite 3D DemonstratorAt
IMTS
2016,
we
previewed
demonstrations
of
next
generation
manufacturing
technologies
as
part
of
our
vision
for
additive
manufacturing
specifically
dedicated
to
verticals
like
Automotive
and
Aerospace.
Thenew
technology
demonstrations
build
on
our
industrial
FDM
®
3D
printing
expertise
to
respond
to
the
needs
of
customers'
most
challenging
applications,
addressing
manufacturers'
needs
to
rapidly
produce
strong
partsranging
in
size
from
an
automobile
armrest
to
an
entire
aircraft
interior
panel.The
Stratasys
Infinite-Build
3D
Demonstrator
is
designed
to
address
the
requirements
of
aerospace,
automotive
and
other
industries
for
large
lightweight,
thermoplastic
parts
with
repeatable
mechanical
propertiesand
was
developed
together
with
Aircraft
manufacturer
Boing.The
Stratasys
Robotic
Composite
3D
Demonstrator
delivers
true
3D
printing
by
using
an
8-axis
motion
system
that
enables
precise,
directional
material
placement
for
strength
while
also
reducing
dramatically
theneed
for
speed-hindering
support
strategies.
This
redefines
how
future
lightweight
parts
will
be
built,
and
provides
a
glimpse
into
how
this
technology
could
be
used
to
accelerate
the
production
of
parts
made
from
awide
variety
of
materials.32Table of ContentsWe
developed
the
Robotic
Composite
3D
Demonstrator
integrating
our
core
additive
manufacturing
technologies
with
industrial
motion
control
hardware
and
design-to-3D
printing
software
capabilities
providedby
Siemens.Marketing, sales and distributionMarketingOur
marketing
strategies
are
focused
on
increasing
awareness
and
thought
leadership
for
our
product
and
solution
areas,
strengthening
our
leadership
brand
position
in
the
market,
and
in
key
vertical
industries
suchas
automotive,
aerospace,
healthcare,
education
and
consumer
goods,
accelerating
and
supporting
sales
growth,
and
increasing
customer
loyalty
and
customer
lifetime
value.
We
initiate
thought-leadership,
public
andindustry
analyst
relations
and
product
launch
programs
as
well
as
integrated
campaigns
targeted
to
extend
and
deepen
the
relationship
with
our
existing
customers
and
win
new
customers,
driving
demand
and
leadgeneration
throughout
our
strategic
markets
in
which
we
and
our
resellers
and
agents
operate.We
use
a
variety
of
inbound
and
outbound
marketing
methods
to
reach
potential
customers.
Examples
of
inbound
methods
include
digital
marketing
demand
and
lead
generation
programs
including
blogs,
socialmedia,
search
marketing
(Search
Engine
Optimization
and
Pay-Per-Click
advertising),
lead
nurturing
with
webinars,
white
papers
etc.
Outbound
channel
examples
include
digital
and
print
communication
programs,public
relations,
direct
mail
and
e-mail
campaigns,
tradeshows,
thought
leadership
events,
newsletters,
industry
associations
and
referrals.
In
addition,
we
have
built
and
maintain
on-site
product
and
technologydemonstration
capabilities
in
certain
regional
offices
across
the
world.We
measure
and
analyze
the
success
of
various
marketing
initiatives
and
strive
to
identify
current
and
future
customer
needs.
Based
on
our
analysis,
we
create
and
update
our
product
roadmaps
and
individualmarketing
plans
to
help
optimize
distribution
while
helping
ensure
a
smooth
process
of
release,
ramp-up
and
sales
of
our
products.Sales distribution methodsOur
sales
organization
sells,
distributes
and
provides
follow-up
support
services
with
respect
to
our
AM
systems
and
related
consumables,
through
a
worldwide
sales
and
marketing
infrastructure.
We
generally
usethree
methods
for
distribution
and
support:
(i)
sales
to
resellers
who
purchase
and
resell
our
products
and
through
whom
follow-up
support
and
maintenance
services
and
replacement
parts
are
provided
to
end-users;
(ii)sales
of
systems
that
are
arranged
by
a
network
of
independent
sales
agents
worldwide,
pursuant
to
which
we
sell
directly
to
end-users,
pay
commissions
to
such
agents,
and
directly
handle
the
sale
of
consumables
andprovision
of
follow-up
support
services;
and
(iii)
direct
sales
of
systems
or
services
to
end-users
without
the
involvement
of
any
intermediaries,
for
which
all
aspects
of
our
sales
and
follow-up
services
are
handledexclusively
by
our
company.
In
certain
instances,
the
same
individual
or
company
can
serve
as
a
reseller
with
respect
to
certain
of
our
products
while
acting
as
an
independent
sales
agent
for
other
products.
Ourresellers
and
independent
sales
agents
are
overseen
by
regional
managers
and
operate
on
a
non-exclusive
basis,
although
we
believe
that
most
do
not
sell
competing
AM
systems.Almost
all
of
the
reseller
and
independent
sales
agent
locations
that
distribute
our
products
have
our
AM
systems
available
for
tradeshows,
product
demonstrations,
and
other
promotional
activities.
Additionally,many
of
them
enjoy
a
long-term
presence
and
offer
third-party
3D
CAD
software
packages
in
their
respective
territories,
enabling
them
to
cross-sell
our
systems
to
customers
who
purchase
those
other
products.In
addition
to
our
direct
and
indirect
seller
network,
we
also
offer
our
MakerBot
Replicator
series
and
related
consumables
and
services
through
our
online
and
retail
channels.Geographical structure of sales organizationThe
primary
sales
organization
for
our
3D
printers
and
production
systems
including
related
consumables,
materials
and
services
is
divided
into
groups
based
on
the
following
geographical
regions:
Americas
;Europe
and
Middle
East;
and
Asia
Pacific.
This
structure
allows
us
to
align
our
sales
and
marketing
resources
with
our
diverse
customer
base.
Our
sales
organization
in
each
region
provides
sales
support
to
the
networkof
independent
reseller
and
sales
agent
locations
throughout
the
particular
region.
We
also
operate
sales
and
service
centers
in
various
locations
throughout
North
America
and
internationally,
including:
Baden-Baden,Germany;
Hong
Kong;
Mexico;
São
Paulo,
Brazil;
Shanghai,
China;
and
Tokyo,
Japan.Manufacturing and suppliersManufacturingThe
manufacturing
process
for
our
3D
printing
and
production
FDM
and
PolyJet
systems
consists
of
assembling
those
systems
using
both
off-the-shelf
and
customized
components
manufactured
specifically
for
us,and
producing
and
packaging
the
consumables
products
to
be
used
by
those
systems.
Our
core
competencies
include
FDM
and
PolyJet
printing
systems
assembly,
systems
integration,
software
installation
and
resin
andfilament
manufacturing,
all
of
which
are
done
internally
at
our
facilities.
We
currently
operate
on
a
build-to-forecast
basis
and
obtain
all
parts
used
in
the
FDM
and
PolyJet
systems
manufacturing
process
from
eitherdistributors
of
standard
electrical
or
mechanical
parts
or
custom
fabricators
of
our
proprietary
designs.
Our
manufacturers
and
suppliers
are
periodically
assessed
by
us
based
on
their
on-time
performance
and
quality.33Table of ContentsWe
purchase
major
component
parts
for
our
FDM
and
PolyJet
systems
from
various
suppliers,
subcontractors
and
other
sources,
and
assemble
them
in
our
U.S.
and
Israeli
facilities.
Our
production
floors
have
beenorganized
using
demand-flow
techniques,
or
DFT,
in
order
to
achieve
efficiency,
quality
and
balance
of
our
production
lines.
As
capacity
constraints
arise,
because
of
our
use
of
DFT,
we
can
avoid
the
requirements
ofreconfiguring
our
production
floor.Computer-based
Material
Requirements
Planning,
or
MRP,
is
used
for
reordering
to
better
ensure
on-time
delivery
of
parts
and
raw
materials.
Operators
and
assemblers
are
trained
on
assembly
and
test
proceduresincluding
Assembly
Requirement
Documents,
which
originate
in
engineering.
In
the
manufacturing
processes
for
our
FDM
and
PolyJet
systems,
we
employ
a
Quality
Management
System,
or
QMS,
that
meetsinternational
quality
standards
including
ISO
9001:2008
and
ISO
13485:2003,
which
relates
to
medical
devices.
We
also
outsource
the
manufacture
of
main
subassemblies
up
to
fully
assembled
systems
ready
forintegration.The
system
assembly
process
for
our
FDM
and
PolyJet
systems
includes
semi-automated
functional
tests
of
key
subassemblies.
Key
functional
characteristics
are
verified
through
these
tests,
and
the
results
arestored
in
a
statistical
database.Upon
completion
of
the
assembly
of
our
3D
printing
and
production
FDM
and
PolyJet
systems,
we
perform
a
complete
power
up
and
final
quality
tests
to
help
ensure
the
quality
of
those
products
before
shipmentto
customers.
The
final
quality
tests
must
be
run
error-free
before
the
FDM
and
PolyJet
systems
can
be
cleared
for
shipment.
We
maintain
a
history
log
of
all
FDM
and
PolyJet
products
that
shows
revision
levelconfiguration
and
a
complete
history
during
the
manufacturing
and
test
process.
All
identified
issues
on
the
FDM
and
PolyJet
systems
during
the
manufacturing
process
are
logged,
tracked
and
used
to
make
continuousproduction
process
improvements.
The
commonality
of
designs
among
our
different
FDM
and
PolyJet
product
families
eases
the
transition
to
manufacturing
new
designs.Our
filament
production
uses
Factory
Physics®
techniques
to
manage
critical
buffers
of
time,
capacity
and
inventory
to
ensure
product
availability.
We
also
use
the
“5S”
method
(Sort,
Set-in-order,
Shine,Standardize
and
Sustain)
as
part
of
our
lean
manufacturing
initiatives
to
improve
organization
and
efficiency.Inventory and suppliersWe
maintain
an
inventory
of
parts
to
facilitate
the
timely
assembly
of
products
required
by
our
production
plan.
While
most
components
are
available
from
multiple
suppliers,
certain
components
used
in
oursystems
and
consumables
are
only
available
from
single
or
limited
sources.
In
particular,
the
printer
heads
for
our
PolyJet
3D
printing
systems
are
supplied
by
a
sole
supplier,
Ricoh.
We
consider
our
single
and
limited-source
suppliers
(including
Ricoh)
to
be
reliable,
but
the
loss
of
one
of
these
suppliers
could
result
in
the
delay
of
the
manufacture
and
delivery
of
the
relevant
components
(and,
ultimately,
of
our
products).
This
type
ofdelay
could
require
us
to
find
and
re-qualify
the
component
supplied
by
one
or
more
new
vendors.
Although
we
consider
our
relationships
with
our
suppliers
to
be
good,
we
continue
to
develop
risk
management
plansfor
these
critical
suppliers.
In
order
to
hedge
against
the
risk
of
a
discontinuation
of
the
supply
of
our
inkjet
printer
heads
in
particular,
we
maintain
a
reasonable
supply
of
excess
inventory
of
printer
heads.Ricoh AgreementWe
purchase
the
printer
heads
for
our
inkjet
3D
printing
systems
from
Ricoh
pursuant
to
an
OEM
Purchase
and
License
Agreement
with
Ricoh,
or
the
Ricoh
Agreement.Under
the
Ricoh
Agreement,
we
place
orders
for
print
heads
and
associated
electronic
components,
or
the
Ricoh
Products.
Together
with
provision
of
these
items,
Ricoh
provides
us
with
a
non-transferable,
non-exclusive
right
to
assemble,
use
and
sell
the
Ricoh
Products
under
Ricoh’s
patent
rights
and
trade
secrets.Pricing
under
the
Ricoh
Agreement
depends
on
the
quantity
of
Ricoh
Products
that
we
purchase
during
any
given
month,
and
to
the
extent
that
we
commit
to
a
certain
annual
minimum
prior
to
an
upcoming
year,we
receive
a
set,
discounted
price
for
all
Ricoh
Products
ordered
during
that
upcoming
year.The
Ricoh
Agreement
runs
for
an
initial
term
of
five
years
(which,
as
most
recently
renewed,
began
in
September
2016)
and
automatically
renews
for
additional
one-year
periods
thereafter
unless
either
partyprovides
the
other
six
months’
advance
written
notice
of
termination
prior
to
the
end
of
the
then-current
term.
The
Ricoh
Agreement
may
be
cancelled
by
either
party
if
(i)
the
other
party
substantially
breaches
anymaterial
provision
of
the
agreement
and
has
not
cured
such
breach
within
30
days
of
receipt
of
written
notice
thereof,
or
(ii)
upon
the
occurrence
of
certain
bankruptcy
events,
and
may
furthermore
be
cancelled
byRicoh
if
we
fail
to
cure
a
breach
of
an
undisputed
payment
obligation
within
thirty
(30)
days
of
the
breach.At
any
time
during
the
term
of
the
Ricoh
Agreement,
Ricoh
may
discontinue
the
manufacture
and
supply
of
a
print
head
model,
so
long
as
it
provides
us
with
at
least
eighteen
(18)
months’
prior
written
notice
ofsuch
discontinuance
and
honors
all
of
our
purchase
orders
for
the
subject
print
head
model
within
the
notice
period.
During
the
period
of
five
years
from
the
earlier
of
either
the
termination
of
the
Ricoh
Agreement
orthe
date
of
discontinuance
of
the
manufacture
of
Ricoh
Products
(that
is,
following
the
18-month
notice
period
described
in
the
previous
sentence),
we
are
entitled
to
purchase
additional
Ricoh
Products
for
the
solepurpose
of
providing
replacements
for
the
installed
base
of
Ricoh
Products,
including
one
final
purchase
order
that
we
may
place
in
the
final
year
of
such
five-year
period
and
that
must
be
filled
by
Ricoh
within
twelvemonths
of
when
it
is
placed.34Table of ContentsThe
Ricoh
Agreement
may
not
be
assigned
by
either
party
without
the
other
party’s
prior
written
consent,
which
may
not
be
unreasonably
withheld.Research and developmentWe
maintain
an
ongoing
program
of
research
and
development,
or
R&D,
to
develop
new
systems
and
materials
and
to
enhance
our
existing
product
lines,
as
well
as
to
improve
and
expand
the
capabilities
of
oursystems
and
related
software
and
materials.
This
includes
significant
technology
platform
developments
for
our
FDM,
PolyJet
and
SCP
technologies,
our
AM
systems,
including
our
integrated
software,
and
our
familyof
proprietary
acrylic-based
photopolymer
materials
for
PolyJet
printing
and
family
of
proprietary
thermoplastic
materials
for
FDM
printing.
Our
research
aims
to
develop
incremental
and
disruptive
improvements,
aswell
as
more
affordable
products.
Our
engineering
development
efforts
also
focus
on
customer
requested
enhancements,
and
development
of
new
modeling
processes,
software
and
user
applications.
In
particular,
wehave
devoted
significant
time
and
resources
to
the
development
of
a
universally
compatible
and
user-friendly
software
system.Our
R&D
department
is
divided
into
groups
based
on
scientific
disciplines
and
product
lines.
We
continue
to
standardize
our
product
platforms,
leveraging
each
new
design
so
that
it
will
result
in
multiple
productofferings
that
are
developed
faster
and
at
reduced
expense.We
invest
a
significant
amount
of
our
resources
in
R&D,
because
we
believe
that
superior
technology
is
a
key
to
maintaining
a
leading
market
position.
Our
net
R&D
expenses
were
approximately
$97.8
million,$122.4
million
and
$82.3
million
in
the
years
ended
December
31,
2016,
2015
and
2014,
respectively.Our
consumable
materials
development
and
production
operations
for
our
FDM
and
PolyJet
systems
are
located
at
our
facilities
in
Eden
Prairie,
MN,
and
Kiryat
Gat,
Israel.
The
development
and
production
facilityfor
our
Solidscape
operations
are
located
in
Merrimack,
New
Hampshire,
whereas
the
facilities
for
our
MakerBot
operations
are
located
in
various
locations
in
NY.
We
regard
the
consumable
materials
formulation
andmanufacturing
process
as
a
trade
secret
and
hold
patent
claims
related
to
these
products.
We
purchase
and
formulate
raw
materials
for
our
consumables
production
from
various
polymer
resin
and
thermoplasticmaterials
suppliers
with
different
levels
of
processing
and
value-add
applied
to
the
raw
materials.Intellectual propertyWe
consider
our
proprietary
technology
to
be
important
to
the
development,
manufacture,
and
sale
of
our
products
and
seek
to
protect
such
technology
through
a
combination
of
patents,
trade
secrets,
andconfidentiality
agreements
and
other
contractual
arrangements
with
our
employees,
consultants,
customers
and
others.
All
patents
and
patent
applications
for
additive
manufacturing
processes
and
apparatusesassociated
with
our
technology
were
assigned
to
us
by
those
inventors.
The
principal
granted
patents
relate
to
our
FDM
systems,
our
PolyJet
technologies,
our
3D
printing
processes
and
our
consumables,
certain
ofwhich
have
already
expired
and
certain
of
which
have
expiration
dates
ranging
from
2017
to
2036.We
are
also
a
party
to
various
licenses
and
other
arrangements
that
allow
us
to
practice
and
improve
our
technology
under
a
broad
range
of
patents,
patent
applications
and
other
intellectual
property,
including
across-license
agreement
with
3D
Systems
Corporation
under
which
each
party
licensed
certain
patents
of
the
other
party,
an
assignment
of
rights
to
us
related
to
UV
polymer-based
U.S.
patents,
which
underlie
certaintechnologies
that
compete
with
ours,
and
a
patent
license
agreement
with
Cornell
University
providing
access
to
certain
tool
changer
patents.In
addition,
we
own
certain
registered
trademarks
and
make
use
of
a
number
of
additional
registered
and
unregistered
trademarks,
including
“Stratasys,”
“Objet,”
“PolyJet,”
“Connex,”
“J750”,
“Vero”,
“Tango,”“FDM”,
“Fortus,”
“Dimension,”
“Uprint,”
“Mojo,”
“Insight”,
“Stratasys
Direct
Manufacturing,”
“Solidscape,”
“Solid
Concepts,”
“GrabCAD,”
“GrabCAD
Print,”
“MakerBot,”
“Thingiverse,”
“Replicator,”
theStratasys
Signet
logo,
and
“The
3D
Printing
Solutions
Company
.
”We
believe
that,
while
our
patents
provide
us
with
a
competitive
advantage,
our
success
depends
on
our
marketing,
business
development,
applications
know-how
and
ongoing
research
and
development
efforts,
inaddition
to
our
rights
under
granted
and
pending
patents.
Accordingly,
we
believe
that
the
expiration
of
any
single
patent,
or
the
failure
of
any
of
single
patent
application
to
result
in
an
issued
patent,
would
not
bematerial
to
our
business
or
financial
position.
In
any
event,
there
can
be
no
assurance
that
our
patents
or
other
intellectual
property
rights
will
afford
us
a
meaningful
competitive
advantage.
Please
see
the
risk
factorrelated
to
the
expiration
of
our
patents
in
“Item
3.D
Risk
Factors—
Risks
related
to
our
intellectual
property.”CompetitionOur
principal
competitors
consist
of
other
developers
of
additive
manufacturing
systems
as
well
as
other
companies
that
use
fused
deposition
modeling
and
inkjet-based
technologies
to
compete
in
additivemanufacturing.
A
variety
of
additive
manufacturing
technologies
compete
with
our
proprietary
technologies,
including:●Stereolithography;

●Selective
Laser
Sintering;35Table of Contents●Powder
Binding;
and

●Digital
Light
Projection.The
companies
that
use
these
technologies
to
compete
with
us
include
3D
Systems
Corporation,
EOS
GmbH
and
EnvisionTEC
GmbH.
HP’s
recently
launch
Multi
Jet
Fusion
technology
could
become
acompetition
as
well.These
technologies,
which
compete
for
additive
manufacturing
users,
possess
various
competitive
advantages
and
disadvantages
relative
to
one
another
within
the
key
categories
upon
which
competition
centers,including
resolution,
accuracy,
surface
quality,
variety
and
properties
of
the
materials
they
use
and
produce,
capacity,
speed,
color,
transparency,
the
ability
to
print
multiple
materials
and
others.
Due
to
these
multiplecategories,
end-users
usually
make
purchasing
decisions
as
to
which
technology
to
choose
based
on
the
characteristics
that
they
value
most.
This
decision
is
often
application
specific.
The
competitive
environment
thathas
developed
is
therefore
intense
and
dynamic,
as
players
often
position
their
technologies
to
capture
demand
in
various
verticals
simultaneously.For
our
entry-level
and
lower-end
systems
and
materials,
we
face
competition
from
a
variety
of
sources,
including
FDM,
SLA
and
DLP
companies
such
as
XYZ
Printing,
Ultimaker
and
Formlabs.
The
competingofferings
in
the
lower-end
categories
vary
based
on
cost,
printer
and
part
quality,
support
materials,
speed,
ease
of
use,
software
ecosystem
and
reliability.We
are
positioned
to
compete
in
our
industry
mainly
on
the
following
bases,
which
we
view
as
competitive
strengths:●material
properties
of
printed
objects,
such
as
heat
resistance,
toughness,
brittleness,
elongation-to-break,
color
and
flexibility;

●quality
of
printed
objects
measured
by,
among
other
things,
resolution,
accuracy
and
surface
quality;

●multiple
production-grade
modeling
materials;

●reliability
of
printing
systems;

●speed
of
printing,
including
a
one-step
automated
modeling
process;

●customer
service;

●ability
to
be
used
in
an
office
environment;

●ease
of
use;
and

●automatic,
hands-free
support
removal.We
offer
a
wide
range
of
systems
with
varying
features,
capacities
and
price
points.
We
believe
that
this
enables
us
to
compete
with
the
other
additive
manufacturing
technologies
for
a
wide
range
of
customers
witha
variety
of
applications
and
goals
for
their
additive
manufacturing.We
also
compete
with
companies
that
use
traditional
prototype
development
and
customized
manufacturing
technologies,
and
expect
future
competition
to
arise
from
the
development
of
new
technologies
ortechniques.SeasonalityHistorically,
our
results
of
operations
have
been
subject
to
seasonal
factors.
Stronger
demand
for
our
products
has
historically
occurred
in
our
fourth
quarter
primarily
due
to
our
customers’
capital
expenditurebudget
cycles
and
our
sales
compensation
incentive
programs.
Our
first
and
third
quarters
have
historically
been
our
weakest
quarters
for
overall
unit
demand.
Although
the
first
quarter
has
had
higher
volumes
inrecent
years
from
the
successful
introduction
of
new
products,
it
is
typically
a
slow
quarter
for
capital
expenditures
in
general.
The
third
quarter
is
typically
when
we
see
our
largest
volume
of
educational
related
sales,which
normally
qualify
for
special
discounts
as
part
of
our
long-term
penetration
strategy.We
furthermore
experience
seasonality
within
individual
fiscal
quarters,
as
a
substantial
percentage
of
our
system
sales
often
occur
within
the
last
month
of
each
fiscal
quarter.
This
trend
has
the
potential
to
exposeour
quarterly
or
annual
operating
results
to
the
risk
of
unexpected,
decreased
revenues
in
the
case
of
our
inability
to
build
systems,
consummate
sales
and
recognize
the
accompanying
revenues
prior
to
the
end
of
agiven
quarter.Global operationsWe
have
offices
in
Brazil,
China,
Germany,
Hong
Kong,
Israel,
Japan,
Korea,
India,
Singapore
Mexico,
Switzerland,
the
United
Kingdom
and
the
United
States,
and
organize
our
operations
by
geographic
region,focusing
upon
the
following
key
regions:
the
Americas;
Europe
and
Asia
Pacific.
Our
products
are
distributed
in
each
of
these
regions,
as
well
as
in
other
parts
of
the
world.
Our
customers
are
dispersed
geographically,and
we
are
not
reliant
on
any
single
country
or
region
for
most
of
our
product
sales
and
services
revenues,
although
59.5%
of
our
2016
sales
were
made
in
North
America
and
our
SDM
printed
parts
services
are
basedin
the
United
States
and
therefore
reliant
on
United
States
customers.
A
breakdown
of
our
consolidated
revenues
by
geographic
markets
and
by
categories
of
operations
(that
is,
products
and
services)
for
the
yearsended
December
31,
2016,
2015
and
2014
is
provided
in
“Item
5.A
Operating
and
Financial
Review
and
Prospects—Operating
Results.”
In
maintaining
global
operations,
our
business
is
exposed
to
risks
inherent
insuch
operations,
including
currency
fluctuations,
market
conditions,
and
inflation
in
the
primary
locations
in
which
our
operating
expenditures
are
incurred.
Information
on
currency
exchange
risk,
market
risk,
andinflationary
risk
appears
elsewhere
in
this
annual
report
in
“Item
3.D
Risk
Factors”
and
in
“Item
11.
Quantitative
and
Qualitative
Disclosure
About
Market
Risk—
Foreign
Currency
Exchange
Risk.”EmployeesThe
total
number
of
our
full-time
equivalent
employees,
and
the
distribution
of
our
employees
(i)
geographically
and
(ii)
within
the
divisions
of
our
company,
in
each
case
as
of
December
31,
2016,
2015
and
2014,are
set
forth
in
this
annual
report
in
“Item
6.D
Directors,
Senior
Management
and
Employees—Employees”.36Table of ContentsGovernment regulationWe
are
subject
to
various
local,
state
and
federal
laws,
regulations
and
agencies
that
affect
businesses
generally.
These
include:●regulations
promulgated
by
federal
and
state
environmental
and
health
agencies;

●foreign
environmental
regulations,
as
described
under
“Environmental
matters”
immediately
below;

●the
federal
Occupational
Safety
and
Health
Administration;

●the
U.S.
Foreign
Corrupt
Practices
Act;

●laws
pertaining
to
the
hiring,
treatment,
safety
and
discharge
of
employees;

●export
control
regulations
for
U.S.
made
products;
and

●CE
regulations
for
the
European
market.Environmental mattersWe
are
subject
to
various
environmental,
health
and
safety
laws,
regulations
and
permitting
requirements,
including
(but
not
limited
to)
those
governing
the
emission
and
discharge
of
hazardous
materials
intoground,
air
or
water;
noise
emissions;
the
generation,
storage,
use,
management
and
disposal
of
hazardous
and
other
waste;
the
import,
export
and
registration
of
chemicals;
the
cleanup
of
contaminated
sites;
and
thehealth
and
safety
of
our
employees.
Based
on
information
currently
available
to
us,
we
do
not
expect
environmental
costs
and
contingencies
to
have
a
material
adverse
effect
on
our
operations.
The
operation
of
ourfacilities,
however,
entails
risks
in
these
areas.
Significant
expenditures
could
be
required
in
the
future
to
comply
with
environmental
or
health
and
safety
laws,
regulations
or
requirements.Under
such
laws
and
regulations,
we
are
required
to
obtain
environmental
permits
from
governmental
authorities
for
certain
operations.
In
particular,
in
Israel,
where
we
assemble
our
inkjet-based
PolyJet
3Dprinting
systems
and
manufacture
our
resin
consumables,
businesses
storing
or
using
certain
hazardous
materials,
including
materials
necessary
for
our
Israeli
manufacturing
process,
are
required,
pursuant
to
the
IsraeliDangerous
Substances
Law
5753-1993,
to
obtain
a
toxin
permit
from
the
Ministry
of
Environmental
Protection.
Our
two
Israeli
toxin
permits
will
remain
in
effect
until
November
2019
and
February
2019,
respectively.In
the
European
marketplace,
amongst
others,
electrical
and
electronic
equipment
is
required
to
comply
with
the
Directive
on
Waste
Electrical
and
Electronic
Equipment
of
the
European
Union
(EU),
which
aims
toprevent
waste
by
encouraging
reuse
and
recycling,
and
the
EU
Directive
on
Restriction
of
Use
of
Certain
Hazardous
Substances,
which
restricts
the
use
of
various
hazardous
substances
in
electrical
and
electronicproducts.
Our
products
and
certain
components
of
such
products
“put
on
the
market”
in
the
EU
(whether
or
not
manufactured
in
the
EU)
are
subject
to
these
directives.
Additionally,
we
are
required
to
comply
withcertain
laws,
regulations
and
directives,
including
TSCA
in
the
United
States,
as
well
as
REACH
and
CLP
in
the
EU,
governing
chemicals.
These
and
similar
laws
and
regulations
require,
amongst
others,
theregistration,
evaluation,
authorization
and
labeling
of
certain
chemicals
that
we
use
and
ship.Israeli Tax Considerations and Government ProgramsTax
regulations
also
have
a
material
impact
on
our
business,
particularly
in
Israel
where
we
are
organized
and
have
one
of
our
headquarters.
The
following
is
a
summary
of
certain
aspects
of
the
current
tax
structureapplicable
to
companies
in
Israel,
with
special
reference
to
its
effect
on
us
(and
our
operations,
in
particular).
The
following
also
contains
a
discussion
of
the
Israeli
government
programs
benefiting
us.
To
the
extentthat
the
discussion
is
based
on
new
tax
legislation
that
has
not
been
subject
to
judicial
or
administrative
interpretation,
we
cannot
assure
you
that
the
tax
authorities
or
the
courts
will
accept
the
views
expressed
in
thisdiscussion.
This
discussion
does
not
address
all
of
the
Israeli
tax
provisions
that
may
be
relevant
to
our
Company.
For
a
discussion
of
the
Israeli
tax
consequences
related
to
ownership
of
our
capital
stock,
please
see“Israeli
Taxation
Considerations”
in
Item
10.E
below.General Corporate Tax Structure in IsraelGenerally,
Israeli
companies
are
subject
to
corporate
tax
on
their
taxable
income.
In
2016,
the
corporate
tax
rate
was
25%
(in
2017
the
corporate
tax
rate
is
24%
and
as
of
2018
the
corporate
tax
rate
will
be
23%).However,
the
effective
tax
rate
payable
by
a
company
that
derives
income
from
an
“Approved
Enterprise”,
a
“Beneficiary
Enterprise”
or
a
“Preferred
Enterprise”,
as
further
discussed
below,
may
be
considerablylower.
See
“Law
for
the
Encouragement
of
Capital
Investments”
in
this
Item
below.
Capital
gains
derived
by
an
Israeli
company
are
generally
subject
to
the
prevailing
regular
corporate
tax
rate.37Table of ContentsBesides
being
subject
to
the
general
corporate
tax
rules
in
Israel,
we
have
also,
from
time
to
time,
applied
for
and
received
certain
grants
and
tax
benefits
from,
and
participate
in,
programs
sponsored
by
theGovernment
of
Israel,
described
below.Law for the Encouragement of Capital InvestmentsThe
Law
for
the
Encouragement
of
Capital
Investments,
5719-1959,
to
which
we
refer
as
the
Investment
Law,
provides
certain
incentives
for
capital
investments
in
a
production
facility
(or
other
eligible
assets).Generally,
an
investment
program
that
is
implemented
in
accordance
with
the
provisions
of
the
Investment
Law,
which
may
be
either
an
“Approved
Enterprise”,
a
“Beneficiary
Enterprise”
or
a
“Preferred
Enterprise”,is
entitled
to
benefits
as
discussed
below.
These
benefits
may
include
cash
grants
from
the
Israeli
government
and
tax
benefits,
based
upon,
among
other
things,
the
location
of
the
facility
in
which
the
investment
andmanufacture
activity
are
made.
In
order
to
qualify
for
these
incentives,
an
Approved
Enterprise,
a
Beneficiary
Enterprise
or
a
Preferred
Enterprise
is
required
to
comply
with
the
requirements
of
the
Investment
Law.The
Investment
Law
has
been
amended
several
times
over
the
recent
years,
with
the
three
most
significant
changes
effective
as
of
April
1,
2005,
to
which
we
refer
as
the
2005
Amendment,
as
of
January
1,
2011,
towhich
we
refer
as
the
2011
Amendment,
and
as
of
January
1,
2017,
to
which
we
refer
as
the
2017
Amendment.
Pursuant
to
the
2005
Amendment,
tax
benefits
granted
in
accordance
with
the
provisions
of
theInvestment
Law
prior
to
its
revision
by
the
2005
Amendment,
remain
in
force,
but
any
benefits
granted
subsequently
are
subject
to
the
provisions
of
the
amended
Investment
Law.
Similarly,
the
2011
Amendmentintroduced
new
benefits
instead
of
the
benefits
granted
in
accordance
with
the
provisions
of
the
Investment
Law
prior
to
the
2011
Amendment,
yet
companies
entitled
to
benefits
under
the
Investment
Law
as
in
effectup
to
January
1,
2011,
were
entitled
to
choose
to
continue
to
enjoy
such
benefits,
provided
that
certain
conditions
are
met,
or
elect
instead,
irrevocably,
to
forego
such
benefits
and
elect
for
the
benefits
of
the
2011Amendment.
The
2017
Amendment
introduces
new
benefits
for
Technological
Enterprises,
alongside
the
existing
tax
benefits.The
following
discussion
is
a
summary
of
the
Investment
Law
prior
to
its
amendments
as
well
as
the
relevant
changes
contained
in
the
new
legislations.Tax benefits for Approved Enterprises approved before April 1, 2005 .Under
the
Investment
Law
prior
to
the
2005
Amendment,
a
company
that
wished
to
receive
benefits
on
its
investment
program
that
is
implemented
in
accordance
with
the
provisions
of
the
Investment
Law,
towhich
we
refer
as
an
“Approved
Enterprise”,
had
to
receive
an
approval
from
the
Israeli
Authority
for
Investments
and
Development
of
the
Industry
and
Economy,
to
which
we
refer
as
the
Investment
Center.
Eachcertificate
of
approval
for
an
Approved
Enterprise
relates
to
a
specific
investment
program
in
the
Approved
Enterprise,
delineated
both
by
the
financial
scope
of
the
investment,
including
sources
of
funds,
and
by
thephysical
characteristics
of
the
facility
or
other
assets.An
Approved
Enterprise
may
elect
to
forego
any
entitlement
to
the
cash
grants
otherwise
available
under
the
Investment
Law
and,
instead,
participate
in
an
alternative
benefits
program.
We
have
chosen
to
receivethe
benefits
through
the
alternative
benefits
program.
Under
the
alternative
benefits
program,
a
company’s
undistributed
income
derived
from
an
Approved
Enterprise
will
be
exempt
from
corporate
tax
for
a
period
ofbetween
two
and
ten
years
from
the
first
year
of
taxable
income,
depending
on
the
geographic
location
within
Israel
of
the
Approved
Enterprise,
and
a
reduced
corporate
tax
rate
of
between
10%
to
25%
for
theremainder
of
the
benefits
period,
depending
on
the
level
of
foreign
investment
in
the
company
in
each
year,
as
detailed
below.
The
benefits
commence
on
the
date
in
which
that
taxable
income
is
first
earned.
Thebenefits
period
under
Approved
Enterprise
status
is
limited
to
12
years
from
the
year
in
which
the
production
commenced
(as
determined
by
the
Investment
Center),
or
14
years
from
the
year
of
receipt
of
the
approvalas
an
Approved
Enterprise,
whichever
ends
earlier.
If
a
company
has
more
than
one
Approved
Enterprise
program
or
if
only
a
portion
of
its
capital
investments
are
approved,
its
effective
tax
rate
is
the
result
of
aweighted
combination
of
the
applicable
rates.
The
tax
benefits
available
under
any
certificate
of
approval
relate
only
to
taxable
income
attributable
to
the
specific
program
and
are
contingent
upon
meeting
the
criteriaset
out
in
the
certificate
of
approval.
Income
derived
from
activity
that
is
not
integral
to
the
activity
of
the
Approved
Enterprise
will
not
enjoy
tax
benefits.
Our
entitlement
to
the
above
benefits
is
subject
to
fulfillmentof
certain
conditions,
according
to
the
law
and
related
regulations.A
company
that
has
an
Approved
Enterprise
program
is
eligible
for
further
tax
benefits
if
it
qualifies
as
a
Foreign
Investors’
Company,
to
which
we
refer
as
an
FIC.
An
FIC
eligible
for
benefits
is
essentially
acompany
with
a
level
of
foreign
investment,
as
defined
in
the
Investment
Law,
of
more
than
25%.
The
level
of
foreign
investment
is
measured
as
the
percentage
of
rights
in
the
company
(in
terms
of
shares,
rights
toprofits,
voting
and
appointment
of
directors),
and
of
combined
share
and
loan
capital,
that
are
owned,
directly
or
indirectly,
by
persons
who
are
not
residents
of
Israel.
The
determination
as
to
whether
or
not
a
companyqualifies
as
a
FIC
is
made
on
an
annual
basis
according
to
the
lowest
level
of
foreign
investment
during
the
year
.
An
FIC
that
has
an
Approved
Enterprise
program
will
be
eligible
for
an
extension
of
the
period
duringwhich
it
is
entitled
to
tax
benefits
under
its
Approved
Enterprise
status
(so
that
the
benefits
period
may
be
up
to
ten
years)
and
for
further
tax
benefits
if
the
level
of
foreign
investment
exceeds
49%.
If
a
company
thathas
an
Approved
Enterprise
program
is
a
wholly
owned
subsidiary
of
another
company,
then
the
percentage
of
foreign
investments
is
determined
based
on
the
percentage
of
foreign
investment
in
the
parent
company.The
corporate
tax
rates
and
related
levels
of
foreign
investments
with
respect
to
an
FIC
that
has
an
Approved
Enterprise
program
are
set
forth
in
the
following
table:CorporatePercentage of non-Israeli ownership




Tax RateOver
25%
but
less
than
49%
25%49%
or
more
but
less
than
74%20%74%
or
more
but
less
than
90%15%90%
or
more10%38Table of ContentsA
company
that
has
elected
to
participate
in
the
alternative
benefits
program
and
that
subsequently
pays
a
dividend
out
of
the
income
derived
from
the
portion
of
its
facilities
that
have
been
granted
ApprovedEnterprise
status
during
the
tax
exemption
period
will
be
subject
to
tax
in
respect
of
the
amount
of
dividend
distributed
(grossed
up
to
reflect
such
pre-tax
income
that
it
would
have
had
to
earn
in
order
to
distribute
thedividend)
at
the
corporate
tax
rate
that
would
have
been
otherwise
applicable
if
such
income
had
not
been
tax-exempted
under
the
alternative
benefits
program.
This
rate
generally
ranges
from
10%
to
25%,
dependingon
the
level
of
foreign
investment
in
the
company
in
each
year,
as
explained
above.In
addition,
dividends
paid
out
of
income
attributed
to
an
Approved
Enterprise
(or
out
of
dividends
received
from
a
company
whose
income
is
attributed
to
an
Approved
Enterprise)
are
generally
subject
towithholding
tax
at
the
rate
of
15%,
or
at
a
lower
rate
provided
under
an
applicable
tax
treaty
(subject
to
the
receipt
in
advance
of
a
valid
certificate
from
the
Israel
Tax
Authority
allowing
for
a
reduced
tax
rate).
The15%
tax
rate
is
limited
to
dividends
and
distributions
out
of
income
derived
during
the
benefits
period
and
actually
paid
at
any
time
up
to
12
years
thereafter.
After
this
period,
the
withholding
tax
is
applied
at
a
rate
ofup
to
30%,
or
at
the
lower
rate
under
an
applicable
tax
treaty
(subject
to
the
receipt
in
advance
of
a
valid
certificate
from
the
Israel
Tax
Authority
allowing
for
a
reduced
tax
rate).
In
the
case
of
an
FIC,
the
12-yearlimitation
on
reduced
withholding
tax
on
dividends
does
not
apply.The
Investment
Law
also
provides
that
an
Approved
Enterprise
is
entitled
to
accelerated
depreciation
on
its
property
and
equipment
that
are
included
in
an
approved
investment
program
in
the
first
five
years
ofusing
the
equipment.
This
benefit
is
an
incentive
granted
by
the
Israeli
government
regardless
of
whether
the
alternative
benefits
program
is
elected.The
benefits
available
to
an
Approved
Enterprise
are
subject
to
the
continued
fulfillment
of
conditions
stipulated
in
the
Investment
Law
and
its
regulations
and
the
criteria
in
the
specific
certificate
of
approval,
asdescribed
above.
If
a
company
does
not
meet
these
conditions,
it
would
be
required
to
refund
the
amount
of
tax
benefits,
adjusted
to
the
Israeli
consumer
price
index
and
interest,
or
other
monetary
penalty.We
have
received
the
requisite
approval,
including
a
final
approval,
for
our
Approved
Enterprise
investment
programs,
in
accordance
with
the
Investment
Law.
The
above-described
benefits
that
accompany
theseinvestment
programs
and
our
Beneficiary
Enterprise
investment
programs
(for
which
accompanying
benefits
are
described
below)
have
had
the
effect,
both
historically
and
in
2014,
2015
and
2016,
of
reducing
our
(andbefore
the
Stratasys-Objet
merger,
Objet’s)
effective
consolidated
tax
rates
considerably
lower
than
the
statutory
Israeli
corporate
tax
rate
of
25%
in
2016,
and
26.5%
in
2015
and
2014.Tax benefits under the 2005 Amendment that became effective on April 1, 2005.The
2005
Amendment
applies
to
new
investment
programs
and
investment
programs
commencing
after
2004,
and
does
not
apply
to
investment
programs
approved
prior
to
April
1,
2005.
The
2005
Amendmentprovides
that
terms
and
benefits
included
in
any
certificate
of
approval
that
was
granted
before
the
2005
Amendment
became
effective
(April
1,
2005)
will
remain
subject
to
the
provisions
of
the
Investment
Law
as
ineffect
on
the
date
of
such
approval.
Pursuant
to
the
2005
Amendment,
the
Investment
Center
will
continue
to
grant
Approved
Enterprise
status
to
qualifying
investments.
However,
the
2005
Amendment
limits
thescope
of
enterprises
that
may
be
approved
by
the
Investment
Center
by
setting
criteria
for
the
approval
of
a
facility
as
an
Approved
Enterprise.An
enterprise
that
qualifies
under
the
new
provisions
is
referred
to
as
a
“Beneficiary
Enterprise”,
rather
than
“Approved
Enterprise”.
The
2005
Amendment
provides
that
the
approval
of
the
Investment
Center
isrequired
only
for
Approved
Enterprises
that
receive
cash
grants.
As
a
result,
a
company
is
no
longer
required
to
obtain
the
advance
approval
of
the
Investment
Center
in
order
to
receive
the
tax
benefits
previouslyavailable
under
the
alternative
benefits
program.
Rather,
a
company
may
claim
the
tax
benefits
offered
by
the
Investment
Law
directly
in
its
tax
returns,
provided
that
its
facilities
meet
the
criteria
for
tax
benefits
setforth
in
the
2005
Amendment.
A
company
that
has
a
Beneficiary
Enterprise
may,
at
its
discretion,
approach
the
Israel
Tax
Authority
for
a
pre-ruling
confirming
that
it
is
in
compliance
with
the
provisions
of
theInvestment
Law.Tax
benefits
are
available
under
the
2005
Amendment
to
production
facilities
(or
other
eligible
facilities)
which
are
generally
required
to
derive
25%
or
more
of
their
business
income
from
export
to
specificmarkets
with
a
population
of
at
least
14
million
in
2012
(such
export
criteria
will
further
be
increased
in
the
future
by
1.4%
per
annum).
In
order
to
receive
the
tax
benefits,
the
2005
Amendment
states
that
a
companymust
make
an
investment
which
meets
certain
conditions
set
forth
in
the
amendment
for
tax
benefits
and
which
exceeds
a
minimum
amount
specified
in
the
Investment
Law.
Such
investment
entitles
a
company
toreceive
a
Beneficiary
Enterprise
status
with
respect
to
the
investment,
and
may
be
made
over
a
period
of
no
more
than
three
years
ending
in
the
year
in
which
the
company
chose
to
have
the
tax
benefits
apply
to
theBeneficiary
Enterprise.
The
benefits
period
under
the
Beneficiary
Enterprise
status
is
limited
to
12
years
from
the
year
the
company
chose
to
have
its
tax
benefits
apply.
Where
a
company
requests
to
have
the
taxbenefits
apply
to
an
expansion
of
existing
facilities,
only
the
expansion
will
be
considered
to
be
a
Beneficiary
Enterprise
and
the
company’s
effective
tax
rate
will
be
the
weighted
average
of
the
applicable
rates.
In
suchcase,
the
minimum
investment
required
in
order
to
qualify
as
a
Beneficiary
Enterprise
must
exceed
a
certain
percentage
of
the
value
of
the
company’s
production
assets
before
the
expansion.39Table of ContentsThe
extent
of
the
tax
benefits
available
under
the
2005
Amendment
to
qualifying
income
of
a
Beneficiary
Enterprise
depends
on,
among
other
things,
the
geographic
location
within
Israel
of
the
BeneficiaryEnterprise.
Such
tax
benefits
include
an
exemption
from
corporate
tax
on
undistributed
income
for
a
period
of
between
two
to
ten
years,
depending
on
the
geographic
location
of
the
Beneficiary
Enterprise
within
Israel,and
a
reduced
corporate
tax
rate
of
between
10%
to
25%
for
the
remainder
of
the
benefits
period,
depending
on
the
level
of
foreign
investment
in
the
company
in
each
year,
as
explained
above.Dividends
paid
out
of
income
attributed
to
a
Beneficiary
Enterprise
will
be
treated
similarly
to
payment
of
dividends
by
an
Approved
Enterprise
under
the
alternative
benefits
program.
Therefore,
dividends
paid
outof
income
attributed
to
a
Beneficiary
Enterprise
(or
out
of
dividends
received
from
a
company
whose
income
is
attributed
to
a
Beneficiary
Enterprise)
are
generally
subject
to
withholding
tax
at
the
rate
of
15%
or
suchlower
rate
as
may
be
provided
in
an
applicable
tax
treaty
(subject
to
the
receipt
in
advance
of
a
valid
certificate
from
the
Israel
Tax
Authority
allowing
for
a
reduced
tax
rate).
The
reduced
rate
of
15%
is
limited
todividends
and
distributions
out
of
income
attributed
to
a
Beneficiary
Enterprise
during
the
benefits
period
and
actually
paid
at
any
time
up
to
12
years
thereafter
except
with
respect
to
an
FIC,
in
which
case
the
12-yearlimit
does
not
apply.Furthermore,
a
company
qualifying
for
tax
benefits
under
the
2005
Amendment,
which
pays
a
dividend
out
of
income
attributed
to
its
Beneficiary
Enterprise
during
the
tax
exemption
period,
will
be
subject
to
taxin
respect
of
the
amount
of
the
dividend
distributed
(grossed-up
to
reflect
the
pre-tax
income
that
it
would
have
had
to
earn
in
order
to
distribute
the
dividend)
at
the
corporate
tax
rate
which
would
have
otherwise
beenapplicable.As
of
December
31,
2016,
we
had
accumulated
tax-exempt
income
of
approximately
$180
million
that
is
attributable
to
our
various
Approved
and
Beneficiary
Enterprise
programs.
If
such
tax
exempt
income
wereto
be
distributed,
it
would
be
taxed
at
the
reduced
corporate
tax
rate
applicable
to
such
income,
which
would
have
amounted
to
approximately
$18
million
of
tax
liability
as
of
December
31,
2016.The
benefits
available
to
a
Beneficiary
Enterprise
are
subject
to
the
continued
fulfillment
of
conditions
stipulated
in
the
Investment
Law
and
its
regulations.
If
a
company
does
not
meet
these
conditions,
it
would
berequired
to
refund
the
amount
of
tax
benefits,
as
adjusted
by
the
Israeli
consumer
price
index
and
interest,
or
other
monetary
penalty.Tax benefits under the 2011 Amendment that became effective on January 1, 2011.The
2011
Amendment
canceled
the
availability
of
the
benefits
granted
in
accordance
with
the
provisions
of
the
Investment
Law
prior
to
2011
and,
instead,
introduced
new
benefits
for
income
generated
by
a“Preferred
Company”
through
its
Preferred
Enterprise
(as
such
terms
are
defined
in
the
Investment
Law)
as
of
January
1,
2011.
A
Preferred
Company
is
defined
as
either
(i)
a
company
incorporated
in
Israel
which
isnot
wholly
owned
by
a
governmental
entity,
or
(ii)
a
limited
partnership
that:
(a)
was
registered
under
the
Israeli
Partnerships
Ordinance
and;
(b)
all
of
its
limited
partners
are
companies
incorporated
in
Israel,
but
notall
of
them
are
governmental
entities;
which
has,
among
other
things,
Preferred
Enterprise
status
and
is
controlled
and
managed
from
Israel.
Pursuant
to
the
2011
Amendment,
a
Preferred
Company
was
entitled
to
areduced
corporate
tax
rate
of
15%
with
respect
to
its
preferred
income
attributed
to
its
Preferred
Enterprise
in
2011
and
2012,
unless
the
Preferred
Enterprise
was
located
in
a
certain
development
zone,
in
which
casethe
rate
was
10%.
Such
corporate
tax
rate
was
reduced
to
12.5%
and
7%,
respectively,
in
2013
and
was
increased
to
16%
and
9%,
respectively,
in
2014
until
2016.
Pursuant
to
the
2017
Amendment,
in
2017
andthereafter,
the
corporate
tax
rate
for
Preferred
Enterprise
which
is
located
in
a
certain
development
zone
was
decreased
to
7.5%,
while
the
reduced
corporate
tax
rate
for
other
development
zones
remains
16%.
Incomederived
by
a
Preferred
Company
from
a
‘Special
Preferred
Enterprise’
(as
such
term
is
defined
in
the
Investment
Law)
would
be
entitled,
during
a
benefits
period
of
10
years,
to
further
reduced
tax
rates
of
8%,
or
to5%
if
the
Special
Preferred
Enterprise
is
located
in
a
certain
development
zone.
As
of
January
1,
2017,
the
definition
for
“Special
Preferred
Enterprise”
includes
less
stringent
conditions.Dividends
paid
out
of
preferred
income
attributed
to
a
Preferred
Enterprise
or
to
a
Special
Preferred
Enterprise
are
generally
subject
to
withholding
tax
at
source
at
the
rate
of
20%
or
such
lower
rate
as
may
beprovided
in
an
applicable
tax
treaty
(subject
to
the
receipt
in
advance
of
a
valid
certificate
from
the
Israel
Tax
Authority
allowing
for
a
reduced
tax
rate).
However,
if
such
dividends
are
paid
to
an
Israeli
company,
notax
is
required
to
be
withheld
(although,
if
such
dividends
are
subsequently
distributed
to
individuals
or
a
non-Israeli
company,
withholding
tax
at
a
rate
of
20%
or
such
lower
rate
as
may
be
provided
in
an
applicabletax
treaty
will
apply).
In
2017-2019,
dividends
paid
out
of
preferred
income
attributed
to
a
Special
Preferred
Enterprise,
directly
to
a
foreign
parent
company,
are
subject
to
withholding
tax
at
source
at
the
rate
of
5%(temporary
provisions).The
2011
Amendment
also
provided
transitional
provisions
to
address
companies
already
enjoying
current
benefits
under
the
Investment
Law.
These
transitional
provisions
provide,
among
other
things,
that
unlessan
irrevocable
request
is
made
to
apply
the
provisions
of
the
Investment
Law
as
amended
in
2011
with
respect
to
income
to
be
derived
as
of
January
1,
2011:
(i)
the
terms
and
benefits
included
in
any
certificate
ofapproval
that
was
granted
to
an
Approved
Enterprise,
which
chose
to
receive
grants,
before
the
2011
Amendment
became
effective,
will
remain
subject
to
the
provisions
of
the
Investment
Law
as
in
effect
on
the
date
ofsuch
approval,
and
subject
to
certain
conditions;.
(ii)
the
terms
and
benefits
included
in
any
certificate
of
approval
that
was
granted
to
an
Approved
Enterprise,
that
had
participated
in
an
alternative
benefits
program,before
the
2011
Amendment
became
effective
will
remain
subject
to
the
provisions
of
the
Investment
Law
as
in
effect
on
the
date
of
such
approval,
provided
that
certain
conditions
are
met;
and
(iii)
a
BeneficiaryEnterprise
can
elect
to
continue
to
benefit
from
the
benefits
provided
to
it
before
the
2011
Amendment
came
into
effect,
provided
that
certain
conditions
are
met.40Table of ContentsWe
have
examined
the
possible
effect,
if
any,
of
these
provisions
of
the
2011
Amendment
on
our
financial
statements
and
have
decided,
at
this
time,
not
to
opt
to
apply
the
new
benefits
under
the
2011
Amendment.New Tax benefits under the 2017 Amendment that became effective on January 1, 2017.The
2017
Amendment
was
enacted
as
part
of
the
Economic
Efficiency
Law
that
was
published
on
December
29,
2016,
and
is
effective
as
of
January
1,
2017,
subject
to
the
publication
of
regulations
expected
to
bereleased
before
March
31,
2017.
The
2017
Amendment
provides
new
tax
benefits
for
two
types
of
“Technology
Enterprises”,
as
described
below,
and
is
in
addition
to
the
other
existing
tax
beneficial
programs
underthe
Investment
Law.The
2017
Amendment
provides
that
a
technology
company
satisfying
certain
conditions
will
qualify
as
a
“Preferred
Technology
Enterprise”
and
will
thereby
enjoy
a
reduced
corporate
tax
rate
of
12%
on
incomethat
qualifies
as
“Preferred
Technology
Income,”
as
defined
in
the
Investment
Law.
The
tax
rate
is
further
reduced
to
7.5%
for
a
Preferred
Technology
Enterprise
located
in
development
zone
A.
In
addition,
a
PreferredTechnology
Company
will
enjoy
a
reduced
corporate
tax
rate
of
12%
on
capital
gain
derived
from
the
sale
of
certain
“Benefitted
Intangible
Assets”
(as
defined
in
the
Investment
Law)
to
a
related
foreign
company
ifthe
Benefitted
Intangible
Assets
were
acquired
from
a
foreign
company
on
or
after
January
1,
2017
for
at
least
NIS
200
million,
and
the
sale
receives
prior
approval
from
the
National
Authority
for
TechnologicalInnovation,
to
which
we
refer
as
NATI.The
2017
Amendment
further
provides
that
a
technology
company
satisfying
certain
conditions
will
qualify
as
a
“Special
Preferred
Technology
Enterprise”
and
will
thereby
enjoy
a
reduced
corporate
tax
rate
of
6%on
“Preferred
Technology
Income”
regardless
of
the
company’s
geographic
location
within
Israel.
In
addition,
a
Special
Preferred
Technology
Enterprise
will
enjoy
a
reduced
corporate
tax
rate
of
6%
on
capital
gainderived
from
the
sale
of
certain
“Benefitted
Intangible
Assets”
to
a
related
foreign
company
if
the
Benefitted
Intangible
Assets
were
either
developed
by
an
Israeli
company
or
acquired
from
a
foreign
company
on
orafter
January
1,
2017,
and
the
sale
received
prior
approval
from
NATI.
A
Special
Preferred
Technology
Enterprise
that
acquires
Benefitted
Intangible
Assets
from
a
foreign
company
for
more
than
NIS
500
million
willbe
eligible
for
these
benefits
for
at
least
ten
years,
subject
to
certain
approvals
as
specified
in
the
Investment
Law.Dividends
distributed
by
a
Preferred
Technology
Enterprise
or
a
Special
Preferred
Technology
Enterprise,
paid
out
of
Preferred
Technology
Income,
are
subject
to
withholding
tax
at
source
at
the
rate
of
20%,
andif
distributed
to
a
foreign
company
and
other
conditions
are
met,
the
withholding
tax
rate
will
be
4%.The
Amendment
to
the
Investment
Law
stipulates
that
regulations
are
to
be
promulgated
by
no
later
than
March
31,
2017,
so
as
to
implement
the
“Nexus
Principle”
based
on
OECD
guidelines
recently
published
aspart
of
the
Base
Erosion
and
Profit
Shifting
(BEPS)
project.
Only
after
the
regulations
concerning
the
nexus
approach
are
promulgated
we
will
be
able
to
assess
the
effect
of
the
new
law
on
our
financial
results.We
are
examining
the
impact
of
the
2017
Amendment
and
the
degree
to
which
we
will
qualify
as
a
Preferred
Technology
Enterprise
or
Special
Preferred
Technology
Enterprise,
and
the
amount
of
PreferredTechnology
Income
or
other
benefits
that
we
may
receive
from
the
2017
Amendment.C. Organizational Structure.Our
corporate
structure
includes
Stratasys
Ltd.,
our
Israeli
parent
company,
and
the
following
main
active
wholly-owned
subsidiary
entities:
Stratasys,
Inc.,
a
Delaware
corporation,
which
was
formerly
a
publiclyheld
company
and
which
became
our
indirect,
wholly-owned
subsidiary
as
a
result
of
the
Stratasys-Objet
merger;
Baccio
Corporation
(formerly
known
as
Cooperation
Technology
Corporation),
to
which
we
refer
asMakerBot,
a
Delaware
corporation
which
is
the
direct
parent
company
of
MakerBot
Industries,
LLC,
which
we
acquired
in
August
2013;
Stratasys
Direct,
Inc.
(our
service
bureau
business
unit),
a
Californiacorporation;
Stratasys
AP
Limited,
a
Hong
Kong
limited
company,
which
together
with
several
other
subsidiaries
(including
Stratasys
Japan
Co.
Ltd.,
our
Japanese
subsidiary,
and
Stratasys
Shanghai
Ltd.,
our
Chinesesubsidiary),
carries
out
most
of
our
operations
in
the
Asia
Pacific
region;
and
Stratasys
GMBH,
a
German
limited
liability
company,
which
together
with
other
subsidiaries
(including
Stratasys
Schweiz
AG
(StratasysSwitzerland
Ltd.),
our
Swiss
subsidiary)
carries
out
our
European
operations.
We
also
formed
Stratasys
Latin
America
Representacao
De
Equipamentos
Ltd.,
a
Brazilian
subsidiary,
which
has
commenced
our
Brazilianoperations.
Please
see
the
list
of
subsidiaries
appended
to
this
annual
report
as
Exhibit
8
for
a
complete
list
of
our
subsidiaries
as
of
the
date
of
this
annual
report.D. Property, Plants and Equipment.We
have
dual
headquarters,
in
Eden
Prairie,
Minnesota
and
Rehovot,
Israel.
Our
Eden
Prairie,
Minnesota
headquarters
(near
Minneapolis)
comprises
executive
offices
and
production
facilities
presentlyencompassing
approximately
377,090
square
feet,
of
which
we
own
295,544
square
feet,
in
four
buildings.
These
four
buildings
serve
the
following
respective
purposes:
system
assembly,
inventory
storage,
operationsand
sales
support;
manufacturing
for
one
of
our
Stratasys
Direct
Manufacturing
paid
parts
service
locations;
research
and
development,
filament
manufacturing,
and
administrative,
marketing
and
sales
activities;
andexpansion
of
our
production
capacity
for
systems
and
consumables.
Our
Rehovot,
Israel
headquarters,
which
we
moved
into
at
the
beginning
of
2017,
are
newly
constructed
facilities
with
approximately
230,355
squarefeet,
situated
on
a
property
that
we
purchased
in
2015.
It
houses
our
Israeli
administrative
headquarters,
our
research
and
development
facilities,
and
certain
manufacturing
activities.
These
facilities
have
replaced
partof
our
previous
facilities
in
Rehovot,
Israel
that
we
leased
for
approximately
$2.4
million
annually
pursuant
to
a
five-year
lease
agreement
that
expired
at
the
end
of
2016.As
of
December
31,
2016,
we
leased
office
space
(except
with
respect
to
our
Eden
Prairie
headquarters
facilities
and
our
Rehovot,
Israel
and
Kiryat
Gat,
Israel
facilities,
where
we
own
the
property)
for
variouspurposes,
as
set
forth
in
the
table
below.
Unless
otherwise
stated,
all
of
our
facilities
are
fully
utilized.
Our
material
tangible
fixed
assets
include,
among
other
things,
the
properties
listed
below.
41Table of ContentsLocation:
Primary Usage:
Area (Sq. Feet)North America:Eden
Prairie,
MinnesotaU.S.
headquarters377,090Valencia,
CaliforniaLocal
headquarters
and
warehouses71,286San
Diego,
CAFacilities56,383Brooklyn,
New
YorkLocal
headquarters
and
warehouses43,350
River
Falls,
WisconsinOffice
space40,998Belton,
TexasLocal
headquarters
and
warehouses40,000Merrimack,
New
HampshireFacilities,
including
manufacturing35,643Austin,
TexasFactory33,178Other
facilities
in
North
America:Office
space,
stores
and
warehouses117,850
Europe and the Middle East:Rehovot,
IsraelIsraeli
headquarters290,366Kiryat
Gat,
IsraelFactory
and
laboratories285,070
Rheinmünster,
GermanyEMEA
headquarters55,027Swiss
officeOffice
space205Other
facilities
in
EMEA:EMEA
headquarters
and
office
space21,630
Asia Pacific:Hong
KongOffice
space23,057Other
facilities
in
Asia
Pacific:Office
space54,198
Other countries:Office
space10,942ITEM 4A. UNRESOLVED STAFF COMMENTS.None.ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included in this annualreport. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially fromthese expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Cautionary Note Regarding Forward-Looking Statements” and in Item 3.D “KeyInformation – Risk Factors”, above.A. Operating Results.OverviewWe
are
a
leading
global
provider
of
additive
manufacturing,
or
AM,
solutions
for
the
creation
of
parts
used
in
the
processes
of
designing
and
manufacturing
products
and
for
the
direct
manufacture
of
end
parts.We
provide
an
integrated
solutions
offering
for
different
vertical
markets
focusing
on
aerospace,
automotive,
healthcare,
tooling
&
manufacturing,
education
and
consumer
electronics
that
includes
compatibleproducts
and
services
that
are
designed
to
meet
our
customers’
needs
in
an
efficient
manner.
Our
solutions
consisting
of
a
broad
range
of
systems,
consumables
and
services
for
3D
printing
and
additive
manufacturingand
address
our
customers’
needs
for
3D
printing,
including
printing
systems,
consumables,
software,
paid
parts,
strategic
consulting
and
professional
services,
and
3D
content.Our
3D
printers
include
systems
ranging
from
entry-level
desktop
3D
printers
to
systems
for
rapid
prototyping,
or
RP,
and
large
production
systems
for
direct
digital
manufacturing,
or
DDM.
We
also
develop,manufacture
and
sell
materials
for
use
with
our
systems
and
provide
related
services
offerings.
We
offer
a
powerful
range
of
additive
manufacturing
materials,
including
clear,
rubberlike
and
biocompatiblephotopolymers,
and
tough
high-performance
thermoplastics.
We
believe
that
the
range
of
3D
printing
consumable
materials
that
we
offer,
consisting
of
15
fused
deposition
modeling,
or
FDM,
cartridge-basedmaterials,
25
Polyjet
cartridge-based
materials,
five
Smooth
Curvature
Printing,
or
SCP,
inkjet-based
materials,
158
non-color
digital
materials,
and
over
1,500
color
variations,
is
the
widest
in
the
industry
.
Our
serviceofferings
include
Stratasys
Direct
Manufacturing,
or
SDM,
printed
parts
services
which
offers
AM
capabilities
encompassing
a
wide
range
of
technologies
allowing
for
plastic
and
metal
parts
for
rapid
prototyping
andproduction
processes,
as
well
as
related
professional
services.We
conduct
our
business
globally
and
provide
products
and
services
to
our
global
customer
base
through
our
main
operational
facilities
which
are
located
in
Israel,
the
United
States,
Germany
and
Hong
Kong
aswell
through
our
offices
in
China,
Italy,
Brazil,
India,
Japan
and
Korea
.
Our
extensive
global
reach
is
well-positioned
through
a
network
of
approximately
200
resellers
and
selling
agents
around
the
world
and
anonline
channel.
We
have
approximately
2,500
employees
and
hold
more
than
1,200
granted
or
pending
additive
manufacturing
patents
globally.42Table of ContentsKey measures of our performanceRevenuesOur
consolidated
revenues
result
primarily
from
sales
of
(i)
our
products,
which
include
both
our
AM
systems
and
related
consumable
materials,
(ii)
provision
of
related
services
and
(iii)
our
direct
manufacturingservice.
We
effect
revenues
and
deliver
services
principally
through
the
following
channels:●sales
to
resellers,
who
purchase
and
resell
our
products
and
who
provide
support
services
for
our
printing
systems;

●sales
of
systems
that
are
marketed
by
independent
sales
agents,
pursuant
to
which
we
sell
directly
to
end-users,
pay
commissions
to
such
agents,
and
directly
handle
the
sale
of
consumables
and
provision
ofsupport
services;
and

●sales
of
systems
(and
all
related
products
and
services)
as
well
as
our
direct
manufacturing
solutions
service
that
we
effect
and/or
provide
to
our
customers
directly.There
is
overlap
among
the
channels
as
some
independent
sales
agents
for
our
higher-end
products
also
serve
as
resellers
of
our
other
products.Product revenuesProduct
revenues
are
influenced
by
a
number
of
factors,
including,
among
other
things,
(i)
the
adoption
rate
of
our
products,
(ii)
end-user
product
design
application
and
manufacturing
activity,
and
(iii)
the
capitalexpenditure
budgets
of
end-users
and
potential
end-users,
all
of
which
may
be
significantly
influenced
by
macroeconomic
factors.
Purchases
of
our
3D
printing
and
production
systems,
especially
our
higher-end,higher-priced
systems,
typically
involve
longer
sales
cycles.Product
revenues
also
depend
upon
the
volume
of
consumables
that
we
sell.
Sales
of
our
consumable
materials
are
linked
to
the
number
of
AM
systems
that
are
installed
and
active
worldwide.
Sales
of
consumablesare
also
driven
by
system
usage,
which
is
generally
a
function
of
the
size
of
the
particular
system
and
the
level
of
design
and/or
manufacturing
activity
and
budget
of
the
particular
end-user.
Larger
systems
generallyuse
greater
amounts
of
consumables
due
to
their
greater
capacity
and
the
higher
levels
of
design
and
production.Services revenuesServices
revenues
derive
from
(i)
our
direct
manufacturing
parts
services
that
provide
a
variety
of
technologies
and
custom
manufacturing
solutions;
(ii)
maintenance
and
warranty;
and
(iii)
other
service
contracts.In
addition,
in
connection
with
direct
sales,
we
generally
charge
separately
for
installation
and
training.
Additional
services
revenues
are
generated
from
services
contracts
most
often
entered
into
directly
with
end-userssubsequent
to
the
expiration
of
the
initial
warranty
period.Costs of revenuesOur
costs
of
revenues
consist
of
costs
of
products
and
costs
of
services.
Costs
of
products
consist
primarily
of
components
and
subassemblies
purchased
for
the
manufacture
of
our
AM
systems
and
raw
materials,such
as
thermoplastic
and
photopolymer
materials,
for
the
manufacture
of
our
consumables,
as
well
as
any
royalties
paid
with
respect
to
sales
of
certain
of
those
consumables.
Costs
of
products
also
includemanufacturing
and
manufacturing-related
labor
costs,
indirect
production
costs,
depreciation
and
amortization
expense
related
mainly
to
developed
technology
assets
acquired
as
part
of
our
business
combinations.43Table of ContentsOur
costs
of
services
revenues
consist
primarily
of
costs
of
our
service
personnel,
material
and
other
production
costs
of
our
direct
manufacturing
service
business
and
installation
costs
which
include
engineersdedicated
to
on-site
training
and
support
and
travel
costs
of
these
engineers.
Both
costs
of
products
and
costs
of
services
include
related
facilities
costs.Our
most
significant
components
of
cost
of
revenues
are
costs
of
materials
used
for
our
printers,
wages
and
related
benefits
costs,
which
together
accounted
for
approximately
86%
of
our
total
direct
cost
of
sales.An
additional
significant
item
of
our
cost
of
revenues
is
the
amortization
expense
that
we
primarily
incur
in
connection
with
developed
technology
assets
acquired
as
part
of
our
business
combinations.
Theseamortization
expenses
varies
based
on
the
timing
and
type
of
acquisitions,
and
were
$43
million,
$51
million
and
$56
million
for
the
years
ended
December
31,
2016,
2015
and
2014,
respectively.For
the
year
ended
December
31,
2016,
a
hypothetical
10%
rise
in
commodity
prices
for
raw
materials
would
have
caused
an
approximate
$20
million
increase
in
cost
of
revenues
in
our
Consolidated
Statement
ofIncome
and
Comprehensive
Income.
As
to
wages
and
related
benefits,
a
10%
increase
in
wages
due
to
wage
inflation
would
have
caused
an
approximate
$7
million
increase
in
cost
of
revenues
in
our
ConsolidatedStatement
of
Income
and
Comprehensive
Income.
During
2016,
we
did
not
notice
particular
trends
that
changed,
or
were
expected
to
change
in
the
near
future,
the
absolute
or
relative
significance
of
the
components
ofour
costs
of
revenues
in
a
material
manner.
We
also
believe
that
inflation
has
not
had
a
material
effect
on
our
operations
or
on
our
financial
condition
during
the
three
most
recent
fiscal
years.Currently,
we
do
not
foresee
a
significant
change
in
either
the
raw
materials
used
for
production
or
wage
inflation
that
would
materially
impact
our
business.
For
further
information,
please
see
“Item
11.Quantitative
And
Qualitative
Disclosures
About
Market
Risk”
in
this
annual
report.Gross profitThe
gross
profit
and
gross
margin
for
our
products
are
influenced
by
a
number
of
factors.
The
most
important
of
these
is
the
mix
of
our
products
sold.
Specifically,
the
gross
margins
on
our
high-end
Productionseries
and
Design
series
of
AM
systems,
as
well
as
on
our
consumables,
are
typically
higher
than
the
gross
margins
on
our
entry-level
products
and
MakerBot
desktop
printers.
Accordingly,
an
increase
in
thepercentage
of
sales
of
our
entry-level
products
could
cause
our
profit
margins
to
decrease.
Furthermore,
we
believe
that
as
our
worldwide
installed
base
of
AM
systems
increases,
subsequent
sales
of
our
proprietaryconsumables
will
also
increase.
We
also
seek
to
reduce
our
costs
of
revenues
by
improving
our
ability
to
use
less
costly
components
and
increasing
manufacturing
efficiencies
in
the
production
of
our
systems.
Inaddition,
we
will
also
seek
to
achieve
lower
material
costs
and
leverage
our
overall
capabilities
in
our
direct
manufacturing
service
business.Products
gross
margins
are
also
impacted
by
the
mix
of
revenues
generated
from
sales
to
resellers
based
in
different
geographical
areas
as
opposed
to
sales
that
are
facilitated
by
independent
sales
agents
or
directlyby
us.Service
gross
margins
are
influenced
mainly
by
the
volume
of
revenues
generated
from
our
direct
manufacturing
service
business
as
well
as
the
ratio
of
service
engineers
to
our
installed
base
in
a
given
geographicarea,
as
that
ratio
impacts
travel
costs
and
efficiency
of
our
service
engineers.Operating expensesOur
operating
expenses
for
2016
consisted
of
(i)
research
and
development
expenses,
(ii)
selling,
general
and
administrative
expenses
and
(iii)
changes
in
fair
value
of
obligations
in
connection
with
acquisitions.Research and development expensesOur
research
and
development
activities
consist
of
projects
aimed
at
developing
new
printing
systems
and
materials
and
projects
aimed
at
enhancing
the
capabilities
of
our
existing
product
lines,
as
well
assignificant
technology
platform
and
applications,
developments
for
our
current
technologies,
including
our
integrated
software.
We
also
seek
to
develop
disruptive
technologies
and
other
process
improvement
solutionsin
the
additive
manufacturing
ecosystem.
Our
research
and
development
expenses
consist
primarily
of
employee
compensation
and
employee-related
personnel
expenses,
materials,
laboratory
supplies,
costs
for
relatedsoftware
and
costs
for
facilities.
Expenditures
for
research,
development
and
engineering
of
products
are
expensed
as
incurred.
Our
research
and
development
efforts
are
essential
to
our
future
growth
and
our
ability
toremain
competitive
in
the
AM
market.
We
work
closely
with
existing
and
potential
customers,
distribution
channels
and
major
resellers,
who
provide
significant
feedback
for
products
development
and
innovation.We
are
also
entitled
to
reimbursements
from
certain
government
funding
plans.
These
reimbursements
are
recognized
as
a
reduction
of
expenses
as
the
related
cost
is
incurred.
We
are
not
required
to
pay
royaltieson
sales
of
products
developed
using
our
government
funding.44Table of ContentsSelling, general and administrative expensesOur
selling,
general
and
administrative
expenses
include
employee
compensation
and
employee-related
expenses
for
marketing,
sales
and
other
sales-operation
employees
,
and
for
managerial
and
administrativepersonnel,
including
executive
officers,
accounting,
legal,
information
technology
and
human
resources.
This
category
of
expenses
also
covers
commissions,
advertising
and
promotions
expenses,
related
facilitiescosts,
professional
service
fees,
respective
depreciation,
as
well
as
amortization
expenses
related
to
acquired
assets
as
part
of
our
business
combinations.Commissions
consist
of
sales-based
commissions
to
independent
sales
agents
and
internal
sales
personnel.
Commission
rates
vary,
depending
on
the
geographic
location
of
the
agent
and
on
the
achievement
ofcertain
performance
targets.
Our
advertising
and
promotion
expenses
consist
primarily
of
media
advertising
costs,
trade
and
consumer
marketing
expenses
and
public
relations
expenses
which
aims
to
strengthen
ourleadership
brand
position
in
key
vertical
markets.Facilities
costs
that
are
included
in
our
selling,
general
and
administrative
expenses
include
a
portion
of
the
occupancy
costs
for
our
facilities
in
countries
where
sales,
marketing
and
administrative
personnel
arelocated.
Professional
service
fees
for
accounting
and
legal
services
and
reserves
for
specific
legal
proceedings
referred
to
elsewhere
in
this
annual
report
are
also
included
in
selling,
general
and
administrative
expenses.Change in fair value of obligations in connection with acquisitionsAs
part
of
the
Solid
Concepts
transactions
we
recognized
a
deferred
payments
obligation.
This
obligation
was
recognized
as
part
of
the
consideration
transferred
and
it
is
re-measured
at
fair-value
in
each
reportingperiod.
The
fair
value
of
this
obligation
was
measured
using
specific
valuation
models,
which
were
based
on
unobservable
inputs
and
thus
represents
a
Level
3
measurement
within
the
fair
value
hierarchy.
The
deferredpayments
for
the
Solid
Concepts
transaction
are
recognized
as
liabilities
at
fair
value
in
our
consolidated
balance
sheets
and
are
classified
under
short-term
and
long-term
obligations
in
connection
with
acquisitions.The
fair
value
is
determined
based
on
the
closing
market
price
of
our
ordinary
shares
at
the
applicable
date,
adjusted
to
reflect
a
discount
for
lack
of
marketability
for
the
applicable
periods.
Refer
to
Note
2
and
Note
3to
our
audited
financial
statements
included
in
Item
18
of
this
annual
report
for
further
information.2016 Financial HighlightsSignificant
business
activities
and
financial
performance
in
2016
included:●Revenues
decreased
by
$23.5
million,
or
3.4%,
compared
to
2015.
The
decrease
primarily
reflects
a
decrease
in
systems
revenues
which
was
partially
offset
by
an
increase
in
consumables
revenues.

●Operating
loss
decreased
by
$1.29
billion
primarily
due
to
goodwill
and
other
intangible
assets
impairment
charges
of
$1.22
billion
that
were
recorded
in
2015
compared
to
intangible
assets
impairment
chargesof
$17.9
million
in
2016.
In
addition,
we
also
benefited
from
the
effective
implementation
of
our
costs
reduction
initiatives.

●Net
loss
attributable
to
Stratasys
amounted
to
$77.2
million
in
2016
or
diluted
loss
per
share
of
$1.48
compared
to
net
loss
attributable
to
Stratasys
of
$1.37
billion
or
diluted
loss
per
share
of
$26.64
in
2015.

●Cash
flows
provided
by
operating
activities
amounted
to
$62.0
million,
which
reflect
an
increase
of
$83.9
million
of
cash
flows
generated
in
operating
activities
compared
to
$21.9
million
of
cash
used
inoperating
activities
in
2015.

●Borrowed
$26
million
and
secured
a
credit
line
for
an
additional
$24
million,
which
are
both
secured
by
a
first
priority
lien
on
all
of
our
company’s
rights
in
the
property
of
our
new
office
facility
in
Israel.Results of OperationsWe
are
providing
within
this
section
a
supplemental
discussion
that
compares
historical
statement
of
operations
data
in
accordance
with
accounting
principles
generally
accepted
in
the
United
State
of
America,
orGAAP,
for
the
years
ended
December
31,
2016,
2015
and
2014.
Refer
to
note
2
to
our
consolidated
financial
statements
included
in
Item
18
of
this
annual
report
for
certain
pro
forma
information
for
the
Solid
Conceptstransaction
for
the
year
ended
December
31,
2014.45The
following
table
sets
forth,
certain
financial
data
derived
from
our
consolidated
statements
of
income
presented
as
percentages
of
our
net
sales
for
the
periods
indicated:Year ended December 31,





2016





2015





2014Net
sales100.0%100.0%100.0%Cost
of
sales52.8%85.3%51.7%Gross
profit47.2%14.7%48.3%Research
and
development,
net14.5%17.6%11.0%Selling,
general
and
administrative45.7%62.4%46.9%Goodwill
impairment0.0%135.4%13.7%Change
in
fair
value
of
obligations
in
connection






with
acquisitions-0.1%-3.4%-3.5%Operating
loss-12.9%-197.3%-19.8%Financial
income
(expense),
net0.1%-1.5%-0.9%Loss
before
income
taxes-12.8%-198.8%-20.6%Income
taxes
benefit-1.4%-1.5%-4.7%Share
in
losses
of
associated
company-0.1%0.0%0.0%Net
loss-11.5%-197.3%-15.9%Net
loss
attributable
to
non-controlling
interests-0.1%-0.1%0.0%Net
loss
attributable
to
Stratasys
Ltd.-11.5%-197.2%-15.9%46Table of ContentsDiscussion of Results of OperationsRevenuesOur
products
and
services
revenues
for
the
last
three
years,
as
well
as
the
percentage
change
from
year
to
year,
were
as
follows:Year Ended December 31,% Change% Change




2016




2015




2014




2016-2015




2015-2014U.S. $ in thousandsProducts$




479,031$




503,946$




612,138-4.9%-17.7%Services193,427192,049137,9910.7%39.2%$672,458$695,995$750,129-3.4%-7.2%Our
total
consolidated
revenues
in
2016
were
$672.5
million,
a
decrease
of
$23.5
million,
or
3.4%,
compared
to
2015.
The
decrease
primarily
reflects
a
decrease
in
products
revenues,
partially
offset
by
a
slightincrease
in
services
revenues,
as
further
discussed
below.Product Revenues2016 Compared to 2015Revenues
derived
from
products
(including
AM
systems,
consumable
materials
and
other
products)
decreased
by
$24.9
million
in
2016,
or
4.9%,
as
compared
to
2015.
The
decrease
in
products
revenues
primarilyreflects
a
decrease
in
unit
volumes.
Products
revenues
were
partially
offset
by
an
increase
in
our
sales
of
consumables
offerings
which
increased
by
9.8%
compared
to
2015.The
decrease
in
systems
revenue
reflects
lower
revenues
across
our
high-end
and
lower-end
systems,
partially
offset
by
revenues
generated
from
our
new
J-750
full-color,
multi-material
3D
printer,
which
waslaunched
during
the
second
quarter
of
2016.Consumables
revenues
increased
in
2016
by
9.8%
compared
to
2015.
The
increase
in
consumables
revenues,
was
primarily
due
to
the
favorable
effect
of
our
growing
installed
base
of
systems
and
high
performanceconsumable
materials
offerings
for
use
in
new
applications.2015 Compared to 2014Revenues
derived
from
products
decreased
by
$108.2
million,
or
17.7%,
in
2015
compared
to
2014.
The
decrease
in
products
revenues
was
primarily
driven
by
a
decrease
in
systems
and
other
products
revenuesand
a
negative
impact
from
foreign
currency
exchange
fluctuations,
which
were
partially
offset
by
an
increase
in
our
sales
of
consumables
offerings
which
increased
by
5.1%
as
compared
to
2014.Services Revenues2016 Compared to 2015Services
revenues
(including
SDM,
maintenance
and
other
services)
increased
by
$1.4
million,
or
0.7%,
in
2016
compared
to
2015.
The
increase
in
services
revenues
was
primarily
attributable
to
the
increase
inrevenues
from
maintenance
contracts
and
service
parts,
reflecting
our
growing
installed
base
of
systems
and
our
effective
support
solutions
suiting
for
the
end-users’
needs,
and
was
partially
offset
by
the
decrease
inSDM
revenues
by
6.8%
compared
to
2015.2015 Compared to 2014Services
revenues
increased
by
$54.1
million,
or
39.2%,
in
2015
compared
to
2014.
The
increase
in
services
revenues
was
primarily
attributable
to
the
increase
in
our
SDM
revenues,
which
increased
by
$40.0million,
or
73.7%,
compared
to
2014
primarily
due
to
the
inclusion
for
the
full
year
of
Solid
Concepts
and
Harvest
revenues
after
their
respective
transaction
dates.
Services
revenues
also
increased
organically
due
tomaintenance
contracts
and
service
parts,
reflecting
our
growing
installed
base
of
systems.47Table of ContentsRevenues by RegionRevenues
and
the
percentage
of
net
sales
by
region
for
the
last
three
years,
as
well
as
the
percentage
change,
were
as
follows:Year Ended December 31,2016201520142016-20152015-2014U.S. $ in% of netU.S. $ in% of netU.S. $ in% of net




thousands




sales




thousands




sales




thousands




sales




Change in %




Change in %North
America$




399,87059.5%$




413,01759.3%$




405,88054.1%-3.2%1.8%EMEA137,92420.5%148,16921.3%183,46224.4%-6.9%-19.2%Asia
Pacific122,99818.3%122,25717.6%150,47520.1%0.6%-18.8%Other11,6661.7%12,5521.8%10,3121.4%-7.1%21.7%$672,458




100.0%$695,995




100.0%$750,129




100.0%















-3.4%















-7.2%2016 Compared to 2015Revenues
in
the
North
America
region
decreased
by
$13.1
million,
or
3.2%
to
$399.9
million
in
2016
compared
to
$413.0
million
in
2015.
The
decrease
was
driven
primarily
by
lower
revenues
of
our
systems
aswell
as
services
revenues
due
to
lower
SDM
revenues,
partially
offset
by
higher
consumables
revenues.Revenues
in
the
EMEA
region
decreased
by
$10.2
million,
or
6.9%,
to
$137.9
million
in
2016
compared
to
$148.2
million
in
2015.
The
decrease
was
primarily
due
to
lower
systems
revenues.
In
local
currenciesterms,
net
sales
of
the
EMEA
region
in
2016
decreased
by
5.1%
as
compared
to
2015.
Revenues
in
the
EMEA
region
were
negatively
impacted
by
approximately
$2.7
million,
on
a
constant
currency
basis
when
usingprior
period’s
exchange
rates.Revenues
in
the
Asia
Pacific
region
increased
by
$0.7
million,
or
0.6%,
to
$123.0
million
in
2016
compared
to
$122.3
million
in
2015.
The
slight
increase
was
driven
by
an
increase
in
consumables
revenues
andwas
partially
offset
by
lower
systems
revenues.2015 Compared to 2014Net
sales
in
the
North
America
region
increased
by
$7.1
million,
or
1.8%
to
$413.0
million
in
2015
as
compared
to
$405.9
million
in
2014.
The
increase
was
driven
primarily
by
an
increase
in
services
revenues,due
to
the
inclusion
of
a
full
year
of
SDM
revenues
in
2015
as
well
as
an
increase
of
our
consumables
offerings
net
sales,
partially
offset
by
lower
net
sales
of
our
systems.Net
sales
in
the
EMEA
region
decreased
by
$35.3
million,
or
19.2%,
to
$148.2
million
in
2015
as
compared
to
$183.5
million
in
2014.
This
decrease
was
primarily
due
to
lower
sales
of
our
systems.
In
localcurrencies
terms,
net
sales
of
the
EMEA
region
in
2015
decreased
by
6.3%
as
compared
to
2014.Net
sales
in
the
Asia
Pacific
region
decreased
by
$28.2
million,
or
18.8%,
to
$122.3
million
in
2015
as
compared
to
$150.5
million
in
2014.
This
decrease
was
due
primarily
to
lower
sales
of
our
systems,
partiallyoffset
by
an
increase
of
our
consumables
offerings
net
sales.Gross ProfitGross
profit
for
our
products
and
services
for
the
last
three
years,
as
well
as
the
percentage
change
from
year
to
year,
was
as
follows:Year Ended December 31,




2016




2015




2014




2016-2015




2015-2014U.S. $ in thousandsChange in %Change in %Gross profit attributable to:Products$




244,378$




37,725$




309,300547.8%-87.8%Services72,92864,44753,09413.2%21.4%$317,306$102,172$362,394













210.6%













-71.8%48Table of ContentsGross
profit
as
a
percentage
of
net
sales
for
our
products
and
services
for
the
last
three
years,
as
well
as
the
percentage
change
from
year
to
year,
was
as
follows:Year Ended December 31,




2016




2015




2014




2016-2015




2015-2014Change in %Change in %Gross profit as a percentage of revenues from:Products51.0%7.5%50.5%584.2%-85.2%Services37.7%33.6%38.5%12.2%-12.8%Total
gross
profit




47.2%




14.7%




48.3%












221.4%












-69.6%2016 Compared to 2015Gross
profit
attributable
to
products
sales
increased
by
$206.7
million,
or
547.8%,
to
$244.4
million
in
2016
compared
to
$37.7
million
in
2015.
Gross
profit
attributable
to
products
sales
as
a
percentage
ofrevenues
increased
to
51.0%
in
2016
compared
to
7.5%
in
2015.
The
increase
in
gross
profit
attributable
to
products
sales
was
primarily
due
to
impairment
charges
of
$191.4
million
related
to
certain
of
our
developedtechnology
intangible
assets
that
were
recorded
in
2015
compared
to
$1.8
million
in
2016,
as
well
as
favorable
changes
in
product
mix,
partially
offset
by
lower
systems
revenues.Gross
profit
attributable
to
services
revenues
increased
by
$8.5
million,
or
13.2%,
to
$72.9
million
in
2016
compared
to
$64.4
million
in
2015.
Gross
profit
from
services
as
a
percentage
of
services
revenues
in2016
increased
to
37.7%
compared
to
33.6%
in
2015.
The
increase
in
gross
profit
from
services
primarily
reflects
increased
volume
of
our
maintenance
and
warranty
contracts
as
well
as
improved
margins
attributableto
our
cost
reduction
initiatives.2015 Compared to 2014Gross
profit
attributable
to
products
sales
decreased
by
$271.6
million,
or
87.8%,
to
$37.7
million
in
2015
as
compared
to
$309.3
million
in
2014.
Gross
profit
attributable
to
products
sales
as
a
percentage
ofrevenues
decreased
to
7.5%
in
2015
as
compared
to
50.5%
in
2014.
The
decrease
in
gross
profit
attributable
to
products
sales
was
primarily
due
to
impairment
charges
of
$191.4
million
related
to
certain
of
ourdeveloped
technology
intangible
assets
in
2015,
as
compared
to
$11.6
million
in
2014.
The
decrease
in
gross
profit
was
also
attributable
to
a
decrease
in
products
net
sales,
as
discussed
above,
as
well
as
changes
inproduct
mix
that
favored
relatively
lower-margin
systems
net
sales.Gross
profit
attributable
to
services
revenues
increased
by
$11.4
million,
or
21.4%,
to
$64.4
million
in
2015
as
compared
to
$53.1
million
in
2014.
Gross
profit
from
services
as
a
percentage
of
services
revenues
in2015
decreased
to
33.6%
as
compared
to
38.5%
in
2014.
The
changes
in
gross
profit
from
services
revenues
primarily
reflect
the
inclusion
for
a
full
year
of
Solid
Concepts
and
Harvest
Technologies
operations
in2015,
which
resulted
in
an
increase
of
$10.1
million
in
2015
as
compared
to
2014.Operating ExpensesThe
amount
of
each
type
of
operating
expense
for
the
last
three
years,
as
well
as
the
percentage
change
between
such
annual
periods,
and
total
operating
expenses
as
a
percentage
of
our
total
sales
in
each
suchannual
period,
was
as
follows:Year Ended December 31,




2016




2015




2014




2016-2015




2015-2014U.S. $ in thousandsChange in %Change in %Research
and
development,
net$




97,778$




122,360$




82,270-20.1%48.7%Selling,
general
&
administrative307,113434,619351,993-29.3%23.5%Goodwill
impairment-942,408102,470-100.0%819.7%Change
in
fair
value
of
obligations
in
connection
with
acquisitions(872)(23,671)(26,150)-96.3%-9.5%$404,019$1,475,716$510,583












-72.6%












189.0%2016 Compared to 2015Research
and
development
expenses,
net
decreased
by
$24.6
million,
or
20.1%,
in
2016
compared
to
2015.
Research
and
development
expense,
net
as
a
percentage
of
revenues
decreased
to
14.5%
in
2016compared
to
17.6%
in
2015.49Table of ContentsThe
decrease
was
primarily
due
to
impairment
charges
of
$18.2
million
related
to
certain
of
our
in-process
research
and
development
projects
that
were
recorded
in
2015
as
well
as
our
costs-savings
initiatives.
Thedecrease
was
partially
offset
by
increase
in
our
GrabCad
operations
reflecting
our
increased
efforts
to
develop
our
software
solutions.Based
on
our
analysis
of
our
key
vertical
markets,
we
maintain
our
intention
to
continue
to
invest
in
research
and
development
in
order
to
accelerate
innovation
and
bring
a
broad
range
of
hardware,
materials
andsoftware
solutions
to
create
a
leading
3D
printing
ecosystem.
In
addition,
we
will
continue
with
our
portfolio
prioritization
and
realignment
of
our
projects
that
further
focus
our
resources.Selling,
general
and
administrative
expenses
in
2016
decreased
by
$127.5
million,
or
29.3%,
to
$307.1
million,
compared
to
$434.6
million
in
2015.
Selling,
general
and
administrative
expenses
in
2016
as
apercentage
of
revenues
were
45.7%
as
compared
to
62.4%
in
2015.The
decrease
in
our
selling,
general
and
administrative
expenses
was
primarily
due
to
intangible
assets
impairment
charges
recorded
in
2015
of
$68.9
million
compared
to
$15.1
that
were
recorded
in
2016,
as
wellas
non-recurring
post-merger
integration
expenses
related
to
SDM
formation,
certain
reorganization
related
charges,
as
well
as
marketing
and
branding
expenses
that
were
recorded
during
2015.
In
addition,
thedecrease
in
our
selling,
general
and
administrative
expenses
was
also
driven
by
the
effective
implementation
of
our
costs
reduction
initiatives
which
reduced
certain
of
our
variable
and
fixed
expenses.
For
furtherinformation
regarding
our
impairment
charges
of
certain
of
our
intangible
assets,
refer
to
note
8
to
our
consolidated
financial
statements
included
in
Item
18
of
this
annual
report.During
the
year
ended
December
31,
2016,
we
recorded
a
gain
of
$0.9
million,
compared
to
a
gain
of
$23.7
million
for
the
year
ended
December
31,
2015,
due
to
the
revaluation
of
obligations
in
connection
withacquisitions.
The
gain
recorded
in
2016
reflects
the
revaluation
of
the
deferred
payments
liability
in
connection
with
the
Solid
Concepts
transaction
which
was
mainly
attributable
to
changes
in
our
share
price.
Forfurther
information,
see
note
2
to
our
consolidated
financial
statements
included
in
Item
18
of
this
annual
report.2015 Compared to 2014Research
and
development
expenses,
net
increased
by
$40.1
million,
or
48.7%,
in
2015,
compared
to
2014.
Research
and
development
expense,
net
as
a
percentage
of
sales
increased
to
17.6%
in
2015,
compared
to11.0%
in
2014.
The
increase
was
primarily
due
to
the
inclusion
of
a
full
year
of
GrabCad
operations,
following
the
acquisition
of
GrabCad
in
September,
2014,
which
added
$8.1
million
and
an
increase
in
headcount
tosupport
new
research
and
development
initiatives,
as
well
as
impairment
charges
of
$18.2
million
related
to
certain
of
our
in-process
research
and
development
projects
in
2015,
compared
to
$3.0
million
in
2014.Selling,
general
and
administrative
expenses
in
2015
amounted
to
$434.6
million,
compared
to
$352.0
million
in
2014.
The
increase
of
our
selling,
general
and
administrative
expenses
was
primarily
attributed
toimpairment
charges
related
to
intangible
assets
of
$68.9
million,
certain
reorganization
and
other
related
charges,
as
well
as
strategic
and
marketing
activities,
including
branding
and
IT
related
costs.During
the
year
ended
December
31,
2015,
we
recorded
goodwill
impairment
charges
of
$942.4
million
related
to
all
of
our
reporting
units.
During
2015,
we
determined
that
certain
indicators
of
potentialimpairment
that
required
an
interim
goodwill
impairment
analysis
for
all
of
our
reporting
units
existed.
These
indicators
included
a
further
significant
decline
in
the
Company’s
market
capitalization
for
a
sustainedperiod
and
weaker
than
expected
operating
results
of
its
reporting
units
for
2015,
which
resulted
in
changes
to
the
Company’s
near-term
cash
flows
projections,
which
reflect,
among
other
things,
the
increaseduncertainty
in
the
3D
printing
environment.
Accordingly,
we
performed
a
quantitative
two-step
assessment
for
goodwill
impairment
for
each
of
our
reporting
units.
As
part
of
the
two-step
impairment
test,
weperformed
calculation
for
the
implied
fair
value
of
goodwill
of
our
reporting
units
and
determined
that
the
carrying
amount
of
goodwill
assigned
to
certain
of
our
reporting
units
exceeded
its
fair
value.
As
a
result,
werecorded
a
non-cash
impairment
charge
of
$942.4
million,
in
order
to
reduce
the
carrying
amount
of
goodwill
to
its
implied
fair
value.During
the
year
ended
December
31,
2014,
we
recorded
goodwill
impairment
charges
of
$102.5
million
related
to
our
MakerBot
reporting
unit.During
the
year
ended
December
31,
2015,
we
recorded
a
gain
of
$23.7
million,
compared
to
a
gain
of
$26.2
million
for
the
year
ended
December
31,
2014,
due
to
the
revaluation
of
obligations
in
connection
withacquisitions.
The
gain
recorded
during
the
year
ended
December
31,
2015
was
due
to
the
downward
revaluation
of
the
deferred
payments
liability
in
connection
with
the
Solid
Concepts
transaction
which
was
mainlyattributable
to
changes
in
our
share
price.
For
further
information,
see
note
2
to
our
consolidated
financial
statements
included
in
Item
18
of
this
annual
report.50Table of ContentsOperating LossOperating
loss
and
operating
loss
as
a
percentage
of
our
total
net
sales
for
the
last
three
years,
as
well
as
the
percentage
change
in
operating
income
between
those
years,
were
as
follows:Year Ended December 31,




2016




2015




2014




2016-2015




2015-2014U.S. $ in thousandsChange in %Change in %Operating
loss$




(86,713)$




(1,373,544)$




(148,189)-94%827%Percentage
of
sales-12.9%-197.3%-19.8%2016 Compared to 2015Operating
loss
for
the
year
ended
December
31,
2016
was
$86.7
million
as
compared
to
an
operating
loss
of
$1.37
billion
for
the
year
ended
December
31,
2015.
The
decrease
in
operating
loss
was
primarilyattributable
to
the
non-recurring,
non-cash
goodwill
and
intangible
assets
impairment
charges
of
$1.22
billion
recorded
in
2015
as
well
as
other
factors
as
discussed
above.2015 Compared to 2014Operating
loss
for
the
year
ended
December
31,
2015
was
$1.37
billion
as
compared
to
an
operating
loss
of
$148.2
million
for
the
year
ended
December
31,
2014.
The
increase
in
operating
loss
was
primarilyattributable
to
goodwill
and
other
intangible
assets
impairment
charges
of
$1.22
billion.Financial income (expense), net2016 Compared to 2015Financial
income,
net,
which
were
primarily
comprised
of
foreign
currencies
effects
and
interest
income,
net,
amounted
to
$0.4
million
for
the
year
ended
December
31,
2016,
compared
to
a
financial
expense,
netof
$10.3
million
for
the
year
ended
December
31,
2015.The
change
in
financial
income
(expense),
net
was
primarily
due
to
immaterial
interest
expenses
incurred
in
2016
compared
to
interest
expenses
related
to
the
outstanding
debt
balance
borrowed
under
our
creditfacility
in
2015
and
additional
costs
related
to
the
termination
of
our
revolving
credit
facility
during
September
2015
in
an
amount
of
$2.7
million.In
addition,
our
financial
income
(expense),
net
increased
due
to
lower
foreign
currency
translation
losses
resulted
from
changes
in
the
rate
of
exchange
between
the
U.S.
dollar
and
the
local
currencies
in
themarkets
in
which
we
operate
(primarily
the
Euro).
These
losses
were
offset
by
our
derivatives
and
hedging
activity
in
2016
.In
2017,
we
expect
to
incur
additional
interest
expense
following
our
borrowing
in
connection
with
our
new
facility
in
Israel.
For
further
information,
see
note
2
to
our
consolidated
financial
statements
included
inItem
18
of
this
annual
report.2015 Compared to 2014Financial
expenses,
net,
which
were
primarily
comprised
of
foreign
currencies
effects
and
interest
expense,
net,
amounted
to
$10.3
million
for
the
year
ended
December
31,
2015,
compared
to
a
financial
expense,net
of
$6.5
million
for
the
year
ended
December
31,
2014.
The
increase
in
financial
expense,
net
was
primarily
due
to
costs
related
to
the
termination
of
our
revolving
credit
facility
during
September
2015
in
an
amountof
$2.7
million,
as
well
as
foreign
currency
translation
losses
due
to
changes
in
the
rate
of
exchange
between
the
U.S.
dollar
and
the
local
currencies
in
the
markets
in
which
we
operate
(primarily
the
Euro).51Table of ContentsIncome TaxesIncome
taxes
and
income
taxes
as
a
percentage
of
net
income
before
taxes
for
the
last
three
years,
as
well
as
the
percentage
change
in
income
taxes
between
those
years,
were
as
follows:Year Ended December 31,




2016




2015




2014




2016-2015




2015-2014U.S. $ in thousandsChange in %Change in %Income
taxes$




(9,446)$




(10,320)$




(35,248)-8.5%-70.7%As
a
percent
ofloss
before
income
taxes10.9%0.7%22.8%1366.7%-96.7%2016 Compared to 2015Our
effective
tax
rate
for
the
year
ended
December
31,
2016
was
10.9%
as
compared
to
0.7%
tax
rate
for
the
year
ended
December
31,
2015.
Our
effective
tax
rate
is
impacted
significantly
from
the
changes
in
themix
of
taxable
income
and
loss
between
Israel
and
the
U.S.
with
no
tax
benefit
being
recorded
for
our
U.S.
subsidiaries
tax
losses.
We
will
continue
to
monitor
whether
the
realization
of
our
remaining
deferred
taxassets
is
more
likely
than
not.During
2016,
we
recorded
an
income
tax
benefit
of
$
6.8
attributable
to
one
of
our
foreign
subsidiaries
which
received
a
favorable
tax
ruling
from
the
tax
authorities.
In
addition,
during
2016,
we
adjusted
ourestimate
of
long-term
tax
rates
in
Israel.
As
a
result,
we
recorded
$5.2
million
of
income
taxes
benefit
against
deferred
tax
liabilities
associated
with
the
amortization
of
the
respective
intangible
assets.For
a
full
reconciliation
of
our
effective
tax
rate
to
the
Israeli
statutory
rate
of
25%
and
for
further
explanation
of
our
provision
for
income
taxes,
refer
to
note
9
to
our
consolidated
financial
statements
included
inItem
18
of
this
annual
report.2015 Compared to 2014Our
effective
tax
rate
for
the
year
ended
December
31,
2015
was
0.7%
as
compared
to
22.8%
tax
rate
for
the
year
ended
December
31,
2014.
Our
effective
tax
rate
has
varied
significantly
due
to
changes
in
the
mixof
taxable
income
and
loss
between
Israel
and
the
U.S.,
driven
by
no
tax
benefit
being
recorded
for
our
U.S.
subsidiaries
tax
losses
for
the
year
ended
December
31,
2015.Our
effective
tax
rate
for
the
year
ended
December
31,
2015,
was
impacted
by
goodwill
impairment
of
$942.4
million,
as
described
in
note
7
to
our
consolidated
financial
statements
included
in
Item
18
of
thisannual
report,
which
is
non-tax
deductible,
and
therefore
had
a
significant
impact
on
the
effective
tax
rate
for
that
period.
In
addition,
the
impairment
of
certain
intangible
assets,
as
described
in
note
8
to
ourconsolidated
financial
statements
as
well
as
tax
deductible
goodwill,
resulted
in
a
reversal
of
related
deferred
tax
liabilities
amounting
to
$116.5
million
for
the
year
ended
December
31,
2015.
We
also
recorded
avaluation
allowance
of
$152.1
million
against
deferred
tax
assets
in
respect
of
deferred
tax
assets
as
it
is
more
likely
than
not
that
those
deferred
tax
assets
will
not
be
realized
in
the
near-term.In
addition,
during
2015,
we
adjusted
our
estimate
of
long-term
tax
rates
in
Israel.
As
a
result,
we
recorded
$4.2
million
of
income
taxes
and
deferred
tax
liabilities
associated
with
the
amortization
of
the
intangibleassets.52Table of ContentsNet Loss and Net Loss Per Share Attributable to Stratasys Ltd.Net
loss
and
net
loss
as
a
percentage
of
our
total
revenues
for
the
last
three
years,
as
well
as
the
percentage
change
in
net
income
between
those
years,
were
as
follows:Year Ended December 31,




2016




2015




2014




2016-2015




2015-2014U.S. $ in thousandsChange in %Change in %Net
loss
attributable
to
Stratasys
Ltd.$




(77,219)$




(1,372,835)$




(119,420)-94.4%1049.6%Percentage
of
Sales-11.5%-197.2%-15.9%Diluted
net
income
(loss)
per
share$(1.48)$(26.64)$(2.39)-94.4%1016.0%2016 Compared to 2015Net
loss
attributable
to
Stratasys
Ltd.
for
the
year
ended
December
31,
2016
was
$77.2
million
as
compared
to
$1.37
billion
for
the
year
ended
December
31,
2015.
The
decrease
in
net
loss
attributable
to
StratasysLtd
was
primarily
attributable
to
the
non-cash
goodwill
and
intangible
assets
impairment
charges
of
$1.22
billion
recorded
in
2015
as
well
as
other
factors
as
discussed
above.Diluted
loss
per
share
for
the
years
ended
December
31,
2016
and
2015
was
$1.48
and
$26.64,
respectively.
The
weighted
average
fully
diluted
share
count
for
the
year
ended
December
31,
2016
was
52.6
million,compared
to
51.6
million
for
the
year
ended
December
31,
2015.2015 Compared to 2014Net
loss
attributable
to
Stratasys
Ltd.
for
the
year
ended
December
31,
2015
was
$1.37
billion
as
compared
to
$119.4
million
for
the
year
ended
December
31,
2014.
This
increase
of
the
net
loss
attributable
toStratasys
Ltd
was
due
to
the
factors
that
were
previously
discussed,
primarily
the
increase
in
goodwill
and
other
intangible
assets
impairment
charges
and
the
decrease
in
net
sales.Diluted
loss
per
share
for
the
years
ended
December
31,
2015
and
2014
was
$26.64
and
$2.39,
respectively.
The
weighted
average
fully
diluted
share
count
for
the
year
ended
December
31,
2015
was
51.6
million,compared
to
50.0
million
for
the
year
ended
December
31,
2014.
In
computing
our
loss
per
share
for
the
year
ended
December
31,
2015,
we
adjusted
the
net
loss
attributable
to
Stratasys
Ltd.
by
$1.8
million
due
toexcess
redemption
amount
of
redeemable
non-controlling
interest.Goodwill Assessment as of December 31, 2016During
the
fourth
quarter
of
2016,
we
performed
a
quantitative
assessment
for
goodwill
impairment
for
our
Stratasys-Objet
reporting
unit.Following
our
quantitative
assessment,
we
concluded
that
the
fair
value
of
Stratasys-Objet
reporting
unit
exceeds
its
carrying
amount
by
approximately
5%
,
with
a
carrying
amount
of
goodwill
assigned
to
thisreporting
unit
in
the
amount
of
$386
million.
When
evaluating
the
fair
value
of
Stratasys-Objet
reporting
unit
we
used
a
discounted
cash
flow
model
which
utilized
Level
3
measures
that
represent
unobservable
inputsinto
our
valuation
method.Key
assumptions
used
to
determine
the
estimated
fair
value
include:
(a)
expected
cash
flow
for
5
years
following
the
assessment
date
which
(including
expected
revenue
growth,
costs
to
produce,
operating
profitmargins
and
estimated
capital
needs);
(b)
an
estimated
terminal
value
using
a
terminal
year
growth
rate
of
3.1%
determined
based
on
the
growth
prospects
of
the
reporting
unit;
and
(c)
a
discount
rate
of
14.0%
based
onmanagement’s
best
estimate
of
the
after-tax
weighted
average
cost
of
capital.
If
any
of
these
were
to
vary
materially
from
our
plans,
we
could
face
impairment
of
goodwill
allocated
to
this
reporting
unit
in
the
future.A
hypothetical
decrease
in
the
growth
rate
of
1%
or
an
increase
of
1%
to
the
discount
rate
would
reduce
the
fair
value
of
the
Stratasys-Objet
reporting
unit
by
approximately
$46
million
and
$83
million,respectively
,
and
could
trigger
a
potential
impairment
of
its
goodwill.Based
on
our
assessment
as
of
December
31,
2016,
no
goodwill
was
determined
to
be
impaired.Determining
the
fair
value
of
our
Stratasys-Objet
reporting
unit
requires
significant
judgment,
including
judgments
about
the
appropriate
discount
rates,
terminal
growth
rates,
weighted
average
costs
of
capital
andthe
amount
and
timing
of
projected
future
cash
flows.
We
will
continue
to
monitor
the
fair
value
of
Stratasys-Objet
reporting
unit
and
intangible
assets
to
determine
whether
events
and
changes
in
circumstances
such
asfurther
deterioration
in
the
business
climate
or
operating
results,
further
significant
decline
in
our
share
price,
changes
in
management’s
business
strategy
or
downward
changes
of
our
cash
flows
projections,
warrantfurther
interim
impairment
testing.
For
further
information,
refer
to
note
7
to
our
consolidated
financial
statements
included
in
Item
18
of
this
annual
report.53Table of ContentsNon-GAAP Financial MeasuresThe
following
non-GAAP
data,
which
excludes
certain
items
as
described
below,
are
non-GAAP
financial
measures.
Our
management
believes
that
these
non-GAAP
financial
measures
are
useful
information
forinvestors
and
shareholders
of
our
company
in
gauging
our
results
of
operations
(x)
on
an
ongoing
basis
after
excluding
merger
and
acquisition
related
expense
and
reorganization-related
charges,
and
(y)
excluding
non-cash
items
such
as
stock-based
compensation
expenses,
acquired
intangible
assets
amortization,
impairment
of
goodwill
and
other
long-lived
assets,
changes
in
fair
value
of
obligations
in
connection
with
acquisitionsand
the
corresponding
tax
effect
of
those
items
.
We
also
exclude
non-recurring
changes
of
non-cash
valuation
allowance
on
deferred
tax
assets,
as
well
as
non-recurring
significant
tax
charges
or
benefits
that
relate
toprior
periods
which
we
do
not
believe
are
reflective
of
ongoing
business
and
operating
results.
These
non-GAAP
adjustments
either
do
not
reflect
actual
cash
outlays
that
impact
our
liquidity
and
our
financial
conditionor
have
a
non-recurring
impact
on
the
statement
of
operations,
as
assessed
by
management.
These
non-GAAP
financial
measures
are
presented
to
permit
investors
to
more
fully
understand
how
management
assessesour
performance
for
internal
planning
and
forecasting
purposes.
The
limitations
of
using
these
non-GAAP
financial
measures
as
performance
measures
are
that
they
provide
a
view
of
our
results
of
operations
withoutincluding
all
items
indicated
above
during
a
period,
which
may
not
provide
a
comparable
view
of
our
performance
to
other
companies
in
our
industry.
Investors
and
other
readers
should
consider
non-GAAP
measuresonly
as
supplements
to,
not
as
substitutes
for
or
as
superior
measures
to,
the
measures
of
financial
performance
prepared
in
accordance
with
GAAP.
Reconciliation
between
results
on
a
GAAP
and
non-GAAP
basis
isprovided
in
a
table
below.54Table of ContentsReconciliation of GAAP and Non-GAAP Results of OperationsYear ended December 31, 2016Non-GAAP




GAAP




Adjustments




Non-GAAP(U.S. dollars and shares in thousands,except per share amounts)Gross
profit
(1)$




317,306$







50,334$




367,640Operating
income
(loss)
(1,2)(86,713)115,72929,016Net
income
(loss)
attributable
to






Stratasys
Ltd.
(1,2,3)(77,219)91,98914,770Net
income
(loss)
per
diluted
share
attributableto
Stratasys
Ltd.
(4)$(1.48)$1.76$0.28
(1)




Acquired
intangible
assets
amortization
expense41,712Impairment
charges
of
other
intangible
assets1,779Non-cash
stock-based
compensation
expense2,780Reorganization
and
other
related
costs3,846Merger
and
acquisition
related
expense21750,334
(2)Acquired
intangible
assets
amortization
expense14,901Non-cash
stock-based
compensation
expense17,993Impairment
charges
of
intangible
assets
and
other
long-lived
assets21,774Change
in
fair
value
of
obligations
in
connection
with
acquisitions(872)Reorganization
and
other
related
costs3,671Merger
and
acquisition
related
expense7,92865,395115,729
(3)Corresponding
tax
effect
and
other
tax
adjustments(24,233)Intangible
assets
amortization
expense
of
associated
company493$91,989
(4)Weighted
average
number
of
ordinary






shares
outstanding-
Diluted52,58253,20155Table of ContentsYear ended December 31, 2015Non-GAAP




GAAP




Adjustments




Non-GAAP(U.S. dollars and shares in thousands,except per share amounts)Gross
profit
(1)$




102,172$




259,545$




361,717Operating
income
(loss)
(1,2)(1,373,544)1,357,577(15,967)Net
income
(loss)
attributable
to






Stratasys
Ltd.
(1,2,3)(1,372,835)1,382,7899,954Net
income
(loss)
per
diluted
share
attributableto
Stratasys
Ltd.
(4)$(26.64)$26.83$0.19
(1)




Acquired
intangible
assets
amortization
expense50,353Impairment
charges
of
other
intangible
assets191,534Non-cash
stock-based
compensation
expense5,381Reorganization
and
other
related
costs10,949Merger
and
acquisition
related
expense1,328259,545
(2)Goodwill
impairment942,408Acquired
intangible
assets
amortization
expense22,436Non-cash
stock-based
compensation
expense24,629Impairment
charges
of
intangible
assets
and
other
long-lived
assets86,937Change
in
fair
value
of
obligations
in
connection
with
acquisitions(23,671)Reorganization
and
other
related
costs16,955Merger
and
acquisition
related
expense28,3381,098,0321,357,577
(3)Credit
facility
termination
related
costs2,705Corresponding
tax
effect
and
other
tax
adjustments22,507$1,382,789
(4)Weighted
average
number
of
ordinary






shares
outstanding-
Diluted51,59252,82456Table of ContentsYear ended December 31, 2014Non-GAAPGAAPAdjustments
Non-GAAP(U.S. dollars and shares in thousands,except per share amounts)Gross
profit
(1)




$362,394




$76,877




$





439,271Operating
income
(loss)
(1,2)





(148,189)





256,452108,263Net
income
(loss)
attributable
to
Stratasys
Ltd.
(1,2,3)(119,420)223,049103,629
Net
income
(loss)
per
diluted
share
attributable
to
Stratasys
Ltd.
(4)$(2.39)$4.39$2.00
(1)Acquired
intangible
assets
amortization
expense56,470Impairment
charges
of
other
intangible
assets11,636Non-cash
stock-based
compensation
expense4,493Merger
and
acquisition
related
expense4,27876,877
Goodwill
impairment102,470(2)Acquired
intangible
assets
amortization
expense24,952Non-cash
stock-based
compensation
expense25,714Impairment
charges
of
other
intangible
assets3,000Change
in
fair
value
of
obligations
in
connection
with
acquisitions(26,150)Merger
and
acquisition
related
expense49,589179,575256,452
(3)Corresponding
tax
effect(33,403)$223,049
(4)

Weighted
average
number
of
ordinary






shares
outstanding-Diluted50,01951,80557Table of ContentsForward-looking Statements and Factors That May Affect Future Results of OperationSee
“Cautionary
Note
Regarding
Forward-looking
Statements”
at
the
beginning
of
this
annual
report
(following
the
table
of
contents).Variability of Operating ResultsOur
revenues
and
profitability
may
vary
in
any
given
year,
and
from
quarter
to
quarter,
depending
on
the
number
and
mix
of
products
sold
and
the
average
selling
price
of
the
products,
and
are
also
affected
by
theseasonality
of
our
business.
In
addition,
due
to
competition,
uncertain
market
acceptance
and
other
factors,
we
may
be
required
to
reduce
prices
for
our
products
in
the
future.Our
future
results
will
be
affected
by
a
number
of
factors,
including
our
ability
to:
increase
the
number
of
units
sold;
develop,
introduce
and
deliver
new
products
on
a
timely
basis;
accurately
anticipate
customerdemand
patterns;
and
manage
future
inventory
levels
in
line
with
anticipated
demand.
Our
results
may
also
be
affected
by
competitive
factors,
the
extent
to
which
our
cost
reduction
program
succeeds,
the
availabilityof
working
capital,
results
of
litigation,
the
enforcement
of
intellectual
property
rights,
currency
exchange
rate
fluctuations,
commodity
prices
and
economic
conditions
in
the
geographic
areas
in
which
we
operate.Macro
factors,
such
as
the
extent
of
growth
of
the
3D
printing
market
generally,
may
also
impact
our
operating
results.
There
can
be
no
assurance
that
our
historical
performance
in
sales,
gross
profit
and
net
income(loss)
will
improve
or
even
continue,
or
that
sales,
gross
profit
and
net
income
(loss)
in
any
particular
quarter
will
improve
over
those
of
preceding
quarters,
including
comparable
quarters
of
previous
years.
See
Item3.D
-
“Risk
Factors”
above.Effective Corporate Tax RateSee
“Israeli
Tax
Considerations
and
Government
Programs
—
General
Corporate
Tax
Structure
in
Israel”
in
Item
4.B
above
for
a
discussion
of
the
general
tax
structure
in
Israel
and
applicable
corporate
tax
rates.In
2016,
we
derived
a
significant
portion
of
our
income
from
facilities
granted
Approved
or
Beneficiary
Enterprise
status,
offset
by
losses
of
our
U.S.
subsidiaries
with
no
tax
benefit
being
recorded
for
those
losses,as
the
near-term
realization
of
these
assets
is
uncertain.
Therefore,
our
effective
tax
rate
differ
significantly
from
the
historic
rate
of
Stratasys,
Inc.
See
“Israeli
Tax
Considerations
and
Government
Programs
—
TheLaw
for
the
Encouragement
of
Capital
Investments”
in
Item
4.B
above.
Income
tax
expense
in
our
historical
financial
statements
prior
to
2013
related
primarily
to
the
income
taxes
of
non-Israeli
subsidiaries,
as
incomefrom
Objet
Ltd.
was
included
only
for
the
month
of
December,
2012,
subsequent
to
the
Stratasys-Objet
merger.In
the
event
we
have
taxable
income
in
Israel,
derived
from
sources
other
than
Approved
or
Beneficiary
Enterprises,
such
income
would
be
taxable
at
the
regular
Israeli
corporate
tax
rates
described
above.As
part
of
the
process
of
preparing
our
consolidated
financial
statements,
we
must
estimate
our
income
taxes
in
each
of
the
jurisdictions
in
which
we
operate.
This
process
involves
our
estimating
our
actual
currenttax
exposure
together
with
assessing
temporary
differences
resulting
from
differing
treatment
of
items
for
tax
and
accounting
purposes.
Actual
income
taxes
could
vary
from
these
estimates
due
to
future
changes
inincome
tax
law
or
results
from
final
tax
examinations
and
reviews.Effects of Government Regulations and Location on our BusinessFor
a
discussion
of
the
effects
of
Israeli
governmental
regulation
and
our
location
in
Israel
on
our
business,
see
“Israeli
Tax
Considerations
and
Government
Programs”
in
Item
4.B
above
and
the
“Risks
related
tooperations
in
Israel”
in
Item
3.D
above.InflationWe
believe
that
inflation
has
not
had
a
material
effect
on
our
operations
or
on
our
financial
condition
during
the
three
most
recent
fiscal
years.Foreign Currency TransactionsSee
“Foreign
Currency
Exchange
Risk”
in
Item
11
below
for
a
discussion
of
foreign
currency
transactions.58Table of ContentsB. Liquidity and Capital ResourcesA
summary
of
our
statement
of
cash
flows
for
the
three
years
ended
December
31,
2016
is
as
follows:Year ended December 31,




2016




2015




2014U.S. $ in thousandsNet
loss$





(77,621)$





(1,373,511)$





(119,470)Goodwill
and
other
long-lived
assets
impairment
charges24,9241,231,385117,106Depreciation
and
amortization92,877108,395109,429Deferred
income
taxes(10,378)(19,129)(53,887)Stock-based
compensation20,77330,01030,207Change
in
fair
value
of
obligations
in
connection
withacquisitions(872)(23,671)(26,150)Foreign
currency
transactions
loss
and
other
non-cash
items3,3678,62910,602Change
in
working
capital
and
other
items8,90315,982(54,021)Net
cash
provided
by
(used
in)
operating
and
other
activities61,973(21,910)13,816Net
cash
used
in
investing
activities(63,989)(93,102)(27,439)Net
cash
provided
by
(used
in)
financing
activities25,799(67,004)44,941Effect
of
exchange
rate
changes
on
cash
and
cash
equivalents(1,047)(2,533)(3,265)Net
change
in
cash
and
cash
equivalents22,736(184,549)28,053Cash
and
cash
equivalents,
beginning
of
year257,592442,141414,088Cash
and
cash
equivalents,
end
of
year$280,328$257,592$442,141Our
cash
and
cash
equivalents
balance
increased
to
$280.3
million
at
December
31,
2016
compared
to
$257.6
million
at
December
31,
2015.
The
increase
in
cash
and
cash
equivalents
in
2016
was
due
to
cash
flowsprovided
by
operating
activities
and
financing
activities
of
$62.0
million
and
$25.8
million,
respectively,
partially
offset
cash
flows
used
in
investing
activities
in
an
amount
of
$64.0
million.Our
cash
and
cash
equivalents
balance
decreased
to
$257.6
million
at
December
31,
2015
compared
to
$442.1
million
at
December
31,
2014.Cash flow from operating activitiesYear ended December 31, 2016We
generated
$62.0
million
of
cash
from
our
operating
activities
during
2016.
The
net
loss
of
$77.6
million
was
primarily
adjusted
due
to
depreciation,
amortization
and
non-cash
impairment
charges
of
long-livedassets
of
$117.8
million
and
stock-based
compensation
of
$20.8
million,
partially
offset
by
changes
in
the
deferred
income
taxes
of
$10.4
million.
Changes
in
working
capital
and
other
items
of
$8.9
million
increasedour
cash
flow
provided
by
operating
activities.
We
continue
to
seek
operating
efficiencies
also
through
an
active
working
capital
management.
During
2016
our
effective
working
capital
management
activities
resultedin
improvements
in
our
cash
collections,
driven
by
a
decrease
in
accounts
receivable
and
net
investment
in
sales-type
leases
and
an
increase
of
our
deferred
revenues
liabilities.Year ended December 31, 2015We
used
$21.9
million
of
cash
for
our
operating
activities
during
2015.
The
net
loss
of
$1.37
billion
was
primarily
adjusted
due
to
non-cash
impairment
charges
of
goodwill
and
other
long-lived
assets
of
$1.23billion
and
depreciation
and
amortization
of
$108.4
million,
partially
offset
mainly
by
the
changes
in
deferred
income
taxes
of
$19.1
million.
Changes
in
working
capital
items
that
favorably
affected
our
cash
flow
usedin
operating
activities
were
primarily
attributable
to
increased
collection
efforts
that
resulted
in
a
decrease
in
accounts
receivable
of
$25.1
million
and
an
increase
of
$10.1
million
of
our
deferred
revenue
liabilities.
Thechanges
in
our
inventories
balance
negatively
affected
our
working
capital
in
an
amount
of
$12.4
million.Year ended December 31, 2014We
generated
$13.8
million
of
cash
from
operating
activities
during
2014.
The
net
loss
of
$119.5
million
was
primarily
adjusted
due
to
non-cash
charges
for
goodwill
and
other
intangible
assets
impairment
of$117.1
million,
depreciation
and
amortization
of
$109.4
million
and
stock-based
compensation
expense
of
$30.2
million,
partially
offset
mainly
by
the
changes
in
deferred
income
taxes
of
$53.9
million
and
in
thefunding
of
changes
in
our
working
capital
items
of
$54.0
million.59Table of ContentsCash flow from investing activitiesYear ended December 31, 2016We
used
$64.0
million
of
cash
in
our
investing
activities
during
2016.
Cash
was
primarily
used
to
purchase
property
and
equipment
in
an
amount
of
$45.1
million
as
well
as
for
certain
strategic
investments
inunconsolidated
entities.Our
principal
property
and
equipment
purchases
were
for
our
new
buildings
complex
under
construction
in
Rehovot,
Israel,
for
which
we
paid
approximately
$18.1
million
during
2016.
The
new
facility
inRehovot,
Israel,
which
will
contain
two
buildings,
houses
our
Israeli
headquarters,
research
and
development
facilities
and
certain
marketing
activities.
We
entered
the
first
building
in
January
2017.
Other
equipmentpurchases
were
primarily
for
the
enhancements
of
our
manufacturing
capabilities
of
our
facilities
and
other
building
improvements
in
the
United
States
and
Israel,
as
well
as
certain
investments
in
our
IT
infrastructure.Other
cash
used
in
our
investing
activities
included
$23.1
million
of
cash
used
for
certain
strategic
investments
in
unconsolidated
entities,
partially
offset
by
$6.7
million
of
cash
provided
by
net
changes
in
short-term
bank
and
other
restricted
deposits.We
expect
to
incur
significant
capital
expenditure
in
2017
for
our
buildings
complex
in
Israel.Year ended December 31, 2015We
used
$93.1
million
of
cash
in
our
investing
activities
during
2015.
Cash
was
primarily
used
to
purchase
property
and
equipment
in
an
amount
of
$84.3
million
as
well
as
$9.9
million
of
cash
used
foracquisitions.Our
principal
property
and
equipment
purchases
were
for
our
new
buildings
complex
under
construction
in
Rehovot,
Israel,
which
we
paid
approximately
$39.1
million
for
during
2015.
Other
property
andequipment
purchases
were
primarily
for
the
enhancement
of
our
manufacturing
capabilities
of
our
facilities
in
the
United
States.Year ended December 31, 2014We
used
$27.4
million
of
cash
in
our
investing
activities
during
2014.
We
used
$151.1
million
of
cash
to
fund
our
acquisitions.
In
addition,
we
also
used
non-cash
consideration
to
fund
our
acquisitions.
For
furtherdetails,
see
our
supplemental
disclosure
of
cash
flow
information
of
our
consolidated
statement
of
cash
flow
and
note
2
to
our
consolidated
financial
statements
included
in
Item
18
of
this
annual
report.
Property,
plantand
equipment
purchases
totaled
$60.5
million
and
the
net
changes
in
our
short-term
bank
deposits
provided
$189.8
million
of
cash
from
investing
activities.Cash flow from financing activitiesYear ended December 31, 2016Net
cash
provided
by
financing
activities
was
$25.8
million
during
2016.
Cash
provided
by
financing
activities
was
mainly
attributed
to
proceeds
from
bank
loan
of
$26.0
million.Net
cash
used
in
our
financing
activities
was
$67.0
million
during
2015.
Cash
used
in
financing
activities
was
mainly
attributed
to
net
repayment
of
$50.0
million
in
connection
of
the
termination
of
our
creditfacility.
In
addition,
$19.9
million
of
cash
were
used
to
finance
our
payments
for
obligations
in
connection
with
acquisitions
and
was
partially
offset
by
proceeds
of
$2.9
million
from
the
exercise
of
stock
options.Net
cash
provided
by
financing
activities
was
$44.9
million
in
2014.
Cash
provided
by
financing
activities
was
mainly
attributed
to
our
borrowing
of
$50.0
million
under
our
credit
facility
during
2014,
proceeds
of$7.9
million
from
the
exercise
of
stock
options
and
were
partially
offset
by
the
cash
payment
of
the
first
earn-out
period
obligation
in
connection
with
MakerBot
transaction
in
the
amount
of
$10.8
million.Capital resources and capital expendituresOur
total
current
assets
amounted
to
$553.0
million
as
of
December
31,
2016,
of
which
$280.3
million
consisted
of
cash
and
cash
equivalents.
Total
current
liabilities
amounted
to
164.6
million
as
of
December
31,2016.
Most
of
our
cash
and
cash
equivalents
are
held
in
banks
in
Israel,
Switzerland
and
the
U.S.Our
credit
risk
of
our
accounts
receivable
is
limited
due
to
the
relatively
large
number
of
customers
and
their
wide
geographic
distribution.
In
addition,
we
seek
to
reduce
the
credit
exposures
of
our
accountsreceivable
by
credit
limits,
credit
insurance
for
many
of
our
customers,
ongoing
credit
evaluation
and
account
monitoring
procedures.We
believe
that
we
will
have
adequate
cash
and
cash
equivalents
to
fund
our
ongoing
operations
and
that
these
sources
of
liquidity
will
be
sufficient
to
satisfy
our
capital
expenditure
and
debt
requirements
for
thenext
twelve
months.60Table of ContentsLong-Term Bank Loan and Credit LineIn
December
2016,
our
company
entered
into
a
secured
loan
agreement
with
Bank
Hapoalim
Ltd.
for
a
loan,
referred
to
as
the
Bank
Loan,
in
connection
with
our
new
office
facility
in
Israel.
Pursuant
to
the
BankLoan
agreement,
our
company
borrowed
$26
million
initially
and
secured
a
credit
line
which
we
refer
to
as
the
Credit
Line,
for
an
additional
$24
million.
Any
loans
draw
upon
the
Credit
Line
will
be
under
similarterms
as
the
Bank
Loan.
The
Bank
Loan
will
mature
in
December
2023
and
is
payable
in
equal
consecutive
quarterly
principal
installments
of
principal
and
accrued
interest.
Any
early
repayment
of
the
Bank
Loan
issubject
to,
within
the
initial
3
year
term
of
the
Bank
Loan,
a
maximum
1%
penalty
of
the
amount
prepaid.
The
repayment
of
the
Bank
Loan
is
secured
by
a
first
priority
lien
on
all
of
our
company’s
rights
in
theproperty
of
our
new
office
facility
in
Israel.
The
Bank
Loan
bears
interest
at
the
rate
of
LIBOR
plus
3.35%.
The
Bank
Loan
agreement
contains
customary
representations
and
warranties,
affirmative
covenants
andnegative
covenants,
which
include,
without
limitation,
restrictions
on
indebtedness,
liens,
investments,
and
certain
dispositions
with
respect
to
the
property
secured
by
the
lien.
The
Bank
Loan
also
contains
customaryevents
of
default
that
entitle
the
lender
to
cause
any
or
all
of
our
company's
indebtedness
to
become
immediately
due
and
payable
and
to
foreclose
on
the
lien,
and
includes
customary
grace
periods
before
certain
eventsare
deemed
events
of
default.
Borrowings
under
the
Bank
Loan
agreement
are
available
mainly
for
the
financing
of
our
new
facility
in
Israel.
As
of
December
31,
2016,
we
had
not
utilized
the
Credit
Line.We
believe
that
we
were
in
compliance
with
all
covenants
under
the
Bank
Loan
and
Credit
Line
as
of
December
31,
2016.61Table of ContentsAs
part
of
our
business
strategy,
we
plan
to
consider
and,
as
appropriate,
make
acquisitions
of
other
businesses,
strategic
alliances,
property,
plant
and
equipment
as
well
as
new
technologies
and
products.
Our
cashreserves
and
other
liquid
assets
may
be
inadequate
to
consummate
such
acquisitions
and
it
may
be
necessary
for
us
to
issue
shares
or
raise
substantial
additional
funds
in
the
future
to
complete
future
transactions.Contractual obligationsFor
information
concerning
our
material
commitments
as
of
December
31,
2016,
see
Item
5.F
below
(“Tabular
Disclosure
of
Contractual
Obligations”).Critical Accounting Policies and EstimatesWe
have
prepared
our
consolidated
financial
statements
and
related
disclosures
in
conformity
with
accounting
principles
generally
accepted
in
the
United
States
of
America.
This
has
required
us
to
make
estimates,judgments,
and
assumptions
that
affected
the
amounts
we
reported.
Note
1
to
our
consolidated
financial
statements
included
in
Item
18
of
this
annual
report
contains
the
significant
accounting
policies
and
methods
thatwe
used
to
prepare
our
consolidated
financial
statements.The
accounting
policies
that
reflect
our
more
significant
estimates,
judgments
and
assumptions
and
which
we
believe
are
the
most
critical
to
aid
in
fully
understanding
and
evaluating
our
reported
financial
resultsinclude
:●Revenue
Recognition

●Income
Taxes

●Contingencies

●Inventories

●Long
Lived
Assets

●GoodwillWe
base
our
estimates
on
historical
experience
and
on
various
other
assumptions
which
we
believes
to
be
reasonable
under
the
circumstances.
Because
of
the
uncertainty
inherent
in
these
matters,
actual
resultscould
differ
materially
from
the
estimates
we
use
in
applying
these
policies.Revenue RecognitionWe
derive
revenue
from
sales
of
AM
systems,
consumables,
and
services.
Our
AM
systems
include
software
and
hardware
that
function
together
to
provide
the
essential
functionality
of
the
tangible
system.
Werecognizes
revenue
when
(1)
persuasive
evidence
of
a
final
agreement
exists,
(2)
delivery
has
occurred
or
services
have
been
rendered,
(3)
the
selling
price
is
fixed
or
determinable,
and
(4)
collectability
is
reasonablyassured.Revenues
from
sales
to
resellers
are
generally
recognized
on
sell-in
basis,
upon
shipment
and
when
title
and
risk
of
loss
have
been
transferred
to
the
resellers.
When
products
and
services
are
sold
to
a
reseller,
thereseller
is
responsible
for
the
installation
of
the
system
and
for
other
support
services
and
therefore
considered
the
primary
obligor
in
the
arrangement
with
the
end-customers.
Products
and
services
sold
directly
by
usor
marketed
by
independent
sales
agents
are
recognized
based
on
the
gross
amount
charged
to
the
end-customer
as
we
are
considered
the
primary
obligor
in
the
arrangement,
retains
general
inventory
risk,
establishesthe
price
for
its
products
and
assumes
the
credit
risk
for
amounts
billed
to
its
end-customers.Revenue
from
sales-type
leases
may
include
systems,
other
products
and
maintenance
contracts.
We
recognizes
revenue
from
sales-type
leases
based
on
the
net
present
value
of
future
minimum
lease
payments.Product
revenue
from
sales-type
leases
is
generally
recognized
at
the
time
of
shipment.
The
portion
of
lease
agreements
related
to
maintenance
contracts
is
deferred
and
recognized
ratably
over
the
coverage
period.Revenue
from
operating
leases
is
recognized
ratably
over
the
lease
period.For
multiple-element
arrangements
we
allocate
revenue
to
all
deliverables
based
on
their
relative
selling
prices
and
recognizes
revenue
when
each
element’s
revenue
recognition
criteria
are
met.
In
suchcircumstances,
we
use
the
following
hierarchy
to
determine
the
selling
price
to
be
used
for
allocating
revenue
to
deliverables:
(i)
vendor-specific
objective
evidence
of
fair
value,
or
VSOE,
(ii)
third-party
evidence
ofselling
price,
or
TPE,
and
(iii)
best
estimate
of
selling
price,
or
BESP.VSOE
exists
only
when
we
sell
the
deliverable
separately
and
is
established
based
on
the
price
charged
in
such
stand-alone
transactions.
BESP
reflects
our
best
estimates
of
the
price
at
which
we
would
have
soldthe
product
regularly
on
a
stand-alone
basis.Most
service
revenue
is
derived
from
our
direct
manufacturing
printed
parts
services
and
sales
of
maintenance
contracts.
Our
direct
manufacturing
service
revenue
is
recognized
upon
shipment
of
the
parts,
based
onthe
terms
of
the
sales
arrangement.We
provide
customers
with
maintenance
under
a
warranty
agreement
and
defers
a
portion
of
the
revenue
from
the
related
printer
at
the
time
of
the
sale
based
on
the
relative
selling
price
of
those
services.
After
theinitial
warranty
period,
we
offer
customers
optional
maintenance
contracts
ranging
generally
from
one
to
three
years.
Deferred
maintenance
revenue
is
recognized
ratably,
on
a
straight-line
basis,
over
the
period
of
theservice.
Deferred
revenues
are
derived
mainly
from
these
prepaid
maintenance
agreements.
We
classify
the
portion
of
deferred
revenue
not
expected
to
be
earned
in
the
subsequent
12
months
as
long-term.We
assess
collectability
as
part
of
the
revenue
recognition
process.
This
assessment
includes
a
number
of
factors
such
as
an
evaluation
of
the
creditworthiness
of
the
customer,
past
due
amounts,
past
paymenthistory,
and
current
economic
conditions.
If
it
is
determined
that
collectability
cannot
be
reasonably
assured,
we
will
defer
recognition
of
revenue
until
collectability
is
assured.Income TaxesOur
effective
tax
rate
is
impacted
by
the
geographical
mix
of
taxable
income
and
loss.
We
record
a
tax
provision
for
the
anticipated
tax
consequences
of
our
reported
operating
results.
The
provision
for
income
taxis
calculated
based
on
our
assumptions
as
to
our
entitlement
to
various
benefits
under
the
applicable
tax
laws
and
tax
rates
in
the
jurisdictions
in
which
we
operate.
We
are
subject
to
income
taxes
in
Israel,
the
U.S.
andother
foreign
jurisdictions.
We
have
realized
and
expect
to
continue
to
realize
significant
tax
savings
based
on
the
determination
that
some
of
our
industrial
projects
that
have
been
granted
“Approved
Enterprise”
and“Beneficiary
Enterprise”
status,
which
provides
certain
benefits,
including
tax
exemptions
for
undistributed
income
and
reduced
tax
rates.
Income
not
eligible
for
Approved
Enterprise
and
Beneficiary
Enterprisebenefits
is
taxed
at
the
regular
corporate
rates,
which
were
25%
in
2016
and
26.5%
in
2015
and
2014.
We
are
also
a
Foreign
Investors
Company,
or
FIC,
as
defined
by
the
Investment
Law.
FICs
are
entitled
to
furtherreductions
in
the
tax
rate
normally
applicable
to
Approved
Enterprises
and
Beneficiary
Enterprises,
depending
on
the
level
of
foreign
ownership.
In
addition,
we
are
an
“Industrial
Company”
as
defined
by
the
IsraeliLaw
for
the
Encouragement
of
Industry
(Taxation),
1969,
and,
as
such,
are
entitled
to
certain
tax
benefits.Our
entitlement
to
the
above
benefits
is
subject
to
our
fulfilling
the
conditions
stipulated
by
the
Investment
Law
and
regulations.
Should
we
fail
to
meet
such
requirements
in
the
future,
income
attributable
to
ourApproved
Enterprise
and
Beneficiary
Enterprise
programs
could
be
subject
to
the
statutory
Israeli
corporate
tax
rate
and
we
could
be
required
to
refund
a
portion
of
the
tax
benefits
already
received
with
respect
to
suchprograms,
as
adjusted
by
the
Israeli
consumer
price
index
and
interest,
or
other
monetary
penalty.62Table of ContentsSignificant
judgment
is
required
in
evaluating
our
uncertain
tax
positions
and
determining
our
provision
for
income
taxes.
In
evaluating
the
exposure
associated
with
our
various
tax
filing
positions,
we
recordreserves
for
uncertain
tax
positions
in
accordance
with
US
GAAP,
based
on
the
technical
support
for
the
positions,
our
past
audit
experience
with
similar
situations.
Although
we
believe
our
tax
positions
comply
withapplicable
tax
laws
and
we
intend
to
defend
our
positions,
no
assurance
can
be
given
that
the
final
tax
outcome
of
these
matters
will
not
be
different
from
that
which
is
reflected
in
our
historical
income
tax
reserves
andaccruals.
We
adjust
these
reserves
in
light
of
changing
facts
and
circumstances,
such
as
the
closing
of
a
tax
audit
or
the
refinement
of
an
estimate.
To
the
extent
that
the
final
tax
outcome
of
these
matters
is
differentthan
the
amounts
recorded,
such
differences
will
impact
the
provision
for
income
taxes
in
the
period
in
which
such
determination
is
made.
The
provision
for
income
taxes
includes
the
impact
of
reserve
provisions
andchanges
to
reserves
that
are
considered
appropriate,
as
well
as
the
related
estimated
interest
and
penalties.Deferred
taxes
are
determined
utilizing
the
“asset
and
liability”
method
based
on
the
estimated
future
tax
effects
of
temporary
differences
between
the
carrying
amount
and
tax
bases
of
assets
and
liabilities
underthe
applicable
tax
laws,
and
on
effective
tax
rates
in
effect
when
the
deferred
taxes
are
expected
to
be
settled
or
realized.
Deferred
taxes
for
each
jurisdiction
are
presented
as
a
net
asset
or
liability,
net
of
any
valuationallowances.
Significant
judgment
required
in
determining
any
valuation
allowance
recorded
against
deferred
tax
assets.
In
assessing
the
need
for
a
valuation
allowance,
we
considered
all
available
evidence,
includingpast
operating
results,
the
most
recent
projections
for
taxable
income,
and
prudent
and
feasible
tax
planning
strategies.
As
a
result
of
losses
incurred
by
our
US
subsidiaries
in
past
few
years
and
since
the
near-termrealization
of
these
assets
is
uncertain,
we
provided
a
full
valuation
allowance
for
our
deferred
tax
assets
related
to
our
U.S.
subsidiaries
that
are
not
expected
to
be
realized.
We
reassess
our
valuation
allowanceperiodically
and
if
future
evidence
allows
for
a
partial
or
full
release
of
the
valuation
allowance,
a
tax
benefit
will
be
recorded
accordingly.ContingenciesWe
are
subject
to
various
legal
proceedings,
lawsuits,
government
investigations
and
claims
involving
employment-related,
patents,
commercial,
securities,
and
environmental
matters
that
may
arise
from
time
totime
in
the
ordinary
course
of
business.
The
outcomes
of
the
legal
proceedings
that
are
pending
as
of
the
date
the
financial
statements
are
issued
are
subject
to
significant
uncertainty.
We
record
a
liability
when
webelieve
that
it
is
both
probable
that
a
liability
has
been
incurred
and
the
amount
of
loss
can
be
reasonably
estimated.
Significant
judgment
is
required
to
determine
both
the
probability
of
having
incurred
a
liability
andthe
estimated
amount
of
the
liability.
We
review
these
matters
at
least
quarterly
and
adjust
these
liabilities
to
reflect
the
impact
of
negotiations,
settlements,
rulings,
advice
of
legal
counsel
and
other
updatedinformation
and
events,
pertaining
to
a
particular
case.
As
such
accruals
are
based
on
management’s
judgment
as
to
the
probability
of
losses,
accruals
may
materially
differ
from
actual
verdicts,
settlements
or
otheragreements
made
with
regards
to
such
contingencies.InventoriesOur
inventories
are
stated
at
the
lower
of
cost
or
net
realizable
value.
Cost
is
determined
mainly
using
standard
cost,
which
approximates
actual
cost,
on
a
first-in,
first-out
basis.
Inventory
costs
consist
of
materials,direct
labor
and
overhead.
Net
realizable
value
is
determined
based
on
estimated
selling
prices
in
the
ordinary
course
of
business,
less
reasonably
predictable
costs
of
completion,
disposal,
and
transportation.
We
assessperiodically
our
inventories
for
obsolescence
and
excess
balances,
or
when
certain
events
or
changes
in
circumstances
occur
that
trigger
such
assessment.
The
net
realizable
value
of
our
inventory
based
certain
offactors
including,
but
not
limited
to:
forecasted
selling
prices
and
future
demand
for
our
products
and
services,
historical
sales
patterns,
technological
changes,
estimated
service
period,
product
end-of-life
dates,alternative
uses
for
the
inventory,
new
products
launches
and
other
market
conditions
as
applicable.
If
required,
we
reduce
the
carrying
value
of
our
inventories
by
an
amount
equal
to
the
difference
between
its
cost
andthe
net
realizable
value.
Once
such
inventory
is
written
down,
a
new
lower
cost
basis
for
that
inventory
is
established.
Our
provisions
for
inventory
write-downs
for
obsolescence
and
excess
balances
requires
us
toutilize
significant
judgment.
Although
we
make
every
effort
to
ensure
the
accuracy
of
the
net
realizable
value
of
our
inventories,
any
significant
unanticipated
deteriorating
factor
could
have
a
material
impact
on
thecarrying
value
of
our
inventories
and
reported
operating
results.Long Lived AssetsOur
long-lived
assets,
other
than
goodwill,
comprised
mainly
of
definite
life
identifiable
intangible
assets
and
property,
plant
and
equipment.
Most
of
our
identifiable
intangible
assets
were
recognized
as
partbusiness
combinations
we
have
executed
in
prior
periods.
Our
identifiable
intangible
assets
are
primarily
comprised
of
developed
technology,
trademarks
and
trade
names,
customer
relationships
and
patents.We
review
the
carrying
amounts
of
our
long-lived
assets
for
potential
impairment
when
events
or
changes
in
circumstances
indicate
that
the
carrying
amount
of
an
asset
may
not
be
recoverable.
Impairmentindicators
may
include
any
significant
changes
in
the
manner
of
our
use
of
the
assets
or
the
strategy
of
our
overall
business,
certain
reorganization
initiatives,
significant
negative
industry
or
economic
trends
andsignificant
decline
in
our
share
price
for
a
sustained
period.
In
evaluating
recoverability
we
compare
the
carrying
amounts
of
the
asset
or
assets
groups
with
their
respective
estimated
undiscounted
future
cash
flows.
Ifthe
asset
or
assets
group
are
determined
to
be
impaired,
an
impairment
charge
is
recorded
as
the
amount
by
which
the
carrying
amount
of
the
asset
or
assets
group
exceed
their
fair
value.
During
the
year
endedDecember
31,
2016,
2015
and
2014
we
recorded
impairment
of
$24.9
million,
$289.0
million
and
$14.6
million
related
to
our
long-lived
assets.GoodwillGoodwill
reflects
the
excess
of
the
consideration
transferred
plus
the
fair
value
of
any
non-controlling
interest
in
the
acquiree
at
the
acquisition
date
over
the
fair
values
of
the
identifiable
net
assets
acquired.Goodwill
is
not
amortized
but
rather
is
tested
for
impairment
annually
at
the
reporting
unit
level,
or
whenever
events
or
circumstances
present
an
indication
of
impairment.
We
apply
the
Financial
Accounting
StandardsBoard,
or
FASB,
guidance
of
testing
goodwill
for
impairment.
During
2015,
we
determined
that
certain
indicators
of
potential
impairment
that
required
goodwill
impairment
analysis
for
all
of
our
reporting
unitsexisted.
Accordingly,
we
performed
a
quantitative
two-step
assessment
for
goodwill
impairment
for
each
of
our
reporting
units.
As
a
result,
we
recorded
a
non-cash
impairment
charge
of
$942.4
million
during
2015.The
non-cash
impairment
charges
were
recorded
in
order
to
reduce
the
carrying
amount
of
goodwill
to
its
estimated
fair
value.
Refer
to
Note
7
to
our
audited
financial
statements
included
in
Item
18
of
this
annualreport
for
further
information.Determining
the
fair
value
of
our
reporting
units
requires
significant
judgment,
including
judgments
about
the
appropriate
discount
rates,
terminal
growth
rates,
weighted
average
costs
of
capital
and
the
amount
andtiming
of
projected
future
cash
flows.
Projected
future
cash
flows
are
based
on
our
most
recent
budgets,
forecasts
and
strategic
plans
as
well
as
certain
growth
rate
assumptions.
Potential
changes
in
our
costs
andoperating
structure,
the
expected
timing
of
utilization
of
synergies
strategic
opportunities,
negative
effect
of
exchange
rate
differences
and
overall
weakness
in
the
evolving
3D
printing
marketplace,
could
negativelyimpact
our
near-term
cash-flow
projections
and
could
trigger
a
potential
impairment
of
our
goodwill.
In
addition,
failure
to
execute
our
strategic
plans
for
our
reporting
units
could
negatively
impact
the
fair
value
ofour
reporting
units,
and
increase
the
risk
of
an
additional
goodwill
impairment
in
the
future.
We
will
continue
to
monitor
the
fair
value
our
Stratasys-Objet
reporting
unit
to
determine
whether
events
and
changes
incircumstances
such
as
further
deterioration
in
the
business
climate
or
operating
results,
further
significant
decline
in
our
share
price,
changes
in
management’s
business
strategy
or
downward
changes
of
our
cash
flowsprojections,
warrant
further
interim
impairment
testing.On
March
3,
2016,
the
enforcement
division
of
the
U.S.
Securities
and
Exchange
Commission,
or
SEC,
issued
a
subpoena
to
us
requesting
a
number
of
documents
as
part
of
an
investigation
of
the
valuations
andother
calculations
we
used
to
assess
the
impairment
of
goodwill
and/or
intangible
assets
included
in
the
balance
sheet
in
our
SEC
filings.
We
have
cooperated
with
the
SEC
and
produced
documents
in
the
summer
of2016.
If
the
SEC
has
any
further
information
requests,
we
will
continue
to
cooperate
with
that
agency.C. Research and Development, Patents and Licenses, Etc.For
a
discussion
of
our
research
and
development
policies,
see
“Research
and
Development”
and
“Regulation—
Israeli
Tax
Considerations
and
Government
Programs
–
Law
for
the
Encouragement
of
CapitalInvestments”
in
Item
4.B
above
and
the
“Risks
related
to
operations
in
Israel”
in
Item
3.D
above.D. Trend Information.For
trend
information,
see
the
Risk
Factors
described
in
Item
3.D
above,
the
“Overview”
and
“Operating
Results”
sections
of
this
Item
5
-
“Operating
and
Financial
Review
and
Prospects”
and
Item
4
-“Information
on
the
Company”
above.63Table of ContentsE. Off-Balance Sheet Arrangements.Except
for
standard
operating
leases,
we
have
not
engaged
in
any
off-balance
sheet
arrangements,
such
as
the
use
of
unconsolidated
subsidiaries,
structured
finance,
special
purpose
entities
or
variable
interestentities.We
do
not
believe
that
our
off-balance
sheet
arrangements
and
commitments
have
or
are
reasonably
likely
to
have
a
current
or
future
effect
on
our
financial
condition,
changes
in
financial
condition,
revenues
orexpenses,
results
of
operations,
liquidity,
capital
expenditures
or
capital
resources
that
is
material
to
investors.F. Tabular Disclosure of Contractual Obligations.The
following
table
summarizes
our
material
known
contractual
obligations
and
commitments
as
of
December
31,
2016
that
we
expect
to
require
significant
cash
outlays
in
future
periods:Payments Due by PeriodLess Than1-33-5More ThanTotal




1 Year




Years




Years




5 YearsU.S. $ in thousandsOperating
lease
obligations31,343$8,960$12,380$7,117$2,886Purchase
obligations34,67134,671---Long-term
debt
(including
estimated
interest)30,1644,8069,1078,4547,797$




96,178$




48,437$




21,487$




15,571$




10,683The
total
amount
of
unrecognized
tax
benefits
for
uncertain
tax
positions
was
$
18.0
million
as
of
December
31,
2016.
Payment
of
these
obligations
would
result
from
settlements
with
taxing
authorities.
Due
to
thedifficulty
in
determining
the
timing
of
resolution
of
audits,
these
obligations
are
not
included
in
the
above
table.In
addition,
the
Company
has
obligations
in
connection
with
acquisitions
due
to
the
Solid
Concepts
transaction.
For
further
information
refer
to
Note
2
to
our
consolidated
financial
statements
included
in
Item
18
ofthis
annual
report.ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.A. Directors and Senior Management.The
following
table
lists
the
names
and
ages
of
our
current
directors,
as
well
as
the
names,
ages
and
positions
of
the
current
members
of
our
senior
management,
as
of
the
filing
date
of
this
annual
report:Name






Age






PositionElchanan
Jaglom75Chairman
of
the
Board
of
DirectorsS.
Scott
Crump63Chairman
of
the
Executive
Committee
and
Chief
Innovation
OfficerIlan
Levin51Chief
Executive
Officer
and
DirectorEdward
J.
Fierko75DirectorVictor
Leventhal72DirectorJohn
J.
McEleney54DirectorZiva
Patir66
DirectorDavid
Reis
56DirectorHaim
Shani59DirectorLilach
Payorski43Chief
Financial
OfficerElchanan Jaglom has
served
as
Chairman
of
the
Board
of
Directors
since
February
2015.
From
the
Stratasys-Objet
merger
until
February
2015,
Mr.
Jaglom
served
as
the
Chairman
of
the
Executive
Committee
ofour
company.
Prior
to
the
Stratasys-Objet
merger,
he
served
as
Chairman
of
Object’s
board
of
directors
from
2001
until
the
Stratasys-Objet
merger.
Mr.
Jaglom
also
served
as
the
Chairman
of
Diamond
CapitalManagement
Ltd.,
the
investment
manager
of
the
Diamond
Group
of
investment
funds,
until
January
2,
2014.
In
parallel
to
his
involvement
with
these
entities,
Mr.
Jaglom
has
been
involved
in
investment
managementof
funds,
private
equity
and
venture
capital
investment
since
the
early
1980s,
focusing
primarily
on
early-stage
technology
companies.
He
is
currently
a
member
of
the
Board
of
Trustees
of
the
Tel
Aviv
Museum
of
Artand
the
Ben
Gurion
University
of
the
Negev.
He
holds
a
bachelor’s
degree
in
economics
and
statistics
from
the
Hebrew
University
in
Jerusalem
and
an
M.B.A.
from
New
York
University.64Table of ContentsS. Scott Crump has
served
as
Chairman
of
the
Executive
Committee
of
the
Board
of
Directors
since
February
2015
and
as
our
Chief
Innovation
Officer
since
February
2013.
Mr.
Crump
previously
served
asChairman
of
the
Board
of
Directors
from
the
Stratasys-Objet
merger
until
February
2015,
as
Chief
Executive
Officer,
President,
Treasurer
and
a
director
of
Stratasys,
Inc.
from
its
inception
in
1988
until
the
Stratasys-Objet
merger,
and
as
Chief
Financial
Officer
of
Stratasys
from
February
1990
to
May
1997.
Mr.
Crump
was,
with
Lisa
H.
Crump,
his
wife,
a
co-founder
of
Stratasys,
Inc.,
and
he
is
the
inventor
of
our
FDM
technology.During
the
period
from
1982
to
1988,
Mr.
Crump
was
a
co-founder
and
Vice
President
of
Sales
of
IDEA,
Inc.,
which
later
changed
its
name
to
SI
Technologies,
Inc.,
a
leading
manufacturer
of
force,
load
and
pressuretransducers.
Mr.
Crump
continued
to
be
a
director
and
shareholder
of
that
company
until
its
sale
to
Vishay
Intertechnologies,
Inc.
(NYSE:
VSH)
in
April
2005.
Mr.
Crump
holds
a
B.S.
in
mechanical
engineering
fromWashington
State
University.Ilan Levin has
served
as
our
Chief
Executive
Officer
since
July
1,
2016
and
as
a
director
of
our
company
since
2000.
Mr.
Levin
was
appointed
as
President
and
Vice
Chairman
of
the
Objet
board
in
February
2011,in
which
position
he
remained
until
the
Stratasys-Objet
merger.
He
has
been
involved
in
venture
capital
and
private
equity
investment
activity
since
1997,
acting
as
a
member
of
the
board
of
directors
and
as
an
advisorfor
a
wide
variety
of
technology-related
companies,
as
well
as
a
director
for
Vision
Sigma
Ltd.
(TLV:
VISN:IT).
From
2003
through
2009,
he
served
as
Chief
Executive
Officer
of
CellGuide
Ltd.
He
holds
a
B.A.Sc.from
the
University
of
Toronto
and
an
LL.B.
from
Tel
Aviv
University.Edward J. Fierko, who
has
served
as
a
director
of
our
company
since
the
Stratasys-Objet
merger,
also
served
in
that
capacity
for
Stratasys,
Inc.
from
February
2002
until
the
merger.
Since
May
2003,
Mr.
Fierkohas
been
President
of
EJF
Associates,
a
consulting
firm.
From
March
2003
to
May
2003,
Mr.
Fierko
was
Vice
President
of
GE
Osmonics,
Inc.,
a
manufacturer
of
reverse
osmosis
water
filtration
devices.
FromNovember
1999
through
February
2003,
he
served
as
President
and
Chief
Operating
Officer
of
Osmonics,
and
from
November
1998
to
September
1999
he
served
as
Executive
Vice
President
of
Osmonics.
FromSeptember
1987
to
August
1998,
Mr.
Fierko
was
President
and
CEO
of
Ecowater
International,
a
holding
company
with
operating
companies
in
the
water,
waste
and
special
process
treatment
industry.
Prior
to
that,
Mr.Fierko
held
several
management
positions
over
a
23-year
career
at
General
Electric
Company
(NYSE:
GE).
He
holds
a
B.S.
in
Accounting
from
La
Salle
University.Victor Leventhal has
served
as
a
director
of
our
company
(until
May
2016,
as
an
external
director)
since
the
closing
of
the
Stratasys-Objet
merger
on
December
1,
2012.
Mr.
Leventhal
has
served
as
a
consultant
toSolidWorks
Corporation,
a
3D
CAD
software
company,
since
2006.
From
2001
to
2006,
he
was
a
Group
Executive
for
Dassault
Systemes
S.A.
(NASDAQ:
DASTY),
the
parent
company
of
SolidWorks,
where
heserved
on
the
Global
Management
Committee.
From
1995
to
2001,
Mr.
Leventhal
was
the
Chief
Operating
Officer
of
SolidWorks,
where
he
was
responsible
for
growing
the
business
from
its
inception.
From
1990
to1995,
Mr.
Leventhal
was
the
Chief
Executive
Officer
of
CAD
Solutions,
LLC,
a
leading
reseller
of
2D
and
3D
CAD
products,
which
he
helped
grow
from
a
$5
million
company
to
a
$32
million
company.
From
1985to
1990,
he
held
numerous
executive
positions,
including
serving
as
the
Executive
Vice
President
of
Computerland,
the
largest
computer
retailer
at
the
time,
where
he
was
responsible
for
franchise
development,
majoraccount
sales,
marketing,
training,
purchasing
and
vendor
relations.
Prior
to
that
time,
he
held
various
administrative,
operations,
marketing
and
financial
positions
at
IBM
for
18
years.
He
has
also
served
on
the
boardsof
directors
of
Solido,
a
3D
printing
company,
Graphisoft,
an
architectural
software
company,
and
3D
Express,
a
startup
company
in
the
rapid
prototyping
industry.
Mr.
Leventhal
received
a
B.B.A.
from
the
Universityof
Texas.John J. McEleney, who
has
served
as
a
director
of
our
company
since
the
Stratasys-Objet
merger,
served
as
a
director
of
Stratasys,
Inc.
from
2007
until
the
Stratasys-Objet
merger.
He
is
the
Chief
Executive
Officerof
Onshape
Inc.
a
venture
backed
start-up
company
focused
on
applying
modern
computing
to
the
3D
product
design
market.
Prior
to
Onshape
he
was
the
Chief
Executive
of
Cloud
Switch,
which
was
acquired
byVerizon.
He
served
as
a
director
of
SolidWorks
Corporation,
a
wholly
owned
subsidiary
of
Dassault
Systemes
S.A.
(NASDAQ:
DASTY),
from
June
2000
to
May
2008,
and
also
served
as
its
Chief
Executive
Officerfrom
2001
until
June
2007.
Mr.
McEleney
joined
SolidWorks
in
1996,
serving
in
several
capacities,
including
Chief
Operating
Officer
and
Vice
President,
Americas
Sales.
Prior
to
joining
SolidWorks,
Mr.
McEleneyheld
several
key
management
positions
at
CAD
software
pioneer
Computervision
and
at
defense
contractor
Raytheon.
Mr.
McEleney
also
serves
as
a
director
of
Newforma,
a
privately
held
software
company.
He
holdsa
B.S.
in
Mechanical
Engineering
from
the
University
of
Rochester,
an
M.S.
in
Manufacturing
Engineering
from
Boston
University
and
an
M.B.A.
from
Northeastern
University.Ziva Patir has
served
as
our
director
since
June
2013,
when
she
was
elected
as
an
unclassified
director
pursuant
to
an
amendment
to
our
amended
articles
that
was
adopted
in
June
2013.
Since
February
2014,
Ms.Patir
serves
on
the
board
of
directors
of
ELTA
Systems
Ltd.,
an
Israeli
provider
of
defense
products
and
services.
She
also
serves
as
a
member
of
the
board
of
Lahav
at
Tel-Aviv
University,
the
leading
provider
ofexecutive
education
in
Israel,
a
position
that
she
has
held
since
2003,
and
as
member
of
the
board
of
Kardan
Vehicle
Ltd.,
the
Israeli
licensee
of
Avis.
Ms.
Patir
served
as
the
Vice
President
of
Standards,
Policy
andSustainability
for
Better
Place,
an
infrastructure
electrical
vehicles
company
providing
technology
design
and
service
for
switchable
battery
cars,
a
position
that
she
held
from
2008
until
May
2013.
From
2008
to
2010,she
served
as
Chair
of
the
Board
of
the
Road
Safety
Authority
(RSA)
in
Israel.
From
1996
to
2008,
Ms.
Patir
held
the
position
of
Director
General
of
the
Standard
Institution
of
Israel
(SII).
From
1985
to
1996,
Ms.Patir
served
as
the
Director
of
the
Quality
and
Certification
Division
of
SII
and
held
various
managerial
positions
in
the
Industry
and
Standardization
Divisions
from
1976
to
1985.
From
2004
to
2008,
Ms.
Patir
servedas
Vice
President
of
the
International
Organization
for
Standardization
(ISO),
as
well
as
chair
of
the
Technical
Management
Board,
leading
overall
management
of
ISO
technical
work.
ISO
is
the
world’s
largestdeveloper
and
publisher
of
international
standards.
From
1998
to
2000,
Ms.
Patir
was
a
member
of
the
International
Electrotechnical
Commission
Council
Board.
Ms.
Patir
is
a
Certified
Quality
Engineer
and
holds
aB.Sc.
in
Chemistry
from
Tel-Aviv
University
and
a
M.Sc.
in
Chemistry/Polymer
Science
from
the
Weizmann
Institute
of
Science.65Table of ContentsDavid Reis has
served
as
our
director
since
June
2013.
He
also
served
as
a
director
of
Objet
from
2003
until
the
closing
of
the
Stratasys-Objet
merger.
Mr.
Reis
served
as
our
(and,
prior
to
the
Stratasys-Objetmerger,
as
Objet’s)
Chief
Executive
Officer
from
March
2009
until
June
30,
2016.
Previously,
he
served
as
Chief
Executive
Officer
and
President
of
NUR
Macroprinters
Ltd.
(NURMF.PK),
a
wide
format
printermanufacturer
that
was
acquired
by
HP,
from
February
2006
to
March
2008.
Prior
to
joining
NUR,
Mr.
Reis
served
as
the
Chief
Executive
Officer
and
President
of
ImageID,
an
automatic
identification
and
data
capturesolution
provider,
and
of
Scitex
Vision
(NASDAQ
&
TASE:
SCIX),
a
developer
and
manufacturer
of
wide-format
printers.
Mr.
Reis
holds
a
B.A.
in
Economics
and
Management
from
the
Technion-Israel
Institute
ofTechnology
and
an
M.B.A.
from
the
University
of
Denver.Haim Shani has
served
as
a
director
of
our
company
since
May
2016.
Mr.
Shani
serves
as
Co-Founder
and
General
Partner
of
Israel
Growth
Partners,
a
technology-focused
growth
equity
fund
in
Israel.
In
2012,
Mr.Shani
retired
from
the
Israeli
Ministry
of
Finance,
where
he
served
as
Director-General
(from
2009
to
2011)
and
the
Head
of
the
Competitiveness
Committee.
Prior
to
that,
he
served
as
CEO
of
NICE
Systems(NASDAQ:NICE),
where
he
led
the
company’s
significant
growth
in
revenues
and
market
capitalization.
Mr.
Shani
came
to
NICE
from
Applied
Materials
(Israel)
Ltd.,
where
he
served
as
VP
of
its
Israeli
business
fora
period
of
three
years.
From
1992
to
1998,
Mr.
Shani
held
various
management
positions
at
Orbotech
Ltd.,
including
Corporate
Vice
President
of
Marketing
and
Business
Development,
President
of
Orbotech’s
AsiaPacific
subsidiary
and
President
of
Orbotech
Europe.
Prior
to
that,
Mr.
Shani
held
various
management
positions
at
Scitex
Corporation
and
IBM
Israel.
Mr.
Shani
currently
serves
as
Chairman
of
the
UK
Israel
TechHub,
a
board
member
at
Strauss
Water,
R2Net,
GreenRoad,
and
ColorChip
and
a
member
of
the
Advisory
Committee,
Supervisor
of
Banks,
Bank
of
Israel.
Mr.
Shani
holds
a
Bachelor’s
degree
in
Industrial
andManagement
Engineering
from
the
Technion
-
Israel
Institute
of
Technology,
and
an
MBA
from
INSEAD,
France.Lilach Payorski has
served
as
our
Chief
Financial
Officer
since
January
1,
2017.
She
joined
Stratasys
Ltd.
in
January
2013
and
thereafter
served
as
our
Vice
President,
Corporate
Finance,
until
August
2015,
and
asour
Senior
Vice
President,
Corporate
Finance,
from
August
2015
through
December
31,
2016.
Prior
to
joining
our
company,
from
December
2009
to
December
2012,
Ms.
Payorski
served
as
Head
of
Finance
at
PMC-Sierra,
a
company
operating
in
the
Semiconductors
industry,
which
was
subsequently
acquired
by
Microsemi
Corporation.
Prior
to
that
time,
she
served
as
Compliance
Controller
at
Check
Point
Software
TechnologiesLtd.
(NASDAQ:
CHKP),
an
IT
security
company,
from
2005
to
2009,
and
in
a
finance
leadership
role
at
Wind
River
Systems
(NASDAQ:
WIND),
a
software
company,
which
was
subsequently
acquired
by
IntelCorporation,
from
2003
to
2005
.
Earlier
in
her
career,
she
served
as
a
CPA
with
Ernst
&
Young
LLP
both
in
Israel
and
later
in
Palo
Alto,
CA.
Ms.
Payorski
earned
a
Bachelor
of
Arts
in
Accounting
and
Economicsfrom
the
Tel
Aviv
University.Arrangements for Election of Directors and Members of Management; Family RelationshipsSince
the
expiration
of
the
initial
two
year
term
following
the
Stratasys-Objet
merger
on
December
1,
2014
and
the
election
of
our
board
of
directors
at
an
extraordinary
general
meeting
of
shareholders
that
washeld
on
February
3,
2015,
there
are
no
longer
any
classifications
or
arrangements
related
to
the
election
of
our
board
of
directors.
Under
the
amendments
to
our
articles
of
association
that
were
adopted
at
that
February2015
shareholders
meeting,
our
board
members
are
elected
at
each
annual
general
meeting
of
shareholders
for
a
one
year
term
(other
than
our
external
directors,
who
are
elected
every
three
years
for
a
three
year
term,in
accordance
with
the
Companies
Law).
For
additional
information,
please
see
“Election
of
Directors”
in
Item
10.B
(“Memorandum
and
Articles
of
Association”)
below.
There
are
also
no
family
relationships
amongany
directors
or
members
of
our
senior
management.66Table of ContentsB. Compensation.The
following
table
presents
all
compensation
that
we
paid,
or
accrued,
during
the
year
ended
December
31,
2016
to
all
persons
who
served
as
a
director
or
as
a
member
of
senior
management
of
our
company
atany
time
during
the
year.
The
table
does
not
include
any
amounts
that
we
paid
to
reimburse
any
of
these
persons
for
costs
incurred
in
providing
us
with
services
during
that
period.Salaries, Fees, Bonuses




Pension,Commissions, andRetirementRelated Benefits Paidand Other Similar
or Accrued (1)Benefits AccruedAll
directors
and
members
of
senior
management
as
a
group,
(2)$

































4,597,214
(3)$



















243,038____________________(1)






Does
not
include
the
value
attributable
to
stock
option
grants.
For
a
discussion
of
stock
option
grants
to
our
directors
and
members
of
senior
management,
see
below.
(2)Comprised
of
the
current
directors
and
senior
management
members
listed
in
the
table
under
“Directors
and
Senior
Management”
in
Item
6.A
above,
except
for
Lilach
Payorski
(our
current
Chief
FinancialOfficer),
who
did
not
serve
in
that
role
during
2016,
and
includes,
in
addition,
certain
other
individuals
who
served
as
directors
or
members
of
senior
management
of
our
company
for
part
of
or
all
2016
butwhose
service
or
employment
subsequently
terminated.
(3)This
compensation
amount
for
the
year
ended
December
31,
2016
excludes
an
aggregate
of
$0.5
million
of
bonuses
that
were
paid
in
2016
in
respect
of
services
that
had
been
performed
during
the
previousyear.Pursuant
to
the
Companies
Law,
the
fees
payable
to
our
directors
and
our
chief
executive
officer
require
approval
by
(i)
the
compensation
committee
of
our
board,
(ii)
the
board
of
directors
and
(iii)
ourshareholders
(in
that
order).
Please
see
“Compensation
Policy
and
Committee”
in
Item
6.C
(“Board
Practices”)
below
for
further
information
regarding
the
requirements
under
the
Companies
Law
in
connection
withthe
compensation
of
directors.Director CompensationThe
following
table
sets
forth
the
directors’
fees,
salary
or
other
compensation
(excluding
value
attributable
to
stock
option
grants
and
excluding
reimbursement
for
reasonable
expenses
incurred
in
connection
withservices)
that
are
payable
to
each
of
our
current
directors:




Per Meeting FeeAnnual




(In Person/Name of DirectorFee/Salary (1)Telephonic/ Written Consent)Elchanan
Jaglom$






420,000(2)S.
Scott
Crump$286,889(3)Ilan
Levin$318,407(4)
Edward
J.
Fierko$50,000$1,500/
$375/$325Victor
Leventhal$50,000$1,500/
$375/$325John
J.
McEleney$50,000$1,500/
$375/$325Ziva
Patir$50,000(5)$1,500/
$375/$325David
Reis
(6)$(7)$1,500/
$375/$325Haim
Shani$50,000$1,500/
$375/$325
67Table of Contents____________________(1)






The
amounts
reflected
in
the
“Annual
Fee/Salary”
column
do
not
include
per-meeting
fees
payable
to
those
directors
for
whom
the
above
table
lists
per
meeting
fees
in
the
right-hand
column
of
the
table.
Theabove
table
does
not
include
an
annual
fee
of
US$2,500
for
service
on
each
committee
of
our
board
of
directors
on
which
any
of
the
above
directors
serves
(as
described
under
Item
6.C
below).
(2)Constitutes
salary
payable
in
respect
of
the
consulting
and
director
services
provided
by
an
entity
affiliated
with
Mr.
Jaglom.
Does
not
include
Israeli
value
added
tax,
or
VAT,
that
is
due
on
the
salary
payable
toMr.
Jaglom.
(3)Constitutes
the
aggregate
salary
payable
to
Mr.
Crump
for
all
of
the
services
that
he
provides
to
our
company,
including
in
respect
of
his
roles
as
Chairman
of
the
Executive
Committee
and
Chief
InnovationOfficer
of
our
company.
Our
shareholders
have
also
approved
a
bonus
target
of
$178,740
for
Mr.
Crump.
Mr.
Crump
declined
his
full
bonus
for
the
2015
year
and
did
not
receive
a
bonus
in
respect
of
the
2016year.
(4)These
amounts
exclude
other
benefits
that
are
provided
for
by
Israeli
law
or
that
are
customary
for
senior
executives
in
Israel,
including
the
right
to
use
(and
all
related
fixed
and
variable
costs
in
respect
of)
aleased
car
that
we
provide
to
Mr.
Levin.
(5)Does
not
include
VAT
that
is
due
on
the
fees
payable
to
Ms.
Patir.
(6)Mr.
Reis
served
as
our
President
and
Chief
Executive
Officer
through
June
30,
2016,
after
which
time
he
serves
only
as
an
executive
director
of
our
company.
(7)After
he
ceased
to
serve
as
our
President
and
Chief
Executive
Officer
commencing
July
1,
2016,
Mr.
Reis
received
notice
period
payments
under
his
employment
agreement
until
the
end
of
2016.
Mr.
Reis’compensation
as
an
executive
director
of
our
company
for
2017
has
not
been
determined
yet.
If
and
when
such
compensation
is
approved
by
our
compensation
committee
and
board
of
directors,
it
will
besubject
to
the
approval
of
our
shareholders
in
accordance
with
the
requirements
of
Israeli
law.Director/Officer Equity CompensationDuring
the
year
ended
December
31,
2016,
we
granted
stock
options
to
purchase
an
aggregate
of

107,909
of
our
ordinary
shares
to
members
of
our
senior
management
and

50,000
options
to
our
directors.At
our
2016
annual
general
meeting
of
shareholders,
our
shareholders
approved
the
following
equity
package
for
each
of
our
independent
and
non-executive
directors,
subject
to
the
following
terms:Initial grant :
Initial
grant
of
options
to
purchase
10,000
ordinary
shares
of
our
company.Exercise Price :
Equal
to
the
fair
market
value
of
the
average
of
the
closing
prices
of
an
ordinary
share
of
our
company
on
the
trading
days
during
the
30-day
period
following
the
date
of
the
approval
of
a
grant
byour
shareholders.Vesting Schedule :
The
options
shall
vest
equally
on
a
monthly
basis
until
the
earlier
of
(i)
the
first
anniversary
of
the
grant
date
and
subject
to
continuous
service
of
the
applicable
independent
director,
or
(ii)
at
theend
of
the
term
of
the
applicable
independent
director
at
the
next
annual
general
meeting
of
the
shareholders
of
our
company
after
the
grant
at
which
such
director’s
directorship
may
be
extended
or
terminated
(whichwe
refer
to
as
the
Full
Vesting
Date),
provided
that
all
such
options
shall
be
fully
vested
at
the
Full
Vesting
Date.Automatic Additional Grants :
Automatic
additional
grants
shall
be
approved
at
the
commencement
of
the
term
of
each
independent
director,
such
that
an
additional
10,000
options
shall
be
granted
to
each
suchcontinuing
director
on
the
first
and
second
anniversaries
of
the
commencement
of
such
director’s
term,
contingent
on
the
continued
service
of
such
director.
Such
additional
grants
shall
have
an
exercise
price
equal
tothe
fair
market
value
of
the
average
of
the
closing
prices
of
an
ordinary
share
of
our
company
on
the
trading
days
during
the
30-day
period
following
the
first
and
second
anniversaries,
respectively,
of
thecommencement
of
such
director’s
term,
and
shall
vest
in
the
same
manner
as
specified
under
“Vesting
Schedule”
above.68Table of ContentsFor
a
description
of
the
terms
of
our
stock
option
and
share
incentive
plans,
see
“Share
Ownership
-
Stock
Option
and
Share
Incentive
Plans”
in
Item
6.E
below.Office Holder CompensationThe
table
below
outlines
the
compensation
actually
paid
to
our
five
most
highly
compensated
senior
office
holders
during
or
with
respect
to
the
year
ended
December
31,
2016,
in
the
disclosure
format
ofRegulation
21
of
the
Israeli
Securities
Regulations
(Periodic
and
Immediate
Reports),
1970.
We
refer
to
the
five
individuals
for
whom
disclosure
is
provided
herein
as
our
“Covered
Executives.”For
purposes
of
the
table
and
the
summary
below,
and
in
accordance
with
the
above
mentioned
securities
regulations,
“compensation”
includes
base
salary,
bonuses,
equity-based
compensation,
retirement
ortermination
payments,
benefits
and
perquisites
such
as
car,
phone
and
social
benefits
and
any
undertaking
to
provide
such
compensation.Summary Compensation TableInformation Regarding the Covered Executive (1)














Total





Compensation,ExcludingName and PrincipalBaseVariableBenefit andEquity-BasedEquity-BasedTotalPosition (2)SalaryCompensation (3)Perquisites (4)OtherCompensationCompensation (5)CompensationErez
Simha,







Former
CFO







and
COO$











450,000$












227,268$












34,942$






633,476$












1,345,686$












788,050$












2,133,736
Scott
Crump,
Chief







Innovation
Officer$262,854$
$




24,035$




—$286,889$




1,102,345$




1,389,234
Dan
Yalon,







Chief
Product







Officer
and
EVP







Corporate
Development$265,188$83,377$74,708$—$423,273$870,150$1,293,423
Jon
Stevenson,







SVP
R&D$215,000$36,300$24,115$515,079$790,494$443,456$1,233,950
Joe
Allison,







CEO
of
SDM$280,000$47,678$60,412$644,416$1,032,505$32,347$1,064,852____________________(1)






All
amounts
reported
in
the
table
are
in
terms
of
cost
to
the
Company,
as
recorded
in
our
financial
statements.
(2)All
current
executive
officers
listed
in
the
table
are
full-time
employees
or
consultants
of
our
company.
Cash
compensation
amounts
denominated
in
currencies
other
than
the
U.S.
dollar
were
converted
intoU.S.
dollars
at
the
average
conversion
rate
for
2016.
(3)Amounts
reported
in
this
column
refer
to
commission,
incentive
and
bonus
payments,
which
are
payable
with
respect
to
2016.
(4)Amounts
reported
in
this
column
include
benefits
and
perquisites,
including
those
mandated
by
applicable
law.
Such
benefits
and
perquisites
may
include,
to
the
extent
applicable
to
the
Covered
Executive,payments,
contributions
and/or
allocations
for
savings
funds,
pension,
severance,
vacation,
car
or
car
allowance,
medical
insurances
and
benefits,
risk
insurances
(e.g.,
life,
disability,
accident),
convalescencepay,
payments
for
social
security,
tax
gross-up
payments
and
other
benefits
and
perquisites
consistent
with
our
guidelines.
(5)Amounts
reported
in
this
column
represent
the
expense
recorded
in
our
financial
statements
for
the
year
ended
December
31,
2016
with
respect
to
equity-based
compensation.
Equity-based
compensation
isdetermined
based
on
the
awards'
fair
value
on
their
grant
date.
Assumptions
and
key
variables
used
in
the
calculation
of
such
amounts
are
described
in
note
11
to
our
audited
consolidated
financial
statements,which
are
included
in
Item
18
of
this
annual
report.
69Table of ContentsMembers
of
our
senior
management
are
eligible
for
bonuses
each
year.
The
bonuses
are
payable
upon
meeting
objectives
and
targets
that
are
set
annually
by
our
Chief
Executive
Officer
and
approved
by
ourcompensation
committee
and
our
board
of
directors,
in
that
order.
These
same
corporate
bodies
also
set
the
bonus
targets
for
our
Chief
Executive
Officer.
In
accordance
with
a
December
2012
amendment
to
theCompanies
Law,
we
have
adopted
a
compensation
policy
that
governs
the
compensation
of
our
directors
and
senior
management
and
which
has
been
approved
by
(i)
the
compensation
committee
of
our
board,
(ii)
theboard
of
directors
and
(iii)
our
shareholders
(in
that
order).
Please
see
“Compensation
Policy
and
Committee”
in
Item
6.C
(“Board
Practices”)
below
for
further
information.C. Board Practices.Board of DirectorsUnder
the
Companies
Law,
the
management
of
our
business
is
vested
in
our
board
of
directors.
Our
board
of
directors
may
exercise
all
powers
and
may
take
all
actions
that
are
not
specifically
granted
to
ourshareholders
or
to
management.
Our
executive
officers
are
responsible
for
our
day-to-day
management
and
have
individual
responsibilities
established
by
our
board
of
directors.
Our
Chief
Executive
Officer
isappointed
by,
and
serves
at
the
discretion
of,
our
board
of
directors,
subject
to
the
employment
agreement
that
we
have
entered
into
with
him.
All
other
executive
officers
are
also
appointed
by
our
board
of
directors,subject
to
the
terms
of
any
applicable
employment
agreements
that
we
may
enter
into
with
them.Under
our
amended
articles,
our
board
of
directors
must
consist
of
at
least
seven
and
not
more
than
11
directors,
including,
to
the
extent
applicable,
at
least
two
external
directors
required
to
be
elected
under
theCompanies
Law.In
May
2016,
we
elected
to
be
governed
by
a
newly-adopted
exemption
under
the
Companies
Law
regulations
that
exempts
us
from
appointing
external
directors
and
from
complying
with
the
Companies
Lawrequirements
related
to
the
composition
of
the
audit
committee
and
compensation
committee
of
our
board
of
directors.
Our
eligibility
for
that
exemption
is
conditioned
upon:
(i)
the
continued
listing
of
our
ordinaryshares
on
the
NASDAQ
Stock
Market
(or
one
of
a
few
select
other
non-Israeli
stock
exchanges);
(ii)
there
not
being
a
controlling
shareholder
(generally
understood
to
be
a
25%
or
greater
shareholder)
of
our
companyunder
the
Companies
Law;
and
(iii)
our
compliance
with
the
NASDAQ
Listing
Rules
requirements
as
to
the
composition
of
(a)
our
board
of
directors—which
requires
that
we
maintain
a
majority
of
independentdirectors
(as
defined
under
the
NASDAQ
Listing
Rules)
on
our
board
of
directors
and
(b)
the
audit
and
compensation
committees
of
our
board
of
directors
(which
require
that
such
committees
consist
solely
ofindependent
directors
(at
least
three
and
two
members,
respectively),
as
described
under
the
NASDAQ
Listing
Rules).
At
the
time
that
it
determined
to
exempt
our
company
from
the
external
director
requirement,
ourboard
affirmatively
determined
that
we
meet
the
conditions
for
exemption
from
the
external
director
requirement,
including
that
a
majority
of
the
members
of
our
board,
along
with
each
of
the
members
of
the
audit
andcompensation
committees
of
the
board,
are
independent
under
the
NASDAQ
Listing
Rules.As
a
result
of
our
election
to
be
exempt
from
the
external
director
requirement
under
the
Companies
Law,
each
of
our
directors
is
elected
annually,
at
our
annual
general
meeting
of
shareholders.
The
vote
requiredfor
the
election
of
each
director
is
a
majority
of
the
voting
power
represented
at
the
meeting
and
voting
on
the
election
proposal.
Following
certain
changes
to
our
board
of
directors
based
on
the
election
at
our
2016annual
general
meeting
of
shareholders
that
took
place
in
May
2016,
the
current
members
of
our
board
consist
of
the
Chairman—
Elchanan
Jaglom,
the
Chairman
of
the
Executive
Committee—S.
Scott
Crump,
IlanLevin
(our
Chief
Executive
Officer),
Edward
J.
Fierko,
Victor
Leventhal,
John
J.
McEleney,
Ziva
Patir,
David
Reis
and
Haim
Shani.
For
more
information,
please
see
“Election
of
Directors”
in
Item
10.B(“Memorandum
and
Articles
of
Association”)
below.Our
board
of
directors
may
appoint
directors
to
fill
vacancies
on
the
board,
for
a
term
of
office
equal
to
the
remaining
period
of
the
term
of
office
of
the
director(s)
whose
office(s)
have
been
vacated.In
accordance
with
the
exemption
available
to
foreign
private
issuers
under
the
NASDAQ
Listing
Rules,
we
do
not
follow
the
requirements
of
the
NASDAQ
rules
with
regard
to
the
process
of
nominating
directors.Instead,
we
follow
Israeli
law
and
practice,
in
accordance
with
which
our
board
of
directors
(based
on
the
recommendation
of
the
executive
committee
thereof)
is
authorized
to
recommend
to
our
shareholders
directornominees
for
election.
Under
the
Companies
Law
and
our
amended
articles,
nominations
for
directors
may
also
be
made
by
any
shareholder
holding
at
least
one
percent
(1%)
of
our
outstanding
voting
power.
However,any
such
shareholder
may
make
such
a
nomination
only
if
a
written
notice
of
such
shareholder’s
intent
to
make
such
nomination
(together
with
certain
documentation
required
under
the
Companies
Law)
has
beendelivered
to
our
registered
Israeli
office
within
seven
days
after
we
publish
notice
of
our
upcoming
annual
general
meeting
(or
within
14
days
after
we
publish
a
preliminary
notification
of
an
upcoming
annual
generalmeeting).In
addition
to
its
role
in
making
director
nominations,
under
the
Companies
Law,
our
board
of
directors
must
determine
the
minimum
number
of
directors
who
are
required
to
have
accounting
and
financialexpertise.
Under
applicable
regulations,
a
director
with
accounting
and
financial
expertise
is
a
director
who,
by
reason
of
his
or
her
education,
professional
experience
and
skill,
has
a
high
level
of
proficiency
in
andunderstanding
of
business
accounting
matters
and
financial
statements.
See
“—External
Directors”
in
this
Item
6.C
below.
He
or
she
must
be
able
to
thoroughly
comprehend
the
financial
statements
of
the
company
andinitiate
debate
regarding
the
manner
in
which
financial
information
is
presented.
In
determining
the
number
of
directors
required
to
have
such
expertise,
our
board
of
directors
must
consider,
among
other
things,
thetype
and
size
of
our
company
and
the
scope
and
complexity
of
its
operations.
Our
board
of
directors
has
determined
that
our
company
requires
one
director
with
such
expertise.70Table of ContentsExternal DirectorsUnder
the
Companies
Law,
the
boards
of
directors
of
companies
whose
shares
are
publicly
traded,
including
companies
with
shares
traded
in
the
United
States,
are
generally
required
to
include
at
least
twomembers
who
qualify
as
external
directors.
Victor
Leventhal
and
Haim
Shani
had
served
as
our
external
directors
for
the
brief
period
following
their
election
as
external
directors
at
our
May
2016
annual
generalmeeting
of
shareholders
until
our
board
elected
to
be
governed
by
the
exemption
from
maintaining
external
directors
on
our
board
under
the
Companies
Law
(as
described
above).Our
election
to
exempt
our
company
from
compliance
with
the
external
director
requirement
can
be
reversed
at
any
time
by
our
board
of
directors,
in
which
case
we
would
need
to
hold
a
shareholder
meeting
toonce
again
appoint
external
directors,
whose
election
would
be
for
a
three-year
term.
The
election
of
each
external
director
would
require
a
majority
vote
of
the
shares
present
and
voting
at
a
shareholders
meeting,provided
that
either:●the
majority
voted
in
favor
of
election
includes
a
majority
of
the
shares
held
by
non-controlling
shareholders
who
do
not
have
a
personal
interest
in
the
election
of
the
external
director
(other
than
a
personalinterest
not
deriving
from
a
relationship
with
a
controlling
shareholder)
that
are
voted
at
the
meeting,
excluding
abstentions,
which
we
refer
to
as
a
disinterested
majority;
or
●the
total
number
of
shares
held
by
non-controlling,
disinterested
shareholders
(as
described
in
the
previous
bullet-point)
voted
against
the
election
of
the
director
does
not
exceed
two
percent
(2%)
of
theaggregate
voting
rights
in
the
company.The
term
“controlling
shareholder”
is
defined
in
the
Companies
Law
as
a
shareholder
with
the
ability
to
direct
the
activities
of
the
company,
other
than
by
virtue
of
being
an
office
holder.
A
shareholder
is
presumedto
be
a
controlling
shareholder
if
the
shareholder
holds
50%
or
more
of
the
voting
rights
in
a
company
or
has
the
right
to
appoint
the
majority
of
the
directors
of
the
company
or
its
general
manager.For
further
information
concerning
the
Companies
Law
provisions
related
to
external
directors,
please
see
“Item
6.
Directors,
Senior
Management
and
Employees—C.
Board
Practices—Board
of
Directors—External
Directors”
in
our
annual
report
on
Form
20-F
for
the
year
ended
December
31,
2015,
which
we
filed
with
the
SEC
on
March
21,
2016.Board CommitteesAudit CommitteeUnder
the
Companies
Law,
the
board
of
directors
of
a
public
company
must
appoint
an
audit
committee.
The
audit
committee
must
consist
of
at
least
three
directors.
To
the
extent
a
company
is
required
to
appointexternal
directors,
this
committee
must
include
all
of
the
external
directors,
one
of
whom
must
serve
as
chairman
of
the
committee.
There
are
additional
requirements
as
to
the
composition
of
the
audit
committee
underthe
Companies
Law.
However,
when
we
elected
to
exempt
our
company
from
the
external
director
requirement,
we
concurrently
elected
to
exempt
our
company
from
all
of
such
requirements
(which
exemption
isconditioned
on
our
fulfillment
of
all
NASDAQ
listing
requirements
related
to
the
composition
of
the
audit
committee).The
members
of
our
audit
committee
consist
of
Victor
Leventhal,
Haim
Shani
and
Edward
J.
Fierko.
Mr.
Fierko
serves
as
chairman
of
the
committee.
Our
board
of
directors
has
determined
that
each
of
Messrs.Leventhal,
Shani
and
Fierko
meets
the
independence
requirements
set
forth
in
the
Listing
Rules
of
the
NASDAQ
Stock
Market
and
in
Rule
10A-3
under
the
Exchange
Act.Our
board
of
directors
has
determined
that
Mr.
Fierko
qualifies
as
an
audit
committee
financial
expert,
as
defined
under
Item
16A
of
the
SEC’s
Form
20-F,
and
has
the
requisite
financial
sophistication
set
forth
inthe
NASDAQ
rules
and
regulations.Our
board
of
directors
has
adopted
an
audit
committee
charter
that
sets
forth
the
responsibilities
of
the
audit
committee
consistent
with
the
rules
of
the
SEC
and
the
Listing
Rules
of
the
NASDAQ
Stock
Market,
aswell
as
the
requirements
for
such
committee
under
the
Companies
Law,
including
the
following:●oversight
of
our
independent
registered
public
accounting
firm
and
recommending
the
engagement,
compensation
or
termination
of
engagement
of
our
independent
registered
public
accounting
firm
to
the
boardof
directors
in
accordance
with
Israeli
law;
●recommending
the
engagement
or
termination
of
the
person
filling
the
office
of
our
internal
auditor;
and
●recommending
the
terms
of
audit
and
non-audit
services
provided
by
the
independent
registered
public
accounting
firm
for
pre-approval
by
our
board
of
directors.Our
audit
committee
provides
assistance
to
our
board
of
directors
in
fulfilling
its
legal
and
fiduciary
obligations
in
matters
involving
our
accounting,
auditing,
financial
reporting,
internal
control
and
legalcompliance
functions
by
pre-approving
the
services
performed
by
our
independent
accountants
and
reviewing
their
reports
regarding
our
accounting
practices
and
systems
of
internal
control
over
financial
reporting.Our
audit
committee
also
oversees
the
audit
efforts
of
our
independent
accountants
and
takes
those
actions
that
it
deems
necessary
to
satisfy
itself
that
the
accountants
are
independent
of
management.71Table of ContentsUnder
the
Companies
Law,
our
audit
committee
is
responsible
for
(i)
determining
whether
there
are
deficiencies
in
the
business
management
practices
of
our
company,
including
in
consultation
with
our
internalauditor
or
the
independent
auditor,
and
making
recommendations
to
the
board
of
directors
to
improve
such
practices,
(ii)
determining
whether
to
approve
certain
related
party
transactions
(including
transactions
inwhich
an
office
holder
has
a
personal
interest
and
whether
such
transaction
is
extraordinary)
(see
“—Approval
of
related
party
transactions
under
Israeli
Law”
below
in
this
Item
6.C),
(iii)
determining
standards
andpolicies
for
determining
whether
a
transaction
with
a
controlling
shareholder
or
a
transaction
in
which
a
controlling
shareholder
has
a
personal
interest
is
deemed
insignificant
or
not
and
the
approval
requirements(including,
potentially,
the
approval
of
the
audit
committee)
for
transactions
that
are
not
insignificant
including
the
types
of
transactions
that
are
not
insignificant,
(iv)
where
the
board
of
directors
approves
the
workingplan
of
the
internal
auditor,
to
examine
such
working
plan
before
its
submission
to
the
board
and
propose
amendments
thereto,
(v)
examining
our
internal
controls
and
internal
auditor’s
performance,
including
whetherthe
internal
auditor
has
sufficient
resources
and
tools
to
dispose
of
its
responsibilities,
(vi)
examining
the
scope
of
our
auditor’s
work
and
compensation
and
submitting
a
recommendation
with
respect
thereto
to
ourboard
of
directors
or
shareholders,
depending
on
which
of
them
is
considering
the
appointment
of
our
auditor
and
(vii)
establishing
procedures
for
the
handling
of
employees’
complaints
as
to
the
management
of
ourbusiness
and
the
protection
to
be
provided
to
such
employees.
Our
audit
committee
may
not
approve
an
action
or
a
related
party
transaction,
or
take
any
other
action
required
under
the
Companies
Law,
unless
at
thetime
of
approval
a
majority
of
the
committee’s
members
are
present,
which
majority
consists
of
unaffiliated
directors
including
at
least
one
external
director.Executive CommitteeUpon
the
closing
of
the
Stratasys-Objet
merger,
our
board
of
directors
appointed
an
executive
committee.
The
roles
of
this
committee
are
(i)
to
oversee
the
implementation
of
the
business
strategy
of
our
company,subject
to
board
approval
for
matters
outside
of
the
ordinary
course
of
business
(as
is
required
under
the
Companies
Law),
and
(ii)
to
exercise
such
other
duties
as
the
board
may
resolve
from
time
to
time.
The
membersof
the
executive
committee
consist
of
Messrs.
S.
Scott
Crump,
who
serves
as
chairman
of
the
executive
committee,
Elchanan
Jaglom,
John
McEleney
and
Ilan
Levin.Compensation Policy and CommitteeUnder
a
December
2012
amendment
to
the
Companies
Law,
we
have
appointed
a
compensation
committee
and
established
a
policy
regarding
the
terms
of
engagement
of
office
holders,
or
a
compensation
policy.Such
compensation
policy
was
set
by
our
board,
after
considering
the
recommendations
of
our
newly-appointed
compensation
committee,
and
was
approved
by
our
shareholders
in
September
2013.
In
February
2015,following
approval
by
our
compensation
committee
and
board,
our
shareholders
approved
an
amended
and
restated
version
of
our
compensation
policy
at
an
extraordinary
general
meeting
of
shareholders.The
compensation
policy
serves
as
the
basis
for
decisions
concerning
the
financial
terms
of
employment
or
engagement
of
our
office
holders,
including
exculpation,
insurance,
indemnification
or
any
monetarypayment
or
obligation
of
payment
in
respect
of
employment
or
engagement.
The
compensation
policy
also
relates
to
certain
factors,
including
advancement
of
our
objectives,
our
business
and
our
long-term
strategy,and
creation
of
appropriate
incentives
for
executives.
It
also
considers,
among
other
things,
our
risk
management,
size
and
the
nature
of
our
operations.
The
compensation
policy
furthermore
considers
the
followingadditional
factors:●the
knowledge,
skills,
expertise
and
accomplishments
of
the
relevant
director
or
executive;
●the
director’s
or
executive’s
roles
and
responsibilities
and
prior
compensation
agreements
with
him
or
her;
●the
relationship
between
the
terms
offered
and
the
average
compensation
of
the
other
employees
of
our
company,
including
those
(if
any)
employed
through
manpower
companies;
●the
impact
of
disparities
in
salary
upon
work
relationships
in
our
company;
●the
possibility
of
reducing
variable
compensation
at
the
discretion
of
the
board
of
directors;
and
the
possibility
of
setting
a
limit
on
the
exercise
value
of
non-cash
variable
compensation;
and
●as
to
severance
compensation,
the
period
of
service
of
the
director
or
executive,
the
terms
of
his
or
her
compensation
during
such
service
period,
our
company’s
performance
during
that
period
of
service,
theperson’s
contribution
towards
our
company’s
achievement
of
its
goals
and
the
maximization
of
its
profits,
and
the
circumstances
under
which
the
person
is
leaving
our
company.The
compensation
policy
also
includes
the
following
principles:●the
link
between
variable
compensation
and
long-term
performance
and
measurable
criteria;
●the
relationship
between
variable
and
fixed
compensation,
and
the
ceiling
for
the
value
of
variable
compensation;
●the
conditions
under
which
a
director
or
executive
would
be
required
to
repay
compensation
paid
to
him
or
her
if
it
was
later
shown
that
the
data
upon
which
such
compensation
was
based
was
inaccurate
andwas
required
to
be
restated
in
our
financial
statements;
and
●the
minimum
holding
or
vesting
period
for
variable,
equity-based
compensation.The
compensation
policy
must
also
consider
appropriate
incentives
from
a
long-term
perspective
and
maximum
limits
for
severance
compensation.72Table of ContentsUnder
the
December
2012
amendment
to
the
Companies
Law,
our
compensation
committee
is
responsible
for
recommending
the
compensation
policy
to
our
board
of
directors
for
its
approval
(and
subsequentapproval
by
our
shareholders)
and
is
charged
with
duties
related
to
the
compensation
policy
and
to
the
compensation
of
our
office
holders
as
well
as
functions
related
to
approval
of
the
terms
of
engagement
of
officeholders,
including:●recommending
whether
our
compensation
policy
should
continue
in
effect,
if
the
then-current
policy
has
a
term
of
greater
than
three
(3)
years
(approval
of
the
continuation
of
an
existing
compensation
policy
fora
company
such
as
ours
must
in
any
case
occur
every
three
years);
●recommending
to
our
board
periodic
updates
to
the
compensation
policy;
●assessing
implementation
of
the
compensation
policy;
and
●determining
whether
the
compensation
terms
of
the
chief
executive
officer
of
our
company
need
not
be
brought
to
approval
of
the
shareholders
(under
special
circumstances).As
to
the
composition
of
the
compensation
committee,
under
the
Companies
Law,
if
a
company
is
required
to
appoint
external
directors,
the
committee
must
consist
of
at
least
three
(3)
members,
including
all
of
theexternal
directors,
one
of
whom
must
serve
as
chairman
of
the
committee.
There
are
additional
requirements
as
to
the
composition
of
the
audit
committee
under
the
Companies
Law.
However,
when
we
elected
toexempt
our
company
from
the
external
director
requirement,
we
concurrently
elected
to
exempt
our
company
from
all
of
such
requirements
(including
the
three-member
minimum).
Our
exemption
under
theCompanies
Law
is
conditioned
on
our
fulfillment
of
all
NASDAQ
listing
requirements
related
to
the
composition
of
the
compensation
committee.The
compensation
committee
is
subject
to
the
same
Companies
Law
restrictions
as
the
audit
committee
as
to
who
may
not
be
present
during
committee
deliberations
(as
described
under
“—Approval
of
RelatedParty
Transactions
Under
Israeli
Law—Fiduciary
Duties
of
Directors
and
Executive
Officers—Disclosure
of
Personal
Interests
of
an
Office
Holder”
below).The
NASDAQ
Listing
Rules
also
require
that
the
compensation
of
the
chief
executive
officer
and
all
other
executive
officers
of
our
company
be
determined,
or
be
recommended
to
the
board
for
determination,either
by
a
majority
of
the
independent
directors,
or
by
a
compensation
committee
consisting
solely
of
independent
directors
(subject
to
a
minimum
of
two
committee
members).We
appointed
our
compensation
committee
in
mid-2013.
The
committee
currently
consists
of
Victor
Leventhal,
Ziva
Patir
and
Haim
Shani.
Victor
Leventhal
serves
as
chairman
of
the
committee.
Our
board
ofdirectors
has
determined
that
each
of
Messrs.
Leventhal
and
Shani,
and
Ms.
Patir,
meets
the
independence
requirements
set
forth
in
the
Listing
Rules
of
the
NASDAQ
Stock
Market
and
in
Rule
10C-1
under
theExchange
Act.Nominating committeeOur
board
of
directors
does
not
currently
have
a
nominating
committee,
as
director
nominations
are
made
in
accordance
with
the
terms
of
our
articles,
as
described
in
“—Board
of
Directors”
above.
We
rely
uponthe
exemption
available
to
foreign
private
issuers
under
the
Listing
Rules
of
the
NASDAQ
Stock
Market
from
the
NASDAQ
listing
requirements
related
to
independent
director
oversight
of
nominations
to
our
boardof
directors
and
the
adoption
of
a
formal
written
charter
or
board
resolution
addressing
the
nominations
process.
Also
see
Item
16.G
“Corporate
Governance”
below.Internal AuditorUnder
the
Companies
Law,
the
board
of
directors
of
an
Israeli
public
company
must
appoint
an
internal
auditor
recommended
by
the
audit
committee
and
nominated
by
the
board
of
directors.
An
internal
auditormay
not
be:●a
person
(or
a
relative
of
a
person)
who
holds
more
than
5%
of
the
company’s
outstanding
shares
or
voting
rights;
●a
person
(or
a
relative
of
a
person)
who
has
the
power
to
appoint
a
director
or
the
general
manager
of
the
company;
●an
office
holder
(including
a
director)
of
the
company
(or
a
relative
thereof);
or
●a
member
of
the
company’s
independent
accounting
firm,
or
anyone
on
his
or
her
behalf.The
role
of
the
internal
auditor
is
to
examine,
among
other
things,
our
compliance
with
applicable
law
and
orderly
business
procedures.
Moshe
Cohen
of
Chaikin
Cohen
Rubin
&
Co.
has
served
as
our
internalauditor
since
his
appointment
effective
upon
the
Stratasys-Objet
merger.Approval of Related Party Transactions Under Israeli LawFiduciary Duties of Directors and Executive OfficersThe
Companies
Law
codifies
the
fiduciary
duties
that
office
holders
owe
to
a
company.
Each
person
listed
in
the
table
under
Item
6.A
“Directors
and
Senior
Management”
is
an
office
holder
under
the
CompaniesLaw.73Table of ContentsAn
office
holder’s
fiduciary
duties
consist
of
a
duty
of
care
and
a
duty
of
loyalty.
The
duty
of
care
requires
an
office
holder
to
act
with
the
level
of
care
with
which
a
reasonable
office
holder
in
the
same
positionwould
have
acted
under
the
same
circumstances.
The
duty
of
loyalty
requires
that
an
office
holder
act
in
good
faith
and
in
the
best
interests
of
the
company.
The
duty
of
care
includes
a
duty
to
use
reasonable
means
toobtain:●information
on
the
advisability
of
a
given
action
brought
for
his
or
her
approval
or
performed
by
virtue
of
his
or
her
position;
and
●all
other
important
information
pertaining
to
these
actions.The
duty
of
loyalty
requires
an
office
holder
to
act
in
good
faith
and
for
the
benefit
of
the
company,
and
includes
a
duty
to:●refrain
from
any
conflict
of
interest
between
the
performance
of
his
or
her
duties
to
the
company
and
his
or
her
other
duties
or
personal
affairs;
●refrain
from
any
activity
that
is
competitive
with
the
company;
●refrain
from
exploiting
any
business
opportunity
of
the
company
to
receive
a
personal
gain
for
himself
or
herself
or
others;
and
●disclose
to
the
company
any
information
or
documents
relating
to
the
company’s
affairs
which
the
office
holder
received
as
a
result
of
his
or
her
position
as
an
office
holder.Disclosure of Personal Interests of an Office HolderThe
Companies
Law
requires
that
an
office
holder
promptly
disclose
to
the
board
of
directors
any
personal
interest
that
he
or
she
may
have
and
all
related
material
information
known
to
him
or
her
and
anydocuments
concerning
any
existing
or
proposed
transaction
with
the
company.
An
interested
office
holder’s
disclosure
must
be
made
promptly
and
in
any
event
no
later
than
the
first
meeting
of
the
board
of
directors
atwhich
the
transaction
is
considered.
A
“personal
interest”
includes
an
interest
of
any
person
in
an
act
or
transaction
of
a
company,
including
a
personal
interest
of
one’s
relative
or
of
a
corporate
body
in
which
suchperson
or
a
relative
of
such
person
is
a
5%
or
greater
shareholder,
director
or
general
manager
or
in
which
he
or
she
has
the
right
to
appoint
at
least
one
director
or
the
general
manager,
but
excluding
a
personal
intereststemming
from
one’s
ownership
of
shares
in
the
company.
A
personal
interest
furthermore
includes
the
personal
interest
of
a
person
for
whom
the
office
holder
holds
a
voting
proxy
or
the
interest
of
the
office
holderwith
respect
to
his
or
her
vote
on
behalf
of
the
shareholder
for
whom
he
or
she
holds
a
proxy
even
if
such
shareholder
itself
has
no
personal
interest
in
the
approval
of
the
matter.
An
office
holder
is
not,
however,obliged
to
disclose
a
personal
interest
if
it
derives
solely
from
the
personal
interest
of
his
or
her
relative
in
a
transaction
that
is
not
considered
an
extraordinary
transaction.
Under
the
Companies
Law,
an
“extraordinarytransaction”
is
defined
as
any
of
the
following:●a
transaction
other
than
in
the
ordinary
course
of
business;
●a
transaction
that
is
not
on
market
terms;
or
●a
transaction
that
may
have
a
material
impact
on
a
company’s
profitability,
assets
or
liabilities.If
it
is
determined
that
an
office
holder
has
a
personal
interest
in
a
transaction,
approval
by
the
board
of
directors
is
required
for
the
transaction,
unless
the
company’s
articles
of
association
provide
for
a
differentmethod
of
approval.
Further,
so
long
as
an
office
holder
has
disclosed
his
or
her
personal
interest
in
a
transaction,
the
board
of
directors
may
approve
an
action
by
the
office
holder
that
would
otherwise
be
deemed
abreach
of
duty
of
loyalty.
However,
a
company
may
not
approve
a
transaction
or
action
that
is
adverse
to
the
company’s
interest
or
that
is
not
performed
by
the
office
holder
in
good
faith.
Approval
first
by
thecompany’s
audit
committee
and
subsequently
by
the
board
of
directors
is
required
for
an
extraordinary
transaction
with
an
office
holder.
Compensation
of,
or
an
undertaking
to
indemnify
or
insure,
an
office
holder,requires
approval
by
the
compensation
committee,
the
board
of
directors
and,
in
certain
cases
(for
directors,
the
chief
executive
officer,
and
any
executive
officer
whose
compensation
terms
do
not
conform
to
the
then-existing
compensation
policy)
the
shareholders,
in
that
order.
Compensation
of
an
individual
office
holder,
including
the
chief
executive
officer
(but
excluding
a
director),
that
does
not
conform
to
the
company’scompensation
policy
may
be
adopted
under
special
circumstances
despite
failure
to
obtain
shareholder
approval
if,
following
the
relevant
shareholder
vote,
the
compensation
committee
followed
by
the
board
onceagain
approves
the
compensation,
based
on
renewed
and
specific
analysis
of
relevant
factors.Generally,
a
person
who
has
a
personal
interest
in
a
matter
which
is
considered
at
a
meeting
of
the
board
of
directors,
the
audit
committee
or
compensation
committee
may
not
be
present
at
such
a
meeting
or
voteon
that
matter
unless
a
majority
of
the
board,
audit
committee
or
compensation
committee
(as
appropriate)
has
a
personal
interest
in
the
matter,
or
unless
the
chairman
of
the
board,
audit
committee
or
compensationcommittee
(as
appropriate)
determines
that
he
or
she
should
be
present
in
order
to
present
the
transaction
that
is
subject
to
approval.
If
a
majority
of
the
members
of
the
board,
audit
committee
or
compensationcommittee
has
a
personal
interest
in
the
approval
of
a
transaction,
then
all
directors
may
participate
in
discussions
of
the
board
of
directors,
audit
committee
or
compensation
committee
on
such
transaction
and
thevoting
on
approval
thereof,
but
shareholder
approval
is
also
required
for
such
transaction.74Table of ContentsDisclosure of Personal Interests of Controlling ShareholdersPursuant
to
Israeli
law,
the
disclosure
requirements
regarding
personal
interests
that
apply
to
directors
and
executive
officers
also
apply
to
a
controlling
shareholder
of
a
public
company.
In
the
context
of
atransaction
involving
a
shareholder
of
the
company,
a
controlling
shareholder
also
includes
any
shareholder
who
holds
25%
or
more
of
the
voting
rights
if
no
other
shareholder
holds
more
than
50%
of
the
voting
rights.Two
or
more
shareholders
with
a
personal
interest
in
the
approval
of
the
same
transaction
are
deemed
to
be
a
single
shareholder
and
may
be
deemed
a
controlling
shareholder
for
the
purpose
of
approving
suchtransaction.
Extraordinary
transactions
with
a
controlling
shareholder
or
in
which
a
controlling
shareholder
has
a
personal
interest,
or
a
transaction
with
a
controlling
shareholder
or
his
or
her
relative,
directly
orindirectly,
require
the
approval
of
the
audit
committee,
the
board
of
directors
and
the
shareholders
of
the
company,
in
that
order.
In
addition,
the
shareholder
approval
must
fulfill
one
of
the
following
requirements:●a
disinterested
majority;
or
●the
votes
of
shareholders
who
have
no
personal
interest
in
the
transaction
and
who
are
present
and
voting,
in
person,
by
proxy
or
by
voting
deed
at
the
meeting,
and
who
vote
against
the
transaction
may
notrepresent
more
than
two
percent
(2%)
of
the
voting
rights
of
the
company.To
the
extent
that
any
such
transaction
with
a
controlling
shareholder
is
for
a
period
extending
beyond
three
years,
approval
is
required
once
every
three
years,
unless
the
audit
committee
determines
that
theduration
of
the
transaction
is
reasonable
given
the
circumstances
related
thereto.The
engagement
of
a
controlling
shareholder
as
an
office
holder
or
employee
requires
the
same
approvals
as
are
described
immediately
above,
except
that
the
approval
of
the
compensation
committee,
rather
thanthe
audit
committee,
is
required.Shareholder DutiesPursuant
to
the
Companies
Law,
a
shareholder
has
a
duty
to
act
in
good
faith
and
in
a
customary
manner
toward
the
company
and
other
shareholders
and
to
refrain
from
abusing
his
or
her
power
in
the
company,including,
among
other
things,
in
voting
at
the
general
meeting
of
shareholders
and
at
class
shareholder
meetings
with
respect
to
the
following
matters:●an
amendment
to
the
company’s
articles
of
association;
●an
increase
of
the
company’s
authorized
share
capital;
●a
merger;
or
●the
approval
of
interested
party
transactions
and
acts
of
office
holders
that
require
shareholder
approval.In
addition,
a
shareholder
also
has
a
general
duty
to
refrain
from
discriminating
against
other
shareholders.In
addition,
certain
shareholders
have
a
duty
of
fairness
toward
the
company.
These
shareholders
include
any
controlling
shareholder,
any
shareholder
who
knows
that
it
has
the
power
to
determine
the
outcome
of
ashareholder
vote
or
a
shareholder
class
vote
and
any
shareholder
who
has
the
power
to
appoint
or
to
prevent
the
appointment
of
an
office
holder
of
the
company
or
other
power
towards
the
company.
The
CompaniesLaw
does
not
define
the
substance
of
this
duty
of
fairness,
except
to
state
that
the
remedies
generally
available
upon
a
breach
of
contract
will
also
apply
in
the
event
of
a
breach
of
the
duty
to
act
with
fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder
the
Companies
Law,
a
company
may
not
exculpate
an
office
holder
from
liability
for
a
breach
of
the
duty
of
loyalty.
An
Israeli
company
may
exculpate
an
office
holder
in
advance
from
liability
to
thecompany,
in
whole
or
in
part,
for
damages
caused
to
the
company
as
a
result
of
a
breach
of
duty
of
care
but
only
if
a
provision
authorizing
such
exculpation
is
inserted
in
its
articles
of
association.
Our
amended
articlesinclude
such
a
provision.
The
company
may
not
exculpate
in
advance
a
director
from
liability
arising
out
of
a
prohibited
dividend
or
distribution
to
shareholders.Under
the
Companies
Law,
a
company
may
indemnify
an
office
holder
in
respect
of
the
following
liabilities
and
expenses
incurred
for
acts
performed
by
him
or
her
as
an
office
holder,
either
in
advance
of
an
eventor
following
an
event,
provided
its
articles
of
association
include
a
provision
authorizing
such
indemnification:●financial
liability
incurred
by
or
imposed
on
him
or
her
in
favor
of
another
person
pursuant
to
a
judgment,
including
a
settlement
or
arbitrator’s
award
approved
by
a
court.
However,
if
an
undertaking
toindemnify
an
office
holder
with
respect
to
such
liability
is
provided
in
advance,
then
such
an
undertaking
must
be
limited
to
events
which,
in
the
opinion
of
the
board
of
directors,
can
be
foreseen
based
on
thecompany’s
activities
when
the
undertaking
to
indemnify
is
given,
and
to
an
amount
or
according
to
criteria
determined
by
the
board
of
directors
as
reasonable
under
the
circumstances,
and
such
undertaking
shalldetail
the
abovementioned
foreseen
events
and
amount
or
criteria;
●reasonable
litigation
expenses,
including
attorneys’
fees,
incurred
by
the
office
holder
as
a
result
of
an
investigation
or
proceeding
instituted
against
him
or
her
by
an
authority
authorized
to
conduct
suchinvestigation
or
proceeding,
provided
that
(i)
no
indictment
was
filed
against
such
office
holder
as
a
result
of
such
investigation
or
proceeding;
and
(ii)
no
financial
liability
was
imposed
upon
him
or
her
as
asubstitute
for
the
criminal
proceeding
as
a
result
of
such
investigation
or
proceeding
or,
if
such
financial
liability
was
imposed,
it
was
imposed
with
respect
to
an
offense
that
does
not
require
proof
of
criminalintent;
and75Table of Contents●reasonable
litigation
expenses,
including
attorneys’
fees,
incurred
by
the
office
holder
or
imposed
by
a
court
in
proceedings
instituted
against
him
or
her
by
the
company,
on
its
behalf,
or
by
a
third
party,
or
inconnection
with
criminal
proceedings
in
which
the
office
holder
was
acquitted,
or
as
a
result
of
a
conviction
for
an
offense
that
does
not
require
proof
of
criminal
intent.Under
the
Companies
Law,
a
company
may
insure
an
office
holder
against
the
following
liabilities
incurred
for
acts
performed
by
him
or
her
as
an
office
holder
if
and
to
the
extent
provided
in
the
company’sarticles
of
association:●a
breach
of
the
duty
of
loyalty
to
the
company,
provided
that
the
office
holder
acted
in
good
faith
and
had
a
reasonable
basis
to
believe
that
the
act
would
not
harm
the
company;
●a
breach
of
duty
of
care
to
the
company
or
to
a
third
party,
to
the
extent
such
a
breach
arises
out
of
the
negligent
conduct
of
the
office
holder;
and
●a
financial
liability
imposed
on
the
office
holder
in
favor
of
a
third
party.Under
the
Companies
Law,
a
company
may
not
indemnify,
exculpate
or
insure
an
office
holder
against
any
of
the
following:●a
breach
of
fiduciary
duty,
except
for
indemnification
and
insurance
for
a
breach
of
the
duty
of
loyalty
to
the
company
to
the
extent
that
the
office
holder
acted
in
good
faith
and
had
a
reasonable
basis
to
believethat
the
act
would
not
prejudice
the
company;
●a
breach
of
duty
of
care
committed
intentionally
or
recklessly,
excluding
a
breach
arising
out
of
the
negligent
conduct
of
the
office
holder;
●an
act
or
omission
committed
with
intent
to
derive
illegal
personal
benefit;
or
●a
fine
or
forfeit
levied
against
the
office
holder.Under
the
Companies
Law,
exculpation,
indemnification
and
insurance
of
office
holders
must
be
approved
by
our
compensation
committee
and
our
board
of
directors
and,
with
respect
to
directors
or
controllingshareholders,
their
relatives
and
third
parties
in
which
such
controlling
shareholders
have
a
personal
interest,
also
by
the
shareholders.
See
“—Approval
of
Related
Party
Transactions
Under
Israeli
Law—FiduciaryDuties
of
Directors
and
Executive
Officers”
above
in
this
Item
6.C.Our
amended
articles
permit
us
to
exculpate,
indemnify
and
insure
our
office
holders
to
the
fullest
extent
permitted
or
to
be
permitted
by
the
Companies
Law.We
have
obtained
directors
and
officers
liability
insurance
for
the
benefit
of
our
office
holders
and
intend
to
continue
to
maintain
such
coverage
and
pay
all
premiums
thereunder
to
the
fullest
extent
permitted
bythe
Companies
Law.
In
addition,
we
have
entered
into
agreements
with
each
of
our
office
holders
undertaking
to
indemnify
them
to
the
fullest
extent
permitted
by
Israeli
law.
Furthermore,
until
the
sixth
anniversary
ofthe
effective
time
of
the
Stratasys-Objet
merger,
we
are
covering
the
directors
and
officers
of
Stratasys,
Inc.
and
its
subsidiaries
with
respect
to
acts
or
omissions
occurring
prior
to
the
effective
time
of
the
merger.
Thelimits,
terms
and
conditions
of
this
coverage
are
at
least
as
favorable
as
the
limits,
terms
and
conditions
in
the
policy
that
Stratasys,
Inc.
maintained
up
to
the
effective
time
of
the
Stratasys-Objet
merger.Directors’ Service ContractsFor
a
description
of
service
contracts
that
we
have
entered
into
with
our
directors
that
provide
for
benefits
upon
termination
of
employment
or
other
service,
please
see
Item
7.B,
“Related
Party
Transactions—Employment
and
Consulting
Agreements
with
Directors
and
Executive
Officers”
below.D. EmployeesThe
number
of
our
full-time
equivalent
employees,
and
the
distribution
of
employees
(i)
geographically
and
(ii)
within
the
divisions
of
our
company,
in
each
case
as
of
December
31,
2016,
2015
and
2014
are
setforth
in
the
two
tables
below.Number of full-time equivalent employeesby region as of December 31,Region2016




2015




2014Americas
*1,6301,8002,076Israel473493506Europe176209128Asia
Pacific190219196Total2,4692,7212,90676Table of ContentsNumber of full-time equivalent employees by function as of December 31,Division201620152014Operations
and
support




788




929




1,178Research
and
development
551543
517Customer
service316288
199Sales
and
marketing441
558600General
and
administrative373403412Total       2,469       2,721       2,906*Includes
employees
in
Latin
America
.During
the
years
covered
by
the
above
tables,
we
did
not
employ
a
significant
number
of
temporary
employees.The
moderate
decrease
in
the
size
of
our
workforce
in
each
of
2016
and
2015
relative
to
the
previous
year
was
due
to
our
implementation
of
operational
efficiencies,
which
included
elimination
of
excess
employeesin
certain
divisions
of
our
company.While
none
of
our
employees
is
party
to
a
collective
bargaining
agreement,
certain
provisions
of
the
collective
bargaining
agreements
between
the
Histadrut
(General
Federation
of
Labor
in
Israel)
and
theCoordination
Bureau
of
Economic
Organizations
(including
the
Industrialists’
Associations)
are
applicable
to
our
employees
in
Israel
by
order
of
the
Israel
Ministry
of
Labor.
These
provisions
primarily
concern
thelength
of
the
workday,
minimum
daily
wages
for
professional
workers,
pension
fund
benefits
for
all
employees,
insurance
for
work-related
accidents,
procedures
for
dismissing
employees,
determination
of
severancepay
and
other
conditions
of
employment.
We
generally
provide
our
employees
with
benefits
and
working
conditions
beyond
the
required
minimums.We
have
never
experienced
any
employment-related
work
stoppages.
We
believe
that
our
relationship
with
our
employees
is
good.The
employees
of
our
subsidiaries
are
subject
to
local
labor
laws
and
regulations
that
vary
from
country
to
country.E. Share Ownership.The
following
table
lists,
as
of
February
14,
2017,
the
number
of
our
ordinary
shares
owned,
and
stock
options
held,
by
each
of
the
directors
and
members
of
our
senior
management
who
served
as
such
during
theyear
(including
for
part
of
the
year)
ended
December
31,
2016:77Table of ContentsShares of Stratasys (1)Stratasys stock options (3)Percent ofNumber held (4)Number ofoutstandingExercisesharessharesNotpricebeneficiallybeneficiallyExercisableexercisableperExpirationName     owned (2)     owned (2)     within 60 days     within 60 days     share     dateElchanan
JaglomSee
table
inChairman of the BoardItem
7.
A

“Major

Shareholders”below.
S.
Scott
Crump357,073(5)*18,000—$25.50August
29,
2017Chairman of the Executive Committee
14,4003,600$46.87
June
18,
201893,7496,251$82.15June
21,
2023
Ilan
Levin161,731*100,062—$7.82December
31,
2017Chief Executive Officer and Director24,782—$2.21December
31,
2017
Eyal
Desheh******Director (6)
Edward
J.
Fierko126,066(7)*18,000—$25.50August
29,
2017Director14,4003,600$46.87June
18,
201820,6251,375$82.15June
21,
202315,1256,875$103.30August
8,
2020






9,166
834
$21.44
June
4,
2026
Victor
Leventhal31,345*12,9576,222$74.95December
1,
2022Director9,166834$21.44June
4,
2026
John
J.
McEleney46,616*7,2003,600$46.87June
18,
2018Director
15,125
1,375$82.15June
21,
202315,1256,875$103.30August
8,
2020






9,166
834
$21.44
June
4,
2026
Ziva
Patir36,899*27,7331,849$82.15June
21,
2023Director9,166834$21.44June
4,
2026
David
Reis172,436*172,436—$6.52December
31,
2017Director
Clifford
H.
Schweiter46,550*10,8003,600$46.87June
18,
2018Director (8)20,6251,375$82.15June
21,
2023
15,1256,875$103.30August
8,
2020
Haim
Shani9,1669,166834$21.44June
4,
2026Director
Erez
Simha******Chief Financial Officer (9,10)
Joshua
Claman******Chief Business Officer (9,10)
Tal
Dilian******Executive V.P., Technology and Products (9,10)
Avi
Jacoby******Executive VP Global HumanResources/ Training (9,10)
Dan
Yalon******EVP Strategy, Marketing & BD (9)78Table of Contents____________________*





Constitutes
less
than
1%
of
our
outstanding
shares.
(1)
All
of
our
shares
(including
shares
held
by
directors
and
members
of
senior
management)
have
identical
voting
rights.

(2)In
accordance
with
Rule
13d-3
under
the
Exchange
Act,
the
number
of
shares
and
the
percentages
shown
for
individual
persons
or
groups
include
any
ordinary
shares
underlying
stock
options
held
by
suchperson
or
group
that
were
exercisable
within
60
days
of
February
14,
2017
and
that
are
also
reflected
in
the
column
titled
“Stratasys
stock
options
—
Number
held
—
Exercisable
within
60
days.”
Further
inkeeping
with
such
Rule
13d-3,
the
computation
of
percentage
ownership
is
based
upon
52,695,671
ordinary
shares
outstanding
at
February
14,
2017,
plus
such
number
of
ordinary
shares
as
such
person
(but
notany
other
person
or
group)
had
the
right
to
receive
upon
the
exercise
of
stock
options
within
60
days
thereof.
(3)For
a
description
of
Stratasys’
stock
option
plans,
please
see
“Stock
Option
and
Share
Incentive
Plans”
in
this
Item
below.
All
options
granted
under
such
plans
have
been
granted
without
payment
of
any
cashconsideration
therefor
by
the
grantees
thereof.

(4)Each
stock
option
is
exercisable
for
one
ordinary
share.

(5)Includes
176,294
ordinary
shares
owned
of
record
by
Mr.
Crump’s
wife.

(6)Mr.
Desheh
served
as
an
external
director
of
our
company
from
the
start
of
2016
until
February
25,
2016,
when
his
term
expired.
He
elected
not
to
be
nominated
for
re-election
at
our
2016
annual
generalmeeting
of
shareholders.

(7)Includes
24,375
ordinary
shares
held
by
Mr.
Fierko’s
wife.

(8)Mr.
Schweiter
served
as
a
director
of
our
company
from
the
start
of
2016
until
our
2016
annual
general
meeting
of
shareholders
in
May
2016.
He
elected
not
to
be
nominated
for
re-election
at
that
meeting.

(9)Because
each
of
Messrs.
Simha,
Claman,
Dilian,
Jacoby
and
Yalon
beneficially
owns
less
than
1%
of
our
outstanding
ordinary
shares
and
his
beneficial
ownership
has
not
previously
been
disclosed
to
ourshareholders
or
otherwise
made
public,
it
is
being
omitted
from
this
annual
report
pursuant
to
an
allowance
provided
by
the
SEC’s
Form
20-F.

(10)Each
of
Messrs.
Simha,
Claman,
Dilian
and
Jacoby
ceased
his
employment
for
our
company
over
the
course
of
(or,
in
the
case
of
Mr.
Simha,
at
the
conclusion
of)
2016.Stock Option and Share Incentive PlansThe
following
sets
forth
certain
information
with
respect
to
our
current
stock
option
and
share
incentive
plans.
The
following
description
is
only
a
summary
of
the
plans
and
is
qualified
in
its
entirety
by
reference
tothe
full
text
of
the
plans,
which
are
exhibits
to
this
annual
report.Upon
the
expiration
of
our
stock
option
and
share
incentive
plans,
no
further
grants
may
be
made
thereunder,
although
any
existing
awards
will
continue
in
full
force
in
accordance
with
the
terms
under
which
theywere
granted.Amended and Restated 2004 Omnibus Stock Option and Restricted Stock Incentive PlanOur
Amended
and
Restated
2004
Omnibus
Stock
Option
and
Restricted
Stock
Incentive
Plan,
or
the
2004
Plan,
which
was
adopted
by
our
board
of
directors
on
August
15,
2004
and
amended
and
restated
by
theboard
of
directors
on
July
9,
2007
and
again
on
May
30,
2011,
provides
for
the
grant
of
options,
restricted
shares
or
other
share-based
awards
to
our
and
our
subsidiaries’
respective
directors,
employees,
officers,
officeholders,
subcontractors
and
consultants.
Awards
under
the
2004
Plan
may
be
granted
until
August
15,
2014,
ten
years
from
the
date
on
which
the
2004
Plan
was
originally
adopted
by
the
board
of
directors.Our
2004
Plan
is
administered
by
our
board
of
directors,
which
shall
determine,
subject
to
Israeli
law,
the
grantees
of
awards
and
various
terms
of
the
grant.
The
2004
Plan
provides
for
granting
options
incompliance
with
Section
102
of
the
Income
Tax
Ordinance,
1961,
to
which
we
refer
as
the
Tax
Ordinance.Options
granted
under
the
2004
Plan
to
Israeli
employees
have
been
granted
under
the
capital
gains
track
of
Section
102
of
the
Tax
Ordinance.
In
order
to
comply
with
the
terms
of
the
capital
gains
track,
all
optionsthat
have
been
granted
under
the
2004
Plan
(grants
were
not
made
until
the
2006
fiscal
year)
pursuant
and
subject
to
the
provisions
of
Section
102
of
the
Tax
Ordinance,
as
well
as
the
shares
issued
upon
exercise
ofthese
options
and
other
shares
received
subsequently
following
any
realization
of
rights
with
respect
to
such
options,
such
as
a
result
of
a
share
dividend
or
share
split,
are
granted
to
a
trustee
for
the
benefit
of
therelevant
employee,
director
or
officer
and
are
held
by
the
trustee
for
at
least
two
years
after
the
date
of
grant.79Table of ContentsUnless
otherwise
provided
by
our
board
of
directors,
options
granted
under
the
2004
Plan
vest
over
a
four-year
period
that
commences
on
the
date
of
grant
such
that
25%
vest
after
one
year
and
an
additional
6.25%vest
at
the
end
of
each
subsequent
three-month
period
over
the
following
36
months.
Unless
a
shorter
term
is
set
by
our
board
with
respect
to
a
specific
award,
options,
other
than
certain
incentive
share
options,
expire10
years
from
the
grant
date.
Incentive
share
options
granted
to
a
person
holding
more
than
10%
of
our
voting
power
expire
within
five
years
from
the
date
of
the
grant.
All
options
that
have
been
granted
to
date
underthe
2004
Plan
expire
on
December
31,
2017.If
we
terminate
a
grantee’s
employment
or
service
for
cause,
all
of
the
grantee’s
vested
and
unvested
options
expire
on
the
date
of
termination.
If
a
grantee’s
employment
or
service
terminates
due
to
death,disability,
or
retirement,
the
grantee’s
vested
options
may
be
exercised
by
him
or
her,
or
by
his
or
her
estate
(as
the
case
may
be),
for
one
year,
following
the
death
or
disability,
or
three
months
following
retirement.
If
agrantee’s
service
or
other
relationship
to
our
company
terminates
for
any
other
reason,
the
grantee
may
exercise
his
or
her
vested
options
until
the
90th
day
after
the
date
of
such
termination
(or
such
different
period
asour
board
shall
prescribe).
In
addition
to
the
shares
reserved
under
the
2004
Plan,
any
options
granted
under
the
2004
Plan
that
are
terminated
or
forfeited
for
any
reason
without
having
been
exercised,
return
to
thepool
under
the
plan
and
enlarge
the
reserved
shares
under
the
plan.
Shares
subject
to
options
granted
under
the
2004
Plan
that
terminate
or
are
forfeited
for
any
reason
without
having
been
exercised
will
be
added
to
thepool
of
shares
available
for
awards
under
our
2012
Omnibus
Equity
Incentive
Plan,
or
the
2012
Plan,
and
enlarge
the
reserved
shares
thereunder.In
the
event
of
a
merger
or
consolidation
of
our
company,
or
sale
of
all
or
substantially
all
of
our
shares
or
assets,
then
without
the
consent
of
the
option
holder,
the
board
may
but
is
not
required
to
(i)
use
its
bestefforts
to
cause
that
any
outstanding
award
shall
be
assumed
or
an
equivalent
award
shall
be
substituted
by
such
successor
corporation
or
(ii)
in
case
the
successor
corporation
refuses
to
assume
or
substitute
the
award(a)
provide
the
grantee
with
the
option
to
exercise
the
award
as
to
all
or
part
of
the
shares
or
(b)
cancel
the
option
against
payment
to
the
grantee
in
an
amount
equal
to
the
fair
market
value
of
such
shares
as
reflectedunder
the
terms
of
such
merger
or
sale
minus
the
exercise
price
per
share
for
each
such
share.
Notwithstanding
the
foregoing,
the
board
may
upon
such
event
amend
or
terminate
the
terms
of
any
award,
includingconferring
the
right
to
purchase
any
other
security
or
asset
that
the
board
shall
deem,
in
good
faith,
as
appropriate.We
will
not
be
making
any
further
awards
under
the
2004
Plan,
as
the
2012
Plan
has
taken
its
place
for
future
awards.
As
of
December
31,
2016,
a
total
of
552,880
ordinary
shares
were
issuable
upon
exercise
ofoutstanding
options
that
were
vested
and
exercisable
under
the
2004
Plan.2012 Omnibus Equity Incentive PlanOur
2012
Omnibus
Equity
Incentive
Plan,
which
became
effective
at
the
effective
time
of
the
Stratasys-Objet
merger,
provides
for
the
grant
of
options,
restricted
shares,
restricted
share
units
and
other
share-basedawards
to
our
and
our
subsidiaries’
respective
directors,
employees,
officers,
consultants,
and
advisors
and
to
any
other
person
whose
services
are
considered
valuable
to
our
company
or
any
of
our
affiliates.
Followingthe
approval
of
the
2012
Plan
by
the
Israeli
tax
authorities,
we
will
only
grant
options
or
other
equity
incentive
awards
under
the
2012
Plan,
although
previously-granted
options
and
awards
will
continue
to
be
governedby
the
2004
Plan.
Under
the
2012
Plan,
there
were
2,500,000
ordinary
shares
originally
reserved
for
issuance,
none
of
which
was
granted
prior
to
the
effectiveness
of
the
merger.
Upon
the
adoption
of
an
amendment
tothe
2012
Plan
at
our
extraordinary
general
meeting
of
shareholders
in
February
2013,
the
reserved
pool
under
the
plan
consisted
of
4,000,000
shares,
which
was
to
be
automatically
increased
annually
on
January
1(beginning
on
January
1,
2014)
by
a
number
of
ordinary
shares
equal
to
the
lower
of
(i)
500,000
shares,
subject
to
adjustment
due
to
certain
changes
as
provided
under
the
2012
Plan,
and
(ii)
a
number
of
sharesdetermined
by
our
board
of
directors,
if
so
determined
prior
to
the
January
1
on
which
the
increase
will
occur.
Pursuant
to
that
provision,
on
each
of
January
1,
2015
,
January
1,
2016
and
January
1,
2017
,
the
pool
ofshares
under
the
2012
Plan
was
automatically
increased
by
500,000
shares,
to
5,000,000
shares,
5,500,000
and
6,000,000
shares
total,
respectively.The
2012
Plan
is
administered
by
our
board
of
directors
or
by
a
committee
designated
by
the
board,
which
determines,
subject
to
Israeli
law,
the
grantees
of
awards
and
the
terms
of
the
grant,
including,
exerciseprices,
vesting
schedules,
acceleration
of
vesting
and
the
other
matters
necessary
in
the
administration
of
the
2012
Plan.
The
2012
Plan
enables
our
company
to
issue
awards
under
various
tax
regimes
including,without
limitation,
pursuant
to
Sections
102
and
3(9)
of
the
Tax
Ordinance
and
Section
422
of
U.S.
Internal
Revenue
Code
of
1986,
to
which
we
refer
as
the
Code.Section
102
of
the
Tax
Ordinance
allows
employees,
directors
and
officers
who
are
not
controlling
shareholders
and
are
considered
Israeli
residents
to
receive
favorable
tax
treatment
for
compensation
in
the
formof
shares
or
options.
Our
Israeli
non-employee
service
providers
and
controlling
shareholders
may
only
be
granted
options
under
Section
3(9)
of
the
Tax
Ordinance,
which
does
not
provide
for
similar
tax
benefits.Section
102
of
the
Tax
Ordinance
includes
two
alternatives
for
tax
treatment
involving
the
issuance
of
options
or
shares
to
a
trustee
for
the
benefit
of
the
grantees
and
also
includes
an
additional
alternative
for
theissuance
of
options
or
shares
directly
to
the
grantee.
Section
102(b)(2)
of
the
Tax
Ordinance,
the
most
favorable
tax
treatment
for
grantees,
permits
the
issuance
to
a
trustee
under
the
“capital
gains
track.”
However,under
this
track
we
will
not
be
allowed
to
deduct
an
expense
with
respect
to
the
issuance
of
the
options
or
shares.
Options
granted
under
the
2012
Plan
to
U.S.
residents
may
qualify
as
“incentive
stock
options”
withinthe
meaning
of
Section
422
of
the
Code.
The
exercise
price
for
“incentive
stock
options”
must
not
be
less
than
the
fair
market
value
on
the
date
on
which
an
option
is
granted,
or
110%
of
the
fair
market
value
if
theoption
holder
holds
more
than
10%
of
our
share
capital.80Table of ContentsUnder
the
2012
Plan,
we
are
expected
to
grant
options
to
our
employees,
directors
and
officers
who
are
not
controlling
shareholders
and
are
considered
Israeli
residents,
under
the
capital
gains
track.
In
order
tocomply
with
the
terms
of
the
capital
gains
track,
all
options
granted
under
the
2012
Plan
pursuant
and
subject
to
the
provisions
of
Section
102
of
the
Tax
Ordinance,
as
well
as
the
ordinary
shares
to
be
issued
uponexercise
of
these
options
and
other
shares
received
subsequently
following
any
realization
of
rights
with
respect
to
such
options,
such
as
share
dividends
and
share
splits,
must
be
granted
to
a
trustee
for
the
benefit
ofthe
relevant
employee,
director
or
officer
and
should
be
held
by
the
trustee
for
at
least
two
years
after
the
date
of
the
grant.Awards
under
the
2012
Plan
may
be
granted
until
September
16,
2022,
ten
years
from
the
date
on
which
the
2012
Plan
was
approved
by
our
shareholders.Options
granted
under
the
2012
Plan
generally
vest
over
four
years
commencing
on
the
date
of
grant
such
that
25%
vest
after
one
year
and
an
additional
6.25%
vest
at
the
end
of
each
subsequent
three-month
periodthereafter
for
36
months.
Options,
other
than
certain
incentive
share
options,
that
are
not
exercised
within
ten
years
from
the
grant
date
expire,
unless
otherwise
determined
by
the
board
or
its
designated
committee,
asapplicable.
Incentive
share
options
granted
to
a
person
holding
more
than
10%
of
the
combined
company’s
voting
power
expire
within
five
years
from
the
date
of
the
grant.
In
case
of
termination
for
reasons
of
death,disability,
or
retirement,
the
grantee
or
his
legal
successor
may
exercise
options
that
have
vested
prior
to
termination
within
a
period
of
one
year
from
the
date
of
disability
or
death,
or
within
three
months
followingretirement.
If
we
terminate
a
grantee’s
employment
or
service
for
cause,
all
of
the
grantee’s
vested
and
unvested
options
will
expire
on
the
date
of
termination.
If
a
grantee’s
employment
or
service
is
terminated
for
anyother
reason,
the
grantee
may
exercise
his
or
her
vested
options
within
90
days
of
the
date
of
termination.
Any
expired
or
unvested
options
return
to
the
pool
for
reissuance.In
the
event
of
a
merger
or
consolidation
of
our
company,
or
a
sale
of
all,
or
substantially
all,
of
our
shares
or
assets
or
other
transaction
having
a
similar
effect,
then
without
the
consent
of
the
option
holder,
theboard
or
its
designated
committee,
as
applicable,
may
but
is
not
required
to
(i)
cause
any
outstanding
award
to
be
assumed
or
an
equivalent
award
to
be
substituted
by
such
successor
corporation
or
(ii)
in
case
thesuccessor
corporation
refuses
to
assume
or
substitute
the
award
(a)
provide
the
grantee
with
the
option
to
exercise
the
award
as
to
all
or
part
of
the
shares
or
(b)
cancel
the
options
against
payment
in
cash
in
an
amountdetermined
by
the
board
or
the
committee
as
fair
in
the
circumstances.
Notwithstanding
the
foregoing,
the
board
or
its
designated
committee
may
upon
such
event
amend
or
terminate
the
terms
of
any
award,
includingconferring
the
right
to
purchase
any
other
security
or
asset
that
the
board
shall
deem,
in
good
faith,
appropriate.Stratasys, Inc. PlansPursuant
to
the
Stratasys-Objet
merger
agreement,
upon
the
consummation
of
the
Stratasys-Objet
merger,
each
option
exercisable
for
one
share
of
Stratasys,
Inc.
common
stock
converted
into
an
option
to
purchaseone
ordinary
share
of
Stratasys
Ltd.
Furthermore,
we
assumed
the
obligations
of
Stratasys,
Inc.
related
to
the
issuance
of
shares
underlying
those
options
under
its
then-existing
option
plans,
consisting
of
the
Stratasys,Inc.
1998
Incentive
Stock
Option
Plan,
Stratasys,
Inc.
2000
Incentive
Stock
Option
Plan,
Stratasys,
Inc.
2002
Long-Term
Performance
and
Incentive
Plan,
and
Stratasys,
Inc.
2008
Long-Term
Performance
andIncentive
Plan,
which
we
refer
to
collectively
as
the
Stratasys,
Inc.
plans.
Each
option
so
assumed
pursuant
to
the
Stratasys-Objet
merger
agreement
remains
governed
by
the
terms
and
conditions
of
the
relevant
grantinstrument
as
well
as
the
Stratasys
Inc.
plan
under
which
it
was
granted
(with
appropriate
changes
to
reflect
Stratasys
Ltd.
as
the
company
whose
shares
are
issuable
upon
exercise
of
the
option).
As
of
December
31,2016,
a
total
of
168,750
ordinary
shares
were
issuable
upon
exercise
of
options
that
were
vested
and
exercisable
under
the
Stratasys,
Inc.
plans.The
following
table
presents
certain
option
data
information
for
the
above-described
stock
option
and
share
incentive
plans
as
at
February
14,
2017:TotalWeightedOrdinaryAverageSharesAggregateAggregateExerciseReservedNumber ofNumber ofPrice offorAwardsShares AvailableAwardsOutstandingPlan




Grants




Granted out of Reserve




for Future Grants




Outstanding




Options2004
Plan——None535,549
$11.942012
Plan6,000,000
2,383,1923,616,8081,718,786$44.35Stratasys,
Inc.
Plans——None207,400$41.47Totals6,000,0002,383,1923,616,8082,461,735$37.06On
December
3,
2012,
we
filed
a
registration
statement
on
Form
S-8
to
register
the
issuance
of
ordinary
shares
in
respect
of
then-outstanding
options
to
directors,
officers,
employees
and
eligible
consultants
underthe
2004
Plan
and
the
Stratasys,
Inc.
plans.
On
September
3,
2013,
we
filed
a
registration
statement
on
Form
S-8
to
register
the
issuance
of
ordinary
shares
underlying
options
granted
or
to
be
granted
under
the
2012Plan.81Table of ContentsITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.A. Major ShareholdersOwnership by Major ShareholdersThe
following
table
presents
the
beneficial
ownership
of
our
ordinary
shares
by
each
person
who
is
known
by
us
to
be
the
beneficial
owner
of
5%
or
more
of
our
outstanding
ordinary
shares
(to
whom
we
refer
asour
major
shareholders),
based
on
the
most
recent
beneficial
ownership
reports
filed
with
the
SEC
by
such
persons
on
or
before
February
14,
2017.
The
data
presented
is
based
on
information
provided
to
us,
ordisclosed
in
public
filings
with
the
SEC,
by
the
major
shareholders.Beneficial
ownership
of
shares
is
determined
under
rules
of
the
SEC
and
generally
includes
any
shares
for
which
a
person
exercises
sole
or
shared
voting
or
investment
power,
or
for
which
a
person
has
or
sharesthe
right
to
receive
the
economic
benefit
of
ownership
of
the
shares.
The
table
below
includes
the
number
of
shares
underlying
options
that
are
exercisable
within
60
days
after
February
14,
2017.
Shares
issuable
uponthe
exercise
of
such
options
are
deemed
to
be
outstanding
for
the
purpose
of
computing
the
ownership
percentage
of
the
person,
entity
or
group
holding
such
options,
but
are
not
deemed
to
be
outstanding
for
thepurpose
of
computing
the
ownership
percentage
of
any
other
person,
entity
or
group.
The
ownership
percentages
reflected
below
are
based
on
52,695,671
ordinary
shares
outstanding
as
of
February
14,
2017.Except
where
otherwise
indicated,
and
except
pursuant
to
community
property
laws,
we
believe,
based
on
information
furnished
by
such
owners,
that
the
beneficial
owners
of
the
shares
listed
below
have
soleinvestment
and
voting
power
with
respect
to,
and
the
sole
right
to
receive
the
economic
benefit
of
ownership
of,
such
shares.
The
shareholders
listed
below
do
not
have
any
different
voting
rights
from
any
of
our
othershareholders.
We
know
of
no
arrangements
that
would,
at
a
subsequent
date,
result
in
a
change
of
control
of
our
company.OptionsTotalOrdinaryExercisableBeneficialPercentageBeneficial Owner




Shares




within 60 Days




Ownership




OwnershipRoy
J.
Zuckerberg2,888,727
(1)—2,888,7275.5%Elchanan
Jaglom2,875,125
(2)—2,875,1255.5%PRIMECAP
Management
Company5,010,000
(3)—5,010,0009.5%Fisher
Investments3,115,910
(4)—3,115,9105.9%____________________
(1)





Represents
shares
beneficially
owned
as
of
December
31,
2016,
as
indicated
in
the
amended
statement
of
beneficial
ownership
on
Schedule
13G/A
filed
jointly
by
Samson
Capital,
LLC
and
Roy
J.
Zuckerbergon
February
14,
2017.
Consists
of
13,602
ordinary
shares
held
by
Zuckerberg
Investment
Partners,
LP,
2,517,787
ordinary
shares
held
by
Samson
Capital,
LLC,
with
respect
to
which
Roy
J.
Zuckerberg
may
bedeemed
to
share
beneficial
ownership
and
357,338
ordinary
shares
held
by
Hancock
LLC,
a
limited
liability
company
organized
under
the
laws
of
the
State
of
California,
with
respect
to
which
Roy
J.
Zuckerbergmay
be
deemed
to
share
beneficial
ownership
as
a
result
of
the
Roy
J.
Zuckerberg
Family
Trust’s
39.4%
ownership
of
the
membership
interests
of
Hancock
LLC.
Mr.
Zuckerberg
is
party
to
an
agreement
withrespect
to
the
ordinary
shares
held
by
Samson
Capital,
LLC
that
provides
him
with
the
right
to
independently
make
decisions
as
to
voting
and
disposition
of
1,548,649
of
those
ordinary
shares,
without
having
toconsult
with
any
other
person.
The
Roy
J.
Zuckerberg
Family
Trust
is
party
to
an
agreement
pursuant
to
which
it
has
the
right
to
independently
make
decisions
as
to
the
voting
and
disposition
of
38,786
of
theordinary
shares
held
by
Hancock
LLC,
without
having
to
consult
with
any
other
person.
Mr.
Zuckerberg
disclaims
beneficial
ownership
of
all
of
the
ordinary
shares
that
may
be
deemed
to
be
beneficially
ownedby
him
except
to
the
extent
of
his
pecuniary
interest
therein.
(2)Represents
shares
beneficially
owned
as
of
December
31,
2016,
as
indicated
in
the
amended
statement
of
beneficial
ownership
on
Schedule
13G/A
filed
by
Elchanan
Jaglom
on
February
14,
2017.
Consists
of
(i)2,517,787
ordinary
shares
held
by
Samson
Capital,
LLC,
with
respect
to
which
Mr.
Jaglom
may
be
deemed
to
share
beneficial
ownership
and
(ii)
the
357,338
ordinary
shares
held
by
Hancock
LLC,
a
Californialimited
liability
company
of
which
61.2%
of
the
membership
interests
are
held
by
a
company
(which
we
refer
to
as
the
Hancock
Member)
of
which
Mr.
Jaglom
is
a
director.
Mr.
Jaglom
is
party
to
an
agreementwith
respect
to
the
ordinary
shares
held
by
Samson
Capital,
LLC
that
provides
him
with
the
right
to
independently
make
decisions
as
to
voting
and
disposition
of
969,138
of
those
ordinary
shares,
without
havingto
consult
with
any
other
person.
The
Hancock
Member
is
party
to
an
agreement
pursuant
to
which
it
has
the
right
to
independently
make
decisions
as
to
voting
and
disposition
of
318,552
of
the
ordinary
sharesheld
by
Hancock
LLC,
without
having
to
consult
with
any
other
person.
Mr.
Jaglom
disclaims
beneficial
ownership
of
the
ordinary
shares
held
by
each
of
Samson
Capital,
LLC
and
Hancock
LLC
except
to
theextent
of
his
pecuniary
interest
therein.


(3)Represents
shares
beneficially
owned
as
of
December
31,
2016,
as
indicated
in
the
amended
statement
of
beneficial
ownership
on
Schedule
13G/A
filed
by
PRIMECAP
Management
Company
on
February
9,2017.
As
indicated
in
that
amended
statement,
PRIMECAP
Management
Company
possesses
sole
dispositive
power
with
respect
to
all
such
5,010,000
ordinary
shares,
but
sole
voting
power
with
respect
to
only4,660,000
of
such
ordinary
shares.


(4)Represents
shares
beneficially
owned
as
of
December
31,
2016,
as
indicated
in
the
statement
of
beneficial
ownership
on
Schedule
13G
filed
by
Fisher
Investments
on
January
27,
2017.
As
indicated
in
thatstatement,
Fisher
Investments
possesses
sole
dispositive
power
with
respect
to
all
such
3,115,910
ordinary
shares,
but
sole
voting
power
with
respect
to
only
1,523,892
of
such
ordinary
shares.82Table of ContentsChanges in Percentage Ownership by Major ShareholdersDuring
2014,
there
were
decreases
in
the
percentage
ownership
of
each
of
our
pre-existing
major
shareholders,
consisting
of
Samson
Capital,
LLC,
Roy
J.
Zuckerberg
and
Elchanan
Jaglom.
The
decreases
were
dueto,
in
the
case
of
the
some
of
the
major
shareholders,
market
sales
by
the
major
shareholders
themselves.
The
decreases
were
also
due
to
our
issuance
of
a
substantial
number
of
additional
ordinary
shares
in
varioustransactions,
including
the
Solid
Concepts
acquisition
and
Harvest
Technologies
acquisition
in
July
2014
and
August
2014,
respectively.
In
2015,
the
percentage
ownership
of
those
shareholders
increased,
due
tomarket
purchases
of
additional
ordinary
shares
by
Samson
Capital,
LLC
(which
increased
the
percentage
ownership
of
all
three
of
those
shareholders).
In
2016,
the
percentage
ownership
of
those
shareholders
declined,due
to
sales
by
Samson
Capital,
LLC
and
Hancock
LLC
(and
Samson
Capital
LLC
ceased
to
be
a
5%
or
greater
shareholder
as
a
result).The
percentage
ownership
of
those
shareholders
decreased
during
2014,
increased
during
2015
and
decreased
during
2016,
as
follows:
(i)
Samson
Capital,
LLC—from
6.4%
to
4.8%,
back
up
to
5.2%,
and
backdown
to
4.8%;
(ii)
Roy
J.
Zuckerberg—from
7.6%
to
5.9%,
back
up
to
6.2%
and
back
down
to
5.5%;
and
(iii)
Elchanan
Jaglom—from
7.5%
to
5.8%,
back
up
to
6.2%
and
back
down
to
5.5%.During
2014,
four
new
major
shareholders—
Morgan
Stanley,
Baillie
Gifford
&
Co,
T.
Rowe
Price
Associates,
Inc.
and
Edgewood
Management
LLC—acquired
over
5%
of
our
outstanding
ordinary
shares.
During2015,
Morgan
Stanley,
Baillie
Gifford
&
Co.
and
Edgewood
Management
LLC
ceased
to
be
major
shareholders,
as
their
percentage
ownership
dropped
to
1.5%,
4.6%
and
0%,
respectively.
During
2015,
a
new
majorshareholder,
PRIMECAP
Management
Company,
acquired
6.3%
of
our
outstanding
ordinary
shares
and
during
2016,
its
percentage
ownership
increased
further,
to
9.5%.T.
Row
Price
Associates,
Inc.
acquired
over
5%
of
our
outstanding
ordinary
shares
in
2015
(5.3%),
but
then
ceased
to
be
a
major
shareholder
during
2016,
dropping
to
1.6%
as
of
the
end
of
2016.
FisherInvestments
has
become
a
5%
or
greater
shareholder
for
the
first
time
as
of
the
end
of
2016,
having
acquired
5.9%.Record HoldersBased
upon
a
review
of
the
information
provided
to
us
by
our
transfer
agent,
as
of
February
14,
2016,
there
were
102
holders
of
record
of
our
shares,
of
which
76
record
holders
holding
52,692,156,
orapproximately
99.99%,
of
our
outstanding
ordinary
shares,
had
registered
addresses
in
the
United
States.
These
numbers
are
not
representative
of
the
number
of
beneficial
holders
of
our
shares
nor
is
it
representative
ofwhere
such
beneficial
holders
reside,
since
many
of
these
shares
were
held
of
record
by
brokers
or
other
nominees.
As
of
the
said
date,
CEDE
&
Co,
the
nominee
company
of
the
Depository
Trust
Company
(with
aregistered
address
in
the
United
States),
held
of
record
51,283,246
ordinary
shares
on
behalf
of
hundreds
firms
of
brokers
and
banks
in
the
United
States,
who
in
turn
held
such
shares
on
behalf
of
several
thousandclients
and
customers.B. Related Party Transactions.Except
as
described
below
or
elsewhere
in
this
annual
report,
since
January
1,
2016,
we
have
had
no
transaction
or
loan,
nor
do
we
have
any
presently
proposed
transaction
or
loan,
involving
any
related
partydescribed
in
Item
7.B
of
Form
20-F
promulgated
by
the
SEC.Indemnification AgreementsOur
amended
articles
permit
us
to
exculpate,
indemnify
and
insure
each
of
our
directors
and
office
holders
to
the
fullest
extent
permitted
by
the
Companies
Law.
Effective
upon
the
effective
time
of
the
merger,
weentered
into
indemnification
agreements
with
each
of
our
current
directors
and
other
office
holders,
under
which
we
undertook
to
indemnify
them
to
the
fullest
extent
permitted
by
Israeli
law,
including
with
respect
toliabilities
resulting
from
the
merger
to
the
extent
that
these
liabilities
are
not
covered
by
insurance.
We
also
put
into
place
Directors
and
Officers
liability
insurance
for
each
of
our
directors
and
other
office
holdersupon
the
effectiveness
of
the
Stratasys-Objet
merger.Employment and Consulting Agreements with Directors and Executive OfficersEmployment agreement with Ilan LevinPursuant
to
an
employment
agreement,
dated
June
27,
2011,
Ilan
Levin,
our
Chief
Executive
Officer,
provides
services
to
us
as
a
full-time
employee
who
leads
special
corporate
executive
functions.
Under
theagreement,
Mr.
Levin
receives
a
gross
monthly
salary
of
NIS
27,000
(approximately
$6,950)
and
other
benefits
that
are
provided
for
by
Israeli
law
or
that
are
customary
for
senior
executives
in
Israel,
includingreimbursement
for
reasonable
expenses
incurred
in
connection
with
his
services,
and
the
right
to
use
(and
all
related
fixed
and
variable
costs
in
respect
of)
a
leased
car.
The
foregoing
salary
is
in
addition
to
andindependent
of
the
$19,400
per
month
plus
Israeli
value
added
tax,
or
VAT,
that
Mr.
Levin
is
entitled
to
for
continued
service
as
a
member
of
the
board.83Table of ContentsUnder
the
employment
agreement,
Mr.
Levin
is
furthermore
entitled
to
company
contributions
equivalent
to
5%,
8.33%,
2.5%,
and
7.5%
of
his
gross
monthly
salary
towards
certain
pension,
severance,
disabilityand
tax-advantaged
savings
funds
(known
as
a
manager’s
insurance
policy,
severance
compensation
fund,
disability
insurance,
and
a
study
fund,
respectively)
(Mr.
Levin
also
contributes
5%
and
2.5%
of
his
grossmonthly
salary
towards
the
manager’s
insurance
policy
and
study
fund,
respectively).
The
employment
engagement
is
terminable
by
either
party
upon
three
months’
prior
written
notice,
and
contains
customaryprovisions
regarding
noncompetition,
confidentiality
of
information
and
assignment
of
inventions.
As
required
under
Israeli
law,
the
terms
of
Mr.
Levin’s
engagement
with
our
company
were
approved
by
our
board
ofdirectors
and
shareholders.Mr.
Levin
has
furthermore
been
granted
an
aggregate
of
419,344
options
to
purchase
ordinary
shares,
of
which
124,844
are
currently
outstanding,
all
of
which
are
fully
vested.
100,062
of
such
options
have
anexercise
price
of
$7.82
per
share
and
24,782
of
such
options
have
an
exercise
price
of
$2.208
per
share.
All
of
such
options
expire
on
December
31,
2017.
All
of
the
124,844
ordinary
shares
underlying
the
foregoingoptions
are
subject
to
an
agreement
between
Mr.
Levin
and
our
company
under
which
they
may
only
be
disposed
of
(subject
to
minor
exceptions
involving
the
payment
of
taxes)
in
an
orderly
fashion,
on
a
pro
ratabasis
over
the
course
of
a
five
year
period
commencing
in
2012.
These
restrictions
governing
the
disposition
of
these
shares
supplement,
and
do
not
replace,
any
additional
applicable
restrictions
under
our
share
optionand
incentive
plans.Consulting arrangement with an entity affiliated with Elchanan JaglomAn
entity
affiliated
with
Elchanan
Jaglom,
the
Chairman
of
the
board
of
directors,
has
provided
consulting
and
director
services
to
us
pursuant
to
an
oral
arrangement
that
was
approved
by
our
board
of
directorsand
shareholders.
The
monthly
amount
payable
to
that
entity
under
this
arrangement
is
$35,000,
plus
VAT,
currently.
The
consulting
arrangement,
which
is
not
recorded
in
a
written
agreement,
has
no
set
term
and
maybe
terminated
by
either
party
at
will
upon
written
notice.C. Interests of Experts and Counsel.Not
required.ITEM 8. FINANCIAL INFORMATION.A. Consolidated Statements and Other Financial Information.The
consolidated
financial
statements
and
other
financial
information
for
our
company
required
by
SEC
are
included
in
this
annual
report
beginning
on
page
F-1.Export SalesThe
following
table
presents
total
export
sales
by
Stratasys,
Ltd
for
each
of
the
fiscal
years
indicated
(in
thousands):




2016




2015




2014Total
Export
Sales*$269,449$280,021$341,395       as a percentage of Total Sales40.1%40.2%45.5%____________________*





Export
sales,
as
presented,
are
defined
as
sales
to
customers
located
outside
of
North
America
and
Israel
(where
our
dual
headquarters
are
located).Legal ProceedingsWe
are
a
party
to
various
legal
proceedings
incident
to
our
business.
Based
upon
the
status
of
such
cases,
as
determined
with
the
advice
of
counsel,
we
have
recorded
provisions
in
our
financial
statements
foramounts
(if
any)
judged
to
be
both
quantifiable
and
probable
to
be
paid.
Except
as
noted
below,
there
are
no
legal
proceedings
pending
or
threatened
against
us
that
we
believe
may
have
a
significant
effect
on
ourfinancial
condition
or
profitability.Claims Related to Company EquityOn
March
4,
2013,
five
current
or
former
minority
shareholders
and
former
directors
of
our
company
filed
two
lawsuits
against
our
company
in
an
Israeli
central
district
court.
The
lawsuits
demand
that
we
amendthe
capitalization
table
of
our
company
such
that
certain
shares
previously
issued
to
Objet
shareholders
named
as
defendants
would
be
recognized
as
being
owned
by
the
plaintiffs
with
a
consequent
reduction
of
theshare
ownership
of
the
named
defendants.
The
lawsuits
also
name
as
defendants
Elchanan
Jaglom,
the
Chairman
of
the
board
of
directors,
David
Reis,
our
Chief
Executive
Officer,
various
shareholders
of
ours
whowere
also
shareholders
of
Objet,
and,
in
one
of
the
lawsuits,
Ilan
Levin,
one
of
our
directors.
The
lawsuits
allege
in
particular
that
a
series
of
investments
in
Objet
during
2002
and
2003
was
effected
at
a
price
per
sharethat
was
below
fair
market
value,
thereby
illegally
diluting
those
shareholders
that
did
not
participate
in
the
investments.
The
plaintiffs
also
allege
that
a
portion
of
the
amount
invested
in
those
transactions
was
actuallyinvested
by
an
investor
who
was
already
a
shareholder
of
Objet
and
allegedly
acting
in
concert
with
Mr.
Jaglom,
and
that
the
interest
of
these
two
shareholders
in
these
transactions
was
not
properly
disclosed
to
theminority
shareholders
at
the
time.
The
lawsuits
furthermore
claim
that
we
effectively
engaged
in
backdating
the
issuance
of
certain
shares,
in
that
shares
that
Objet
reported
as
having
been
issued
in
2006
and
2007
wereactually
issued
at
a
subsequent
date—as
late
as
2009.84Table of ContentsWe
filed
our
statement
of
defense
in
response
to
these
claims
in
May
2013,
denying
the
claims.
In
2015,
the
court
dismissed
the
lawsuit
of
one
of
the
former
directors
due
to
lack
of
cause.
In
February
2017,
theparties
reached
an
agreement
pursuant
to
which
all
claims
were
settled
at
no
material
cost
to
our
company.
Notice
of
the
settlement
was
provided
to
the
court
with
a
motion
for
the
dismissal
of
the
suits.Securities Law Class ActionsOn
February
5,
2015,
a
lawsuit
styled
as
a
class
action
was
commenced
in
the
United
States
District
Courts
for
the
District
of
Minnesota,
naming
the
Company
and
certain
of
our
officers
and
directors
as
defendants.Similar
actions
were
filed
on
February
9
and
20,
2015,
and
on
March
25,
2015,
in
the
Southern
District
of
New
York,
the
Eastern
District
of
New
York,
and
the
District
of
Minnesota,
respectively.
The
lawsuits
allegeviolations
of
the
Exchange
Act
in
connection
with
allegedly
false
and
misleading
statements
concerning
our
business
and
prospects.
The
plaintiffs
seek
damages
and
awards
of
reasonable
costs
and
expenses,
includingattorneys’
fees.
On
April
15,
2015,
the
cases
were
consolidated
for
all
purposes,
and
on
April
24,
2015,
the
court
entered
an
order
appointing
lead
plaintiffs
and
approving
their
selection
of
lead
counsel
for
the
putativeclass.
On
July
1,
2015,
the
lead
plaintiffs
filed
their
consolidated
complaint.
On
August
31,
2015,
the
defendants
moved
to
dismiss
the
consolidated
complaint
for
failure
to
state
a
claim.
The
Court
heard
the
motion
onDecember
11,
2015.
On
June
30,
2016,
the
Court
granted
defendants’
motion
to
dismiss
with
prejudice
and
entered
judgment
in
favor
of
defendants.
On
July
29,
2016,
lead
plaintiffs
filed
a
notice
of
appeal
to
theUnited
States
Court
of
Appeals
for
the
Eighth
Circuit
from
the
Court’s
judgment.
On
September
22,
2016,
lead
plaintiffs
filed
the
opening
initial
brief
on
appeal.
On
October
24,
2016,
defendants
filed
their
answeringbrief
to
appeal.
On
November
18,
2016,
lead
plaintiffs
filed
the
reply
brief
in
support
of
their
appeal.
Oral
arguments
for
appeal
are
scheduled
for
March
9,
2017.
We
intend
to
mount
vigorous
defenses
to
theselawsuits.Dividend PolicyWe
have
never
paid
cash
dividends
on
our
ordinary
shares
and
do
not
anticipate
that
we
will
pay
any
cash
dividends
on
our
ordinary
shares
in
the
foreseeable
future.We
intend
to
retain
our
earnings
to
finance
the
development
of
our
business.
Any
future
dividend
policy
will
be
determined
by
our
board
of
directors
based
upon
conditions
then
existing,
including
our
earnings,financial
condition,
tax
position
and
capital
requirements,
as
well
as
such
economic
and
other
conditions
as
our
board
of
directors
may
deem
relevant.
Pursuant
to
our
articles
of
association,
dividends
may
be
declaredby
our
board
of
directors.
Dividends
must
be
paid
out
of
our
profits
and
other
surplus
funds,
as
defined
in
the
Companies
Law,
as
of
the
end
of
the
most
recent
year
or
as
accrued
over
a
period
of
the
most
recent
twoyears,
whichever
amount
is
greater,
provided
that
there
is
no
reasonable
concern
that
payment
of
a
dividend
will
prevent
us
from
satisfying
our
existing
and
foreseeable
obligations
as
they
become
due.
In
addition,because
we
have
received
certain
benefits
under
Israeli
law
relating
to
Approved
Enterprises
and
Beneficiary
Enterprises,
our
payment
of
dividends
(out
of
tax-exempt
income)
may
subject
us
to
certain
Israeli
taxes
towhich
we
would
not
otherwise
be
subject.
We
are
also
restricted
under
our
credit
agreement
with
Bank
of
America
from
paying
dividends.
Please
see
the
risk
factors
captioned
“We
do
not
anticipate
paying
any
cashdividends
in
the
foreseeable
future.
Therefore,
if
our
share
price
does
not
appreciate,
our
shareholders
may
not
recognize
a
return,
and
could
potentially
suffer
a
loss,
on
their
investment
in
our
ordinary
shares,”
and“Even
if
we
decide
to
pay
dividends
on
our
ordinary
shares,
we
may
be
restricted
from
doing
so
or
payment
of
such
dividends
may
have
adverse
consequences
for
our
company”
in
Item
3.D
“Risk
Factors—Risksrelated
to
an
investment
in
our
ordinary
shares”
above.For
a
discussion
of
the
applicable
rates
of
withholding
tax
on
dividends
paid
out
of
income
derived
from
an
Approved
Enterprise
or
a
Beneficiary
Enterprise,
see
“Israeli
Tax
Considerations
and
GovernmentPrograms
—
The
Law
for
the
Encouragement
of
Capital
Investments”
in
Item
4.B
above.B. Significant Changes.Other
than
as
otherwise
described
in
this
annual
report,
no
significant
change
has
occurred
in
our
operations
since
the
date
of
our
consolidated
financial
statements
included
in
this
annual
report.ITEM 9. THE OFFER AND LISTING.A. Listing Details.Since
December
3,
2012
(the
first
trading
day
after
the
effective
time
of
the
merger),
our
ordinary
shares
have
traded
(and,
prior
to
that
time,
Stratasys,
Inc.
common
stock
was
traded)
on
the
NASDAQ
GlobalSelect
Market
under
the
trading
symbol
“SSYS.”
The
following
table
sets
forth
the
high
and
low
closing
sale
prices
of
our
ordinary
shares
(and
for
periods
preceding
the
merger,
Stratasys,
Inc.
common
stock)
for
thefiscal
periods
indicated
below,
as
reported
on
the
NASDAQ
Global
Select
Market.85Table of ContentsPrice RangeHighLowFiscal Period:




(U.S. $)




(U.S. $)Six most recent months:






February
201721.9719.60






January
201720.0017.77






December
201619.9616.54






November
201620.9817.95






October
201624.3319.00






September
201624.0921.33Two most recent full financial years and subsequent periods, by quarter:Fiscal Year Ending December 31, 2017






January
1,
2017
-
February
28,
2017
only21.9717.77Fiscal Year Ended December 31, 2016






October
1,
2016
-
December
31,
201624.3316.54






July
1,
2016
-
September
30,
201624.0919.36






April
1,
2016
-
June
30,
201629.3519.74






January
1,
2016
-
March
31,
201627.8215.24Fiscal Year Ended December 31, 2015






October
1,
2015
-
December
31,
201531.9022.58






July
1,
2015
-
September
30,
201537.7326.17






April
1,
2015
-
June
30,
201561.4334.66






January
1,
2015
-
March
31,
201581.0552.78Five most recent full financial years






201629.3515.24






201581.0522.58






2014136.4678.64






2013134.7062.50






201280.7530.37Our
ordinary
shares,
nominal
value
NIS
0.01
per
share,
are
registered
on
the
books
of
our
transfer
agent,
Continental
Stock
Transfer
&
Trust
Company.
There
are
no
transfer
restrictions
apart
from
the
requirementthat
any
transfers
comply
with
applicable
securities
laws
and
the
rules
of
the
NASDAQ
Stock
Market
or
any
other
securities
exchange
on
which
our
ordinary
shares
may
be
listed
in
the
future.ITEM 10. ADDITIONAL INFORMATION.A. Share Capital.Not
applicableB. Memorandum and Articles of Association.Purposes and Objects of the CompanyWe
are
a
public
company
registered
under
Israel’s
Companies
Law
as
Stratasys
Ltd.,
registration
number
51-260769-8.
Under
our
memorandum
of
association,
our
purpose
includes
every
lawful
purpose.Powers of DirectorsUnder
the
provisions
of
the
Companies
Law
and
our
amended
articles,
the
management
of
the
business
of
the
Company
is
vested
in
our
board
of
directors,
which
may
exercise
all
such
powers
and
do
all
such
actsand
things
as
the
Company
is
authorized
to
exercise
and
do.
For
certain
approval
requirements,
disclosure
obligations
and
limitation
on
participation
of
members
of
our
board
in
board
meetings,
see
“Fiduciary
Dutiesof
Officer
Holders
—
Approval
of
Specified
Related
Party
Transactions
with
Office
Holders
Under
Israeli
Law”
in
Item
6.C
–
“Board
Practices”
above,
and
the
remainder
of
this
Item
10.B
below.The
authority
of
our
directors
to
enter
into
borrowing
arrangements
on
our
behalf
is
not
limited,
except
to
the
same
degree
as
any
other
transaction
into
which
we
may
enter.Our
amended
articles
do
not
impose
any
mandatory
retirement
or
age-limit
requirements
on
our
directors,
and
our
directors
are
not
required
to
own
shares
in
our
company
in
order
to
qualify
to
serve
as
directors.Rights Attached to SharesOur
authorized
share
capital
consists
of
180,000,000
ordinary
shares
of
a
nominal
value
of
NIS
0.01
each.
All
outstanding
ordinary
shares
are
validly
issued,
fully
paid
and
non-assessable.The
rights
attached
to
the
ordinary
shares
are
as
follows:Dividend Rights. Our
board
of
directors
may,
in
its
discretion,
declare
that
a
dividend
be
paid
pro
rata
to
the
holders
of
ordinary
shares.
Dividends
must
be
paid
out
of
our
profits
and
other
surplus
funds,
as
definedin
the
Companies
Law,
as
of
the
end
of
the
most
recent
year
or
as
accrued
over
a
period
of
two
years,
whichever
is
greater,
provided
that
there
is
no
reasonable
concern
that
payment
of
a
dividend
will
prevent
us
fromsatisfying
our
existing
and
foreseeable
obligations
as
they
become
due.
Under
the
Companies
Law,
the
declaration
of
a
dividend
does
not
require
the
approval
of
the
shareholders
of
a
company
unless
the
company’sarticles
of
association
provide
otherwise.
Our
amended
articles
provide
that
our
board
of
directors
may
declare
and
distribute
dividends
without
the
approval
of
the
shareholders.86Table of ContentsRights to Share in the Company’s Profits. Our
shareholders
have
the
right
to
share
in
our
profits
distributed
as
a
dividend
or
via
any
other
permitted
distribution.
See
“Rights
Attached
to
Shares
—
DividendRights”,
in
this
Item
10.B
above.Rights to Share in Surplus in the Event of Liquidation. In
the
event
of
our
liquidation,
after
satisfaction
of
liabilities
to
creditors,
our
assets
will
be
distributed
to
the
holders
of
ordinary
shares
in
proportion
to
thenominal
value
of
their
holdings.
This
right
may
be
affected
by
the
grant
of
preferential
dividend
or
distribution
rights
to
the
holders
of
a
class
of
shares
with
preferential
rights
that
may
be
authorized
in
the
future.Limited Liability. Our
company
is
a
limited
liability
company,
and
therefore,
each
shareholder’s
liability
for
our
obligations
is
limited
to
the
payment
of
the
nominal
value
of
the
shares
held
by
such
shareholder,subject
to
the
provisions
of
the
Companies
Law.Limitations on Any Existing or Prospective Major Shareholder. See
“Board
Practices
-
Approval
of
Specified
Related
Party
Transactions
with
Office
Holders
Under
Israeli
Law”
in
Item
6.C
above.Voting Rights. Holders
of
our
ordinary
shares
have
one
vote
for
each
ordinary
share
held
on
all
matters
submitted
to
a
vote
of
shareholders.
Shareholders
may
vote
at
a
shareholders’
meeting
either
in
person
or
byproxy.
Such
voting
rights
may
be
affected
by
the
grant
of
any
special
voting
rights
to
the
holders
of
a
class
of
shares
with
preferential
rights
that
may
be
authorized
in
the
future.
There
are
currently
no
preferred
sharesoutstanding.The
Companies
Law
imposes
certain
duties
on
our
shareholders.
A
shareholder,
in
exercising
his
or
her
rights
and
performing
his
or
her
obligations
to
our
other
shareholders
and
us,
must
act
in
good
faith
and
in
anacceptable
manner,
and
avoid
abusing
his
or
her
powers.
This
duty
is
required
when
voting
at
general
meetings
on
matters
such
as
changes
to
our
articles
of
association,
increases
to
our
registered
capital,
mergers
andrelated
party
transactions.
A
shareholder
also
has
a
general
duty
to
refrain
from
depriving
any
other
shareholder
of
his
or
her
rights
as
a
shareholder.
In
addition,
any
controlling
shareholder,
any
shareholder
who
knowsthat
his
or
her
vote
can
determine
the
outcome
of
a
shareholder
vote
and
any
shareholder
who,
under
our
amended
articles,
can
appoint
or
prevent
the
appointment
of
an
office
holder,
is
required
to
act
fairly
towardsour
company.
The
Companies
Law
does
not
specifically
define
the
duty
of
fairness,
but
provides
that
the
remedies
generally
available
upon
a
breach
of
contract
will
apply
also
in
the
event
of
a
breach
of
the
duty
to
actwith
fairness.
There
is
no
binding
case
law
that
addresses
this
subject
directly.
Any
voting
agreement
among
shareholders
is
also
subject
to
these
duties.Election of DirectorsDirectors
of
our
company,
other
than
external
directors
(to
the
extent
that
we
elect,
or
are
required,
to
have
them
once
again
in
the
future),
are
elected
each
year
at
our
annual
general
meeting
of
shareholders
by
avote
of
the
holders
of
a
majority
of
the
voting
power
represented
at
the
meeting.
See
“Item
6.C
Board
Practices—Board
of
Directors”
above.
Our
ordinary
shares
do
not
have
cumulative
voting
rights
for
this
purpose.As
a
result,
holders
of
our
ordinary
shares
that
represent
more
than
50%
of
the
voting
power
represented
at
a
shareholders’
meeting
at
which
a
quorum
is
present
will
have
the
power
to
elect
any
or
all
of
our
directorswhose
positions
are
being
filled
at
that
meeting,
subject
to
the
special
approval
requirements
for
external
directors
described
under
“Board
Practices—External
Directors”
in
Item
6.C
above.In
addition,
pursuant
to
the
Companies
Law
and
our
amended
articles,
any
shareholder
holding
at
least
one
percent
(1%)
of
our
outstanding
voting
power
may
make
nominations
for
directors
only
if
a
written
noticeof
such
shareholder’s
intent
to
make
such
nomination
(together
with
certain
documentation
required
under
the
Companies
Law)
has
been
delivered
to
our
registered
Israeli
office
within
seven
days
after
we
publishnotice
of
our
upcoming
annual
general
meeting
(or
within
14
days
after
we
publish
a
preliminary
notification
of
an
upcoming
annual
general
meeting).Annual and Extraordinary MeetingsOur
board
of
directors
must
convene
an
annual
general
meeting
of
shareholders
at
least
once
every
calendar
year,
within
fifteen
months
of
the
last
annual
general
meeting.All
meetings
other
than
the
annual
general
meeting
of
shareholders
are
referred
to
as
extraordinary
general
meetings.
Our
board
of
directors
may
call
extraordinary
general
meetings
whenever
it
sees
fit,
at
such
timeand
place,
within
or
outside
of
Israel,
as
it
may
determine.
In
addition,
the
Companies
Law
and
our
amended
articles
provide
that
our
board
of
directors
will
be
required
to
convene
an
extraordinary
general
meetingupon
the
written
request
of
(i)
any
two
of
our
directors
or
one-quarter
of
our
board
of
directors
or
(ii)
one
or
more
shareholders
holding,
in
the
aggregate,
either
(a)
5%
of
our
outstanding
issued
shares
and
1%
of
ouroutstanding
voting
power
or
(b)
5%
of
our
outstanding
voting
power.
The
chairman
of
the
board
of
directors
presides
at
each
of
our
general
meetings.
The
chairman
of
the
board
of
directors
will
not
be
entitled
to
voteat
a
general
meeting
in
his
capacity
as
chairman.Subject
to
the
provisions
of
the
Companies
Law
and
the
regulations
promulgated
thereunder,
shareholders
that
will
be
entitled
to
participate
and
vote
at
general
meetings
are
the
shareholders
of
record
on
a
datedecided
by
our
board
of
directors,
which
may
be
between
four
and
40
days
prior
to
the
date
of
the
meeting.
Furthermore,
the
Companies
Law
and
our
amended
articles
require
that
resolutions
regarding
the
followingmatters
must
be
passed
at
a
general
meeting
of
our
shareholders:●amendments
to
the
amended
articles;87Table of Contents●appointment
or
termination
of
our
auditors;

●appointment
of
directors
and
appointment
and
dismissal
of
external
directors;

●approval
of
acts
and
transactions
involving
related
parties,
as
defined
by
the
Companies
Law
or
pursuant
to
our
amended
articles;

●director
compensation;

●increases
or
reductions
of
our
authorized
share
capital;

●a
merger;
and

●the
exercise
of
our
board
of
directors’
powers
by
a
general
meeting,
if
the
board
of
directors
is
unable
to
exercise
its
powers
and
the
exercise
of
any
of
its
powers
is
required
for
our
proper
management.NoticesThe
Companies
Law
and
the
amended
articles
require
that
a
notice
of
any
annual
general
meeting
or
extraordinary
general
meeting
be
published
and
provided
to
shareholders
at
least
21
days
prior
to
the
meeting,and
if
the
agenda
of
the
meeting
includes
the
appointment
or
removal
of
directors,
the
approval
of
transactions
with
office
holders
or
interested
or
related
parties,
or
an
approval
of
a
merger,
notice
must
be
published
atleast
35
days
prior
to
the
meeting.QuorumThe
quorum
required
for
a
general
meeting
of
our
shareholders
consists
of
at
least
two
shareholders
present
in
person,
by
proxy
or
written
ballot
who
hold
or
represent
between
them
at
least
twenty-five
percent(25%)
of
the
total
outstanding
voting
rights.
A
meeting
adjourned
for
lack
of
a
quorum
generally
is
adjourned
to
the
same
day
in
the
following
week
at
the
same
time
and
place,
or
to
a
later
time/date
if
so
specified
inthe
summons
or
notice
of
the
meeting.
At
the
reconvened
meeting,
if
the
original
meeting
was
convened
upon
requisition
under
the
Companies
Law,
the
required
quorum
consists
of
one
or
more
shareholders,
presentin
person
or
by
proxy,
and
holding
the
number
of
shares
required
for
making
such
requisition,
and,
in
any
other
reconvened
meeting,
the
quorum
that
is
required
is
any
two
shareholders
present
in
person
or
by
proxy(regardless
of
how
many
shares
they
hold).Adoption of ResolutionsOur
amended
articles
provide
that
all
resolutions
of
our
shareholders
require
the
approval
of
a
majority
of
the
voting
power
present
and
voting
at
a
general
meeting,
unless
otherwise
required
by
the
Companies
Lawor
by
the
amended
articles.
Under
the
Companies
Law
and
the
amended
articles,
shareholders
are
not
permitted
to
take
action
via
written
consent
in
lieu
of
a
meeting.
Under
the
Companies
Law,
each
of
(i)
the
approvalof
an
extraordinary
transaction
with
a
controlling
shareholder
and
(ii)
the
terms
of
employment
or
other
engagement
of
the
controlling
shareholder
of
the
company
or
such
controlling
shareholder’s
relative
(even
if
notextraordinary)
require,
in
addition
to
approval
by
the
compensation
committee
(in
the
case
of
terms
of
employment)
or
audit
committee
(in
the
case
of
some
other
engagement)
and
the
board
of
directors,
approval
by
aspecial
majority
of
the
shareholders
that
fulfills
one
of
the
following
requirements:●a
disinterested
majority;
or

●the
votes
of
shareholders
who
have
no
personal
interest
in
the
transaction
and
who
are
present
and
voting,
in
person,
by
proxy
or
by
voting
deed
at
the
meeting,
and
who
vote
against
the
transaction
may
notrepresent
more
than
two
percent
(2%)
of
the
voting
rights
of
the
company.Under
our
amended
articles,
if
the
share
capital
is
divided
into
classes,
the
alteration
of
the
rights,
privileges,
preferences
or
obligations
of
any
class
of
share
capital
requires
approval
by
a
simple
majority
of
theclass
so
affected
(or
such
other
percentage
of
the
relevant
class
that
may
be
set
forth
in
the
governing
documents
relevant
to
such
class),
in
addition
to
the
ordinary
majority
vote
of
all
classes
of
shares
voting
togetheras
a
single
class
at
a
general
meeting,
as
required
under
the
Companies
Law.Further
exceptions
to
the
simple
majority
vote
requirement
are
a
resolution
for
the
voluntary
winding
up,
or
an
approval
of
a
scheme
of
arrangement
or
reorganization,
of
the
company
pursuant
to
Section
350
of
theCompanies
Law,
which
requires
the
approval
of
holders
of
75%
of
the
voting
rights
represented
at
the
meeting,
in
person,
by
proxy
or
by
voting
deed
and
voting
on
the
resolution.Israeli
law
provides
that
a
shareholder
of
a
public
company
may
vote
in
a
meeting
and
in
a
class
meeting
by
means
of
a
voting
deed
in
which
the
shareholder
indicates
how
he
or
she
votes
on
resolutions
relating
tothe
following
matters:●appointment
or
removal
of
directors;

●approval
of
transactions
with
office
holders
or
interested
or
related
parties;

●approval
of
a
merger
or
any
other
matter
in
respect
of
which
there
is
a
provision
in
the
articles
of
association
providing
that
decisions
of
the
general
meeting
may
also
be
passed
by
voting
deed;

●approval
of
an
arrangement
or
reorganization
of
the
company
pursuant
to
Section
350
of
the
Israeli
Companies
Law;
and

●other
matters
which
may
be
prescribed
by
Israel’s
Minister
of
Justice.88Table of ContentsThe
provision
allowing
the
vote
by
voting
deed
does
not
apply
if,
to
the
best
knowledge
of
the
company
at
the
time
of
calling
the
general
shareholders’
meeting,
a
controlling
shareholder
will
hold
on
the
recorddate
for
such
shareholders’
meeting,
voting
power
sufficient
to
determine
the
outcome
of
the
vote.Changing Rights Attached to SharesThe
rights
attached
to
any
class
of
shares,
such
as
voting,
liquidation
and
dividend
rights,
may
be
amended
by
adoption
of
a
resolution
by
the
holders
of
a
majority
of
the
shares
of
that
class
present
at
a
separateclass
meeting,
or
otherwise
in
accordance
with
the
rights
attached
to
such
class
of
shares,
as
set
forth
in
our
amended
articles.Limitations on the Rights to Own Securities in Our CompanyNeither
our
memorandum
of
association
nor
our
amended
articles,
nor
the
laws
of
the
State
of
Israel,
restrict
in
any
way
the
ownership
or
voting
of
shares
by
non-residents,
except
with
respect
to
citizens
ofcountries
that
are
in
a
state
of
war
with
Israel.Provisions Restricting Change in Control of Our CompanyFull Tender OfferA
person
wishing
to
acquire
shares
of
a
public
Israeli
company
and
who
could
as
a
result
hold
over
90%
of
the
target
company’s
issued
and
outstanding
share
capital
or
voting
rights
is
required
by
the
CompaniesLaw
to
make
a
tender
offer
to
all
of
the
company’s
shareholders
for
the
purchase
of
all
of
the
issued
and
outstanding
shares
of
the
company.
A
person
wishing
to
acquire
shares
of
a
public
Israeli
company
and
whocould
as
a
result
hold
over
90%
of
the
issued
and
outstanding
share
capital
or
voting
rights
of
a
certain
class
of
shares
is
required
to
make
a
tender
offer
to
all
of
the
shareholders
who
hold
shares
of
the
relevant
class
forthe
purchase
of
all
of
the
issued
and
outstanding
shares
of
that
class.
If
the
shareholders
who
do
not
accept
the
offer
hold
less
than
5%
of
the
issued
and
outstanding
share
capital
and
voting
rights
of
the
company
or
ofthe
applicable
class,
all
of
the
shares
that
the
acquirer
offered
to
purchase
will
be
transferred
to
the
acquirer
by
operation
of
law
(provided
that
a
majority
of
the
offerees
that
do
not
have
a
personal
interest
in
suchtender
offer
shall
have
approved
it,
which
condition
shall
not
apply
if,
following
consummation
of
the
tender
offer,
the
acquirer
would
hold
at
least
98%
of
all
of
the
company’s
outstanding
shares
and
voting
rights
(orshares
and
voting
rights
of
the
relevant
class)).
However,
shareholders
may,
at
any
time
within
six
months
following
the
completion
of
the
tender
offer,
petition
the
court
to
alter
the
consideration
for
the
acquisition.Even
shareholders
who
indicated
their
acceptance
of
the
tender
offer
may
so
petition
the
court,
unless
the
acquirer
stipulated
that
a
shareholder
that
accepts
the
offer
may
not
seek
appraisal
rights).
If
the
shareholderswho
did
not
accept
the
tender
offer
hold
5%
or
more
of
the
issued
and
outstanding
share
capital
or
voting
rights
of
the
company
or
of
the
applicable
class,
the
acquirer
may
not
acquire
shares
of
the
company
that
willincrease
its
holdings
to
more
than
90%
of
the
company’s
issued
and
outstanding
share
capital
or
voting
rights
or
90%
of
the
shares
or
voting
rights
of
the
applicable
class,
from
shareholders
who
accepted
the
tenderoffer.Special Tender OfferThe
Companies
Law
provides
that
an
acquisition
of
shares
of
a
public
Israeli
company
must
be
made
by
means
of
a
special
tender
offer
if
as
a
result
of
the
acquisition
the
purchaser
could
become
a
holder
of
25%or
more
of
the
voting
rights
in
the
company,
unless
one
of
the
exemptions
in
the
Companies
Law
(as
described
below)
is
met.
This
rule
does
not
apply
if
there
is
already
another
holder
of
at
least
25%
of
the
votingrights
in
the
company.
Similarly,
the
Companies
Law
provides
that
an
acquisition
of
shares
in
a
public
company
must
be
made
by
means
of
a
tender
offer
if
as
a
result
of
the
acquisition
the
purchaser
could
become
aholder
of
more
than
45%
of
the
voting
rights
in
the
company,
if
there
is
no
other
shareholder
of
the
company
who
holds
more
than
45%
of
the
voting
rights
in
the
company,
unless
one
of
the
exemptions
in
theCompanies
Law
is
met.A
special
tender
offer
must
be
extended
to
all
shareholders
of
a
company
but
the
offeror
is
not
required
to
purchase
shares
representing
more
than
5%
of
the
voting
power
attached
to
the
company’s
outstandingshares,
regardless
of
how
many
shares
are
tendered
by
shareholders.
A
special
tender
offer
may
be
consummated
only
if
(i)
at
least
5%
of
the
voting
power
attached
to
the
company’s
outstanding
shares
will
be
acquiredby
the
offeror
and
(ii)
the
number
of
shares
tendered
in
the
offer
exceeds
the
number
of
shares
whose
holders
objected
to
the
offer.If
a
special
tender
offer
is
accepted,
then
the
purchaser
or
any
person
or
entity
controlling
it
or
under
common
control
with
the
purchaser
or
such
controlling
person
or
entity
may
not
make
a
subsequent
tender
offerfor
the
purchase
of
shares
of
the
target
company
and
may
not
enter
into
a
merger
with
the
target
company
for
a
period
of
one
year
from
the
date
of
the
offer,
unless
the
purchaser
or
such
person
or
entity
undertook
toeffect
such
an
offer
or
merger
in
the
initial
special
tender
offer.MergerThe
Companies
Law
permits
merger
transactions
if
approved
by
each
party’s
board
of
directors
and,
unless
certain
requirements
described
under
the
Companies
Law
are
met,
by
a
majority
vote
of
each
party’sshares,
and,
in
the
case
of
the
target
company,
a
majority
vote
of
each
class
of
its
shares,
voted
on
the
proposed
merger
at
a
shareholders
meeting
called
with
at
least
35
days’
prior
notice.89Table of ContentsFor
purposes
of
the
shareholder
vote,
unless
a
court
rules
otherwise,
the
merger
will
not
be
deemed
approved
if
a
majority
of
the
votes
of
shares
represented
at
the
shareholders’
meeting
that
are
held
by
parties
otherthan
the
other
party
to
the
merger,
or
by
any
person
(or
group
of
persons
acting
in
concert)
who
holds
(or
hold,
as
the
case
may
be)
25%
or
more
of
the
voting
rights
or
the
right
to
appoint
25%
or
more
of
the
directorsof
the
other
party,
vote
against
the
merger.
If,
however,
the
merger
involves
a
merger
with
a
company’s
own
controlling
shareholder
or
if
the
controlling
shareholder
has
a
personal
interest
in
the
merger,
then
themerger
is
instead
subject
to
the
same
special
majority
approval
that
governs
all
extraordinary
transactions
with
controlling
shareholders
(as
described
above
in
this
annual
report
under
“Item
6.C
Board
Practices—Approval
of
Related
Party
Transactions
Under
Israeli
Law—Disclosure
of
Personal
Interests
of
Controlling
Shareholders”).If
the
transaction
would
have
been
approved
by
the
shareholders
of
a
merging
company
but
for
the
separate
approval
of
each
class
or
the
exclusion
of
the
votes
of
certain
shareholders
as
provided
above,
a
courtmay
still
approve
the
merger
upon
the
request
of
holders
of
at
least
25%
of
the
voting
rights
of
a
company,
if
the
court
holds
that
the
merger
is
fair
and
reasonable,
taking
into
account
the
value
of
the
parties
to
themerger
and
the
consideration
offered
to
the
shareholders
of
the
company
that
have
petitioned
the
court
to
approve
the
merger.Upon
the
request
of
a
creditor
of
either
party
to
the
proposed
merger,
the
court
may
delay
or
prevent
the
merger
if
it
concludes
that
there
exists
a
reasonable
concern
that,
as
a
result
of
the
merger,
the
survivingcompany
will
be
unable
to
satisfy
the
obligations
of
any
of
the
parties
to
the
merger,
and
may
further
give
instructions
to
secure
the
rights
of
creditors.In
addition,
a
merger
may
not
be
consummated
unless
at
least
50
days
have
passed
from
the
date
on
which
a
proposal
for
approval
of
the
merger
was
filed
by
each
party
with
the
Israeli
Registrar
of
Companies
andat
least
30
days
have
passed
from
the
date
on
which
the
merger
was
approved
by
the
shareholders
of
each
party.Anti-Takeover Measures Under Israeli LawThe
Companies
Law
allows
us
to
create
and
issue
shares
having
rights
different
from
those
attached
to
our
ordinary
shares,
including
shares
providing
certain
preferred
rights,
distributions
or
other
matters
andshares
having
preemptive
rights.
Currently,
no
preferred
shares
are
authorized
under
our
amended
articles.
In
the
future,
if
we
do
authorize,
create
and
issue
a
specific
class
of
preferred
shares,
such
class
of
shares,depending
on
the
specific
rights
that
may
be
attached
to
it,
may
have
the
ability
to
frustrate
or
prevent
a
takeover
or
otherwise
prevent
our
shareholders
from
realizing
a
potential
premium
over
the
market
value
of
theirordinary
shares.
The
authorization
and
designation
of
a
class
of
preferred
shares
will
require
an
amendment
to
our
amended
articles,
which
requires
the
prior
approval
of
the
holders
of
a
majority
of
the
voting
powerpresent
and
voting
at
a
general
meeting.
The
convening
of
the
meeting,
the
shareholders
entitled
to
participate
in
such
meeting,
and
the
majority
vote
required
to
be
obtained
at
such
a
meeting
will
be
subject
to
therequirements
set
forth
in
the
Companies
Law
as
described
above
in
this
Item
10.B
under
“Memorandum
and
Articles
of
Association—Rights
Attached
to
Shares—Voting
Rights.”The
foregoing
description
includes
only
a
summary
of
certain
provisions
of
the
Companies
Law
and
our
memorandum
of
association
and
articles
and
is
qualified
in
its
entirety
by
reference
to
the
full
text
of
suchdocuments,
which
are
exhibits
to
this
annual
report.C. Material Contracts.We
have
not
entered
into
any
material
contract
within
the
two
years
prior
to
the
date
of
this
annual
report,
other
than
contracts
entered
into
in
the
ordinary
course
of
business,
or
as
otherwise
described
herein
in
Item4.A—“History
and
Development
of
the
Company”,
Item
4.B—“Business
Overview”,
Item
5.B—“Operating
and
Financial
Review
and
Prospects—Liquidity
and
Capital
Resources”,
Item
6.C
–
“Board
Practices—Director
Service
Contracts”
and
Item
7.B
-
“Related
Party
Transactions”.D. Exchange Controls.There
are
currently
no
Israeli
currency
control
restrictions
on
payments
of
dividends
or
other
distributions
with
respect
to
our
ordinary
shares
or
the
proceeds
from
the
sale
of
ordinary
shares,
except
for
theobligation
of
Israeli
residents
to
file
reports
with
the
Bank
of
Israel
regarding
certain
transactions.
However,
legislation
remains
in
effect
pursuant
to
which
currency
controls
can
be
imposed
by
administrative
action
atany
time.The
ownership
or
voting
of
our
ordinary
shares
by
non-residents
of
Israel,
except
with
respect
to
citizens
of
countries
that
are
in
a
state
of
war
with
Israel,
is
not
restricted
in
any
way
by
our
memorandum
ofassociation
or
amended
articles
or
by
the
laws
of
the
State
of
Israel.E. Taxation.The following is a short summary of certain provisions of the tax environment to which shareholders may be subject. This summary is based on the current provisions of tax law. To the extent that the discussion isbased on new tax legislation that has not been subject to judicial or administrative interpretation, we cannot assure you that the views expressed in the discussion will be accepted by the appropriate tax authorities orthe courts.90Table of ContentsThe summary does not address all of the tax consequences that may be relevant to all purchasers of our ordinary shares in light of each purchaser’s particular circumstances and specific tax treatment. Forexample, the summary below does not address the tax treatment of residents of Israel and traders in securities who are subject to specific tax regimes. As individual circumstances may differ, holders of our ordinaryshares should consult their own tax adviser as to the United States, Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares. The following is not intended, and should not beconstrued, as legal or professional tax advice and is not exhaustive of all possible tax considerations. Each individual should consult his or her own tax or legal adviser.Israeli Taxation ConsiderationsIsraeli
law
generally
imposes
a
capital
gains
tax
on
the
sale
of
any
capital
assets
by
residents
of
Israel,
as
defined
for
Israeli
tax
purposes,
and
on
the
sale
of
assets
located
in
Israel,
including
shares
of
Israelicompanies,
by
both
residents
and
non-residents
of
Israel
unless
a
specific
exemption
is
available
or
unless
a
tax
treaty
between
Israel
and
the
seller’s
country
of
residence
provides
otherwise.
The
Tax
Ordinancedistinguishes
between
“Real
Capital
Gain”
and
“Inflationary
Surplus”.
The
Inflationary
Surplus
is
a
portion
of
the
total
capital
gain
which
is
equivalent
to
the
increase
of
the
relevant
asset’s
purchase
price
which
isattributable
to
the
increase
in
the
Israeli
consumer
price
index
or,
in
certain
circumstances,
a
foreign
currency
exchange
rate,
between
the
date
of
purchase
and
the
date
of
sale.
The
Real
Capital
Gain
is
the
excess
of
thetotal
capital
gain
over
the
Inflationary
Surplus.Israeli resident individualsCapital GainAs
of
January
1,
2006,
the
tax
rate
applicable
to
Real
Capital
Gain
derived
by
Israeli
individuals
from
the
sale
of
shares
which
had
been
purchased
on
or
after
January
1,
2003,
whether
or
not
listed
on
a
stockexchange,
is
20%,
unless
such
shareholder
claims
a
deduction
for
interest
and
linkage
differences
expenses
in
connection
with
the
purchase
and
holding
of
such
shares,
in
which
case
the
gain
will
generally
be
taxed
at
arate
of
25%.
Additionally,
if
such
shareholder
is
considered
a
“Significant
Shareholder”
(
i.e., a
person
who
holds,
directly
or
indirectly,
alone
or
together
with
another
person
who
collaborates
with
such
person
on
apermanent
basis,
10%
or
more
of
any
of
the
company’s
“means
of
control”
(including,
among
other
things,
the
right
to
receive
profits
of
the
company,
voting
rights,
the
right
to
receive
the
company’s
liquidationproceeds
and
the
right
to
appoint
a
director))
at
the
time
of
sale
or
at
any
time
during
the
preceding
12-month
period,
such
gain
will
be
taxed
at
the
rate
of
25%.
Individual
shareholders
dealing
in
securities
in
Israel
aretaxed
at
their
marginal
tax
rates
applicable
to
business
income
(up
to
48%
in
2016)
unless
the
benefiting
provisions
of
an
applicable
treaty
applies.Notwithstanding
the
foregoing,
pursuant
to
the
Law
for
Change
in
the
Tax
Burden
(Legislative
Amendments)
(Taxes),
2011,
the
capital
gain
tax
rate
applicable
to
individuals
was
raised
from
20%
to
25%
from2012
and
onwards
(or
from
25%
to
30%
if
the
selling
individual
shareholder
is
a
Significant
Shareholder
at
any
time
during
the
12-month
period
preceding
the
sale
and\or
claims
a
deduction
for
interest
and
linkagedifferences
expenses
in
connection
with
the
purchase
and
holding
of
such
shares).
With
respect
to
assets
(not
shares
that
are
listed
on
a
stock
exchange)
purchased
on
or
after
January
1,
2003,
the
portion
of
the
gaingenerated
from
the
date
of
acquisition
until
December
31,
2011
will
be
subject
to
the
previous
capital
gains
tax
rates
(20%
or
25%)
and
the
portion
of
the
gain
generated
from
January
1,
2012
until
the
date
of
sale
willbe
subject
to
the
new
tax
rates
(25%
or
30%).Dividend IncomeIsraeli
residents
who
are
individuals
are
generally
subject
to
Israeli
income
tax
for
dividends
paid
on
our
ordinary
shares
(other
than
bonus
shares
or
share
dividends)
at
25%,
or
30%
if
the
recipient
of
such
dividendis
a
Significant
Shareholder,
at
the
time
of
distribution
or
at
any
time
during
the
preceding
12-month
period.
However,
dividends
distributed
from
taxable
income
accrued
during
the
benefits
period
of
an
ApprovedEnterprise
or
Beneficiary
Enterprise
are
subject
to
withholding
tax
at
the
rate
of
15%
(and
20%
with
respect
to
Preferred
Enterprise),
if
the
dividend
is
distributed
during
the
tax
benefits
period
under
the
InvestmentLaw
or
within
12
years
after
such
period.
An
average
rate
will
be
set
in
case
the
dividend
is
distributed
from
mixed
types
of
income
(regular
and
Approved/
Beneficiary/
Preferred
income).Israeli resident corporationsCapital GainUnder
current
Israeli
tax
legislation,
the
tax
rate
applicable
to
Real
Capital
Gain
derived
by
Israeli
resident
corporations
from
the
sale
of
shares
of
an
Israeli
company
is
the
general
corporate
tax
rate.
As
describedin
“Israeli
Tax
Considerations
and
Government
Programs
—
General
Corporate
Tax
Structure”
in
Item
4.B
above,
the
corporate
tax
rate
was
26.5%
and
25%
in
2015
and
2016,
respectively,
in
2017
the
corporate
taxrate
is
24%,
and
from
2018
and
onwards
the
corporate
tax
rate
will
be
23%.Dividend IncomeGenerally,
Israeli
resident
corporations
are
exempt
from
Israeli
corporate
tax
on
the
receipt
of
dividends
paid
on
shares
of
Israeli
resident
corporations.
However,
dividends
distributed
from
taxable
income
accruedduring
the
benefits
period
of
an
Approved
Enterprise
or
Beneficiary
Enterprise
are
subject
to
withholding
tax
at
the
rate
of
15%,
if
the
dividend
is
distributed
during
the
tax
benefits
period
under
the
Investment
Law
orwithin
12
years
after
that
period.91Table of ContentsNon-Israeli ResidentsCapital GainIsraeli
capital
gains
tax
is
imposed
on
the
disposal
of
capital
assets
by
a
non-Israeli
resident
if
such
assets
are
either
(i)
located
in
Israel;
(ii)
shares
or
rights
to
shares
in
an
Israeli
resident
company,
or
(iii)
represent,directly
or
indirectly,
rights
to
assets
located
in
Israel,
unless
a
tax
treaty
between
Israel
and
the
seller’s
country
of
residence
provides
otherwise.
As
mentioned
above,
Real
Capital
Gain
is
generally
subject
to
tax
at
thecorporate
tax
rate
(26.5%
in
2015,
25%
in
2016,
24%
in
2017
and
23%
in
2018
and
thereafter),
if
generated
by
a
company,
or
at
the
rate
of
25%
(for
any
asset
other
than
shares
that
are
listed
on
a
stock
exchange
-
20%with
respect
to
the
portion
of
the
gain
generated
up
to
December
31,
2011)
or
30%
(for
any
asset
other
than
shares
that
are
listed
on
a
stock
exchange
-
25%
with
respect
to
the
portion
of
the
gain
generated
up
toDecember
31,
2011),
if
generated
by
an
individual
who
is
Significant
Shareholder
at
the
time
of
sale
or
at
any
time
during
the
preceding
12-month
period
(or
claims
a
deduction
for
interest
and
linkage
differencesexpenses
in
connection
with
the
purchase
and
holding
of
such
shares)
from
the
sale
of
assets
purchased
on
or
after
January
1,
2003.
Individual
and
corporate
shareholders
dealing
in
securities
in
Israel
are
taxed
at
thetax
rates
applicable
to
business
income
(a
corporate
tax
rate
for
a
corporation
and
a
marginal
tax
rate
of
up
to
48%
for
an
individual
in
2016)
unless
contrary
provisions
in
a
relevant
tax
treaty
applies.Notwithstanding
the
foregoing,
shareholders
who
are
non-Israeli
residents
(individuals
and
corporations)
should
generally
exempt
from
Israeli
capital
gains
tax
on
any
gains
derived
from
the
sale,
exchange
ordisposition
of
shares
provided
(i)
gain
is
not
related
to
a
permanent
establishment
of
the
foreign
resident
in
Israel;
(ii)
the
shares
were
not
acquired
from
a
related
party;
and
(iii)
most
of
the
company’s
value
is
notderived
from
real
estate
assets
in
Israel.
Such
exemption
is
not
applicable
to
a
person
whose
gains
from
selling
or
otherwise
disposing
of
the
shares
are
deemed
to
be
business
income.In
addition,
a
sale
of
shares
may
be
exempt
from
Israeli
capital
gains
tax
under
the
provisions
of
an
applicable
tax
treaty.
For
example,
under
the
U.S.-Israel
Tax
Treaty,
to
which
we
refer
as
the
U.S.-Israel
Treaty,the
sale,
exchange
or
disposition
of
shares
of
an
Israeli
company
by
a
shareholder
who
is
a
U.S.
resident
(for
purposes
of
the
U.S.-Israel
Treaty)
holding
the
shares
as
a
capital
asset
is
exempt
from
Israeli
capital
gainstax
unless
either
(i)
the
shareholder
holds,
directly
or
indirectly,
shares
representing
10%
or
more
of
the
voting
rights
during
any
part
of
the
12-month
period
preceding
such
sale,
exchange
or
disposition,
(ii)
theshareholder,
if
an
individual,
has
been
present
in
Israel
for
a
period
or
periods
of
183
days
or
more
in
the
aggregate
during
the
applicable
taxable
year;
or
(iii)
the
capital
gains
arising
from
such
sale
are
attributable
to
apermanent
establishment
of
the
shareholder
which
is
maintained
in
Israel.
In
any
such
case,
the
sale,
exchange
or
disposition
of
such
shares
would
be
subject
to
Israeli
tax,
to
the
extent
applicable;
however,
under
theU.S.-Israel
Treaty,
a
U.S.
resident
would
be
permitted
to
claim
a
credit
for
the
Israeli
tax
against
the
U.S.
federal
income
tax
imposed
with
respect
to
the
sale,
exchange
or
disposition,
subject
to
the
limitations
in
U.S.laws
applicable
to
foreign
tax
credits.
The
U.S.-Israel
Treaty
does
not
provide
such
credit
against
any
U.S.
state
or
local
taxes.In
some
instances
where
our
shareholders
may
be
liable
for
Israeli
tax
on
the
sale
of
their
Ordinary
Shares,
the
payment
of
the
consideration
may
be
subject
to
the
withholding
of
Israeli
tax
at
source.
Shareholdersmay
be
required
to
demonstrate
that
they
are
exempt
from
tax
on
their
capital
gains
in
order
to
avoid
withholding
at
source
at
the
time
of
sale.
Specifically,
in
transactions
involving
a
sale
of
all
of
the
shares
of
anIsraeli
resident
company,
in
the
form
of
a
merger
or
otherwise,
the
Israel
Tax
Authority
may
require
from
shareholders
who
are
not
liable
for
Israeli
tax
to
sign
declarations
in
forms
specified
by
this
authority
or
obtaina
specific
exemption
from
the
Israel
Tax
Authority
to
confirm
their
status
as
non
Israeli
resident,
and,
in
the
absence
of
such
declarations
or
exemptions,
may
require
the
purchaser
of
the
shares
to
withhold
taxes
atsource.Dividend IncomeNon-Israeli
residents
(whether
individuals
or
corporations)
are
generally
subject
to
Israeli
income
tax
on
the
receipt
of
dividends
paid
on
ordinary
shares
at
the
rate
of
25%
or
30%
(if
the
dividend
recipient
is
aSignificant
Shareholder
at
the
time
of
distribution
or
at
any
time
during
the
preceding
12-month
period)
or
15%
if
the
dividend
is
distributed
from
income
attributed
to
our
Approved
Enterprise
or
Beneficiary
Enterprise(and
20%
with
respect
to
Preferred
Enterprise).
Such
dividends
are
generally
subject
to
Israeli
withholding
tax
at
a
rate
of
25%
so
long
as
the
shares
are
registered
with
a
nominee
company
(whether
the
recipient
is
aSignificant
Shareholder
or
not)
and
15%
if
the
dividend
is
distributed
from
income
attributed
to
an
Approved
Enterprise
or
a
Beneficiary
Enterprise
(and
20%
if
the
dividend
is
distributed
from
income
attributed
to
aPreferred
Enterprise),
unless
a
reduced
rate
is
provided
under
an
applicable
tax
treaty
(subject
to
the
receipt
in
advance
of
a
valid
certificate
from
the
Israel
Tax
Authority
allowing
for
a
reduced
tax
rate).
For
example,under
the
U.S.-Israel
Treaty,
the
maximum
rate
of
tax
withheld
at
source
in
Israel
on
dividends
paid
to
a
holder
of
our
ordinary
shares
who
is
a
U.S.
resident
(for
purposes
of
the
U.S.-Israel
Treaty)
is
25%.
However,generally,
the
maximum
rate
of
withholding
tax
on
dividends,
not
generated
by
our
Approved
Enterprise
or
Beneficiary
Enterprise,
that
are
paid
to
a
U.S.
corporation
holding
at
least
10%
or
more
of
our
outstandingvoting
capital
from
the
start
of
the
tax
year
preceding
the
distribution
of
the
dividend
through
(and
including)
the
distribution
of
the
dividend,
is
12.5%,
provided
that
no
more
than
25%
of
our
gross
income
for
suchpreceding
year
consists
of
certain
types
of
dividends
and
interest.
Notwithstanding
the
foregoing,
dividends
distributed
from
income
attributed
to
an
Approved
Enterprise
or
Beneficiary
Enterprise
are
subject
to
awithholding
tax
rate
of
15%
for
such
U.S.
corporation
shareholder,
provided
that
the
condition
related
to
our
gross
income
for
the
previous
year
(as
set
forth
in
the
previous
sentence)
is
met.
If
the
dividend
isattributable
partly
to
income
derived
from
an
Approved
Enterprise,
a
Beneficiary
Enterprise
or
Preferred
Enterprise,
and
partly
to
other
sources
of
income,
the
withholding
rate
will
be
a
blended
rate
reflecting
therelative
portions
of
the
two
types
of
income.
U.S.
residents
who
are
subject
to
Israeli
withholding
tax
on
a
dividend
may
be
entitled
to
a
credit
or
deduction
for
United
States
federal
income
tax
purposes
in
the
amountof
the
taxes
withheld,
subject
to
detailed
rules
contained
in
the
Code.92Table of ContentsA
non-Israeli
resident
who
receives
dividends
from
which
tax
was
withheld
is
generally
exempt
from
the
obligation
to
file
tax
returns
in
Israel
with
respect
to
such
income,
provided
that
(i)
such
income
was
notgenerated
from
business
conducted
in
Israel
by
the
taxpayer,
and
(ii)
the
taxpayer
has
no
other
taxable
sources
of
income
in
Israel
with
respect
to
which
a
tax
return
is
required
to
be
filed.Excess TaxIndividuals
who
are
subject
to
tax
in
Israel
are
also
subject
to
an
additional
tax
at
a
rate
of
2%
on
annual
income
exceeding
NIS
803,520
for
2016
(and
as
of
2017,
the
additional
tax
will
be
at
a
rate
of
3%
on
annualincome
exceeding
NIS
640,000),
which
amount
is
linked
to
the
annual
change
in
the
Israeli
consumer
price
index,
including,
but
not
limited
to,
dividends,
interest
and
capital
gain.U.S. Federal Income Tax ConsiderationsSubject
to
the
limitations
described
in
the
following
paragraphs,
the
discussion
below
describes
the
material
U.S.
federal
income
tax
consequences
to
a
beneficial
owner
of
our
ordinary
shares,
referred
to
in
thisdiscussion
as
a
U.S.
holder,
that
is:●an
individual
who
is
a
citizen
or
resident
of
the
United
States
for
U.S.
federal
income
tax
purposes;

●a
corporation
(or
other
entity
treated
as
a
corporation
for
U.S.
federal
income
tax
purposes)
created
or
organized
in
the
United
States
or
under
the
law
of
the
United
States
or
of
any
state
or
the
District
ofColumbia;

●an
estate,
the
income
of
which
is
includible
in
gross
income
for
U.S.
federal
income
tax
purposes
regardless
of
its
source;
or

●a
trust,
if
a
court
within
the
United
States
is
able
to
exercise
primary
supervision
over
the
administration
of
the
trust
and
one
or
more
United
States
persons
have
the
authority
to
control
all
substantial
decisionsof
the
trust,
or
the
trust
has
a
valid
election
in
effect
under
applicable
Treasury
regulations
to
be
treated
as
a
United
States
person.This
summary
is
not
a
comprehensive
description
of
all
of
the
tax
considerations
that
may
be
relevant
to
each
person’s
decision
to
purchase,
hold
or
dispose
of
ordinary
shares.
This
summary
considers
only
U.S.holders
that
hold
ordinary
shares
as
capital
assets.This
discussion
is
based
on
current
provisions
of
the
U.S.
Internal
Revenue
Code
of
1986,
to
which
we
refer
as
the
Code,
current
and
proposed
Treasury
regulations,
and
administrative
and
judicial
decisions
as
ofthe
date
of
this
annual
report,
all
of
which
are
subject
to
change,
possibly
on
a
retroactive
basis.
This
discussion
does
not
address
all
aspects
of
U.S.
federal
income
taxation
that
may
be
relevant
to
any
particularshareholder
based
on
the
shareholder’s
individual
circumstances.
In
particular,
this
discussion
does
not
address
the
potential
application
of
the
alternative
minimum
tax
or
the
U.S.
federal
income
tax
consequences
toU.S.
holders
that
are
subject
to
special
treatment,
including
U.S.
holders
that:●are
broker
dealers
or
insurance
companies;

●have
elected
mark-to-market
accounting;

●are
tax-exempt
organizations;

●are
financial
institutions
or
financial
services
entities;

●are
partnerships
or
other
entities
treated
as
partnerships
for
U.S.
federal
income
tax
purposes
or
partners
thereof
or
members
therein;

●hold
ordinary
shares
as
part
of
a
straddle,
hedge,
conversion
or
other
integrated
transaction
with
other
investments;

●own
directly,
indirectly
or
by
attribution
at
least
10%
of
our
voting
power;
or

●have
a
functional
currency
that
is
not
the
U.S.
dollar.In
addition,
this
discussion
does
not
address
any
aspect
of
state,
local
or
non-U.S.
tax
laws,
or
the
possible
application
of
the
U.S.
federal
estate
or
gift
tax
or
any
state
inheritance,
estate
or
gift
tax.Material
aspects
of
U.S.
federal
income
tax
law
relevant
to
a
holder
other
than
a
U.S.
holder,
referred
to
in
this
discussion
as
a
non-U.S.
holder,
are
also
discussed
below.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposing of our ordinary shares.Taxation of Dividends Paid on Ordinary SharesSubject
to
the
discussion
below
under
“Tax
Consequences
if
We
Are
a
Passive
Foreign
Investment
Company,”
a
U.S.
holder
will
be
required
to
include
in
gross
income
as
ordinary
income
the
gross
amount
of
anydistribution
paid
on
ordinary
shares,
including
any
Israeli
taxes
withheld
from
the
amount
paid,
on
the
date
the
distribution
is
actually
or
constructively
received,
to
the
extent
the
distribution
is
paid
out
of
our
current
oraccumulated
earnings
and
profits
as
determined
for
U.S.
federal
income
tax
purposes.”
In
addition,
under
the
Patient
Protection
and
Affordable
Care
Act,
higher
income
taxpayers
must
pay
an
additional
3.8
percent
taxon
net
investment
income
to
the
extent
certain
threshold
amounts
of
income
are
exceeded.
See
“Tax
on
Net
Investment
Income”
in
this
Item
below.93Table of ContentsDividends
that
are
received
by
U.S.
holders
that
are
individuals,
estates
or
trusts
generally
will
be
taxed
at
the
rate
applicable
to
long-term
capital
gains
(a
maximum
rate
of
15%
or
20%,
in
case
of
taxpayers
withannual
taxable
income
which
exceeds
certain
thresholds),
provided
those
dividends
meet
the
requirements
of
“qualified
dividend
income.”
Dividends
that
fail
to
meet
these
requirements,
and
dividends
taxable
tocorporate
U.S.
holders,
are
taxed
at
ordinary
income
rates.
No
dividend
received
by
a
U.S.
holder
will
be
a
qualified
dividend
(1)
if
the
U.S.
holder
held
the
ordinary
share
with
respect
to
which
the
dividend
was
paidfor
less
than
61
days
during
the
121-day
period
beginning
on
the
date
that
is
60
days
before
the
ex-dividend
date
with
respect
to
the
dividend,
excluding
for
this
purpose,
under
the
rules
of
Code
Section
246(c),
anyperiod
during
which
the
U.S.
holder
has
an
option
to
sell,
is
under
a
contractual
obligation
to
sell,
has
made
and
not
closed
a
short
sale
of,
is
the
grantor
of
a
deep-in-the-money
or
otherwise
nonqualified
option
to
buy,or
has
otherwise
diminished
its
risk
of
loss
by
holding
other
positions
with
respect
to,
the
ordinary
share
(or
substantially
identical
securities);
or
(2)
to
the
extent
that
the
U.S.
holder
is
under
an
obligation
(pursuant
to
ashort
sale
or
otherwise)
to
make
related
payments
with
respect
to
positions
in
property
substantially
similar
or
related
to
the
ordinary
share
with
respect
to
which
the
dividend
is
paid.
If
we
were
to
be
a
“passive
foreigninvestment
company”
(as
that
term
is
defined
in
the
Code)
for
any
year,
dividends
paid
on
our
ordinary
shares
in
that
year
or
in
the
year
following
that
year
would
not
be
qualified
dividends.
In
addition,
a
non-corporate
U.S.
holder
will
be
able
to
take
a
qualified
dividend
into
account
in
determining
its
deductible
investment
interest
(which
is
generally
limited
to
its
net
investment
income)
only
if
it
elects
to
do
so,
in
whichcase
the
dividend
will
be
taxed
at
ordinary
income
rates.
Corporate
holders
will
not
be
allowed
a
deduction
for
dividends
received
in
respect
of
our
ordinary
shares.Dividends
on
our
ordinary
shares
will
be
foreign
source
passive
income
(or
in
some
cases,
general
category
income)
for
U.S.
foreign
tax
credit
purposes.
Distributions
in
excess
of
earnings
and
profits
will
beapplied
against
and
will
reduce,
on
a
share-by-share
basis,
the
U.S.
holder’s
basis
in
the
ordinary
shares
and,
to
the
extent
in
excess
of
that
basis,
will
be
treated
as
gain
from
the
sale
or
exchange
of
ordinary
shares.The
amount
of
a
distribution
paid
to
a
U.S.
holder
in
a
foreign
currency
will
be
the
U.S.
dollar
value
of
the
foreign
currency
calculated
by
reference
to
the
spot
exchange
rate
on
the
day
the
U.S.
holder
receives
thedistribution.
A
U.S.
holder
that
receives
a
foreign
currency
distribution
and
converts
the
foreign
currency
into
U.S.
dollars
after
receipt
will
have
foreign
exchange
gain
or
loss
based
on
any
appreciation
or
depreciationin
the
value
of
the
foreign
currency
against
the
U.S.
dollar,
which
will
generally
be
U.S.
source
ordinary
income
or
loss.U.S.
holders
will
have
the
option
of
claiming
the
amount
of
any
Israeli
income
taxes
withheld
at
source
either
as
a
deduction
from
gross
income
or
as
a
dollar-for-dollar
credit
against
their
U.S.
federal
income
taxliability.
Individuals
who
do
not
claim
itemized
deductions,
but
instead
utilize
the
standard
deduction,
may
not
claim
a
deduction
for
the
amount
of
the
Israeli
income
taxes
withheld,
but
the
amount
may
be
claimed
as
acredit
against
the
individual’s
U.S.
federal
income
tax
liability.
The
amount
of
foreign
income
taxes
that
may
be
claimed
as
a
credit
in
any
year
is
generally
subject
to
complex
limitations
and
restrictions,
which
mustbe
determined
on
an
individual
basis
by
each
shareholder.
Those
limitations
include
the
provisions
described
in
the
following
paragraphs,
as
well
as
rules
that
limit
foreign
tax
credits
allowable
for
a
class
of
income
tothe
U.S.
federal
income
taxes
otherwise
payable
on
the
net
income
in
that
class.A
U.S.
holder
will
be
denied
a
foreign
tax
credit
for
Israeli
income
tax
withheld
from
dividends
received
on
our
ordinary
shares:●if
the
U.S.
holder
has
not
held
the
ordinary
shares
for
at
least
16
days
of
the
30-day
period
beginning
on
the
date
that
is
15
days
before
the
ex-dividend
date;
or

●to
the
extent
that
the
U.S.
holder
is
under
an
obligation
to
make
related
payments
on
substantially
similar
or
related
property.Any
days
during
which
a
U.S.
holder
has
substantially
diminished
its
risk
of
loss
on
the
ordinary
shares
are
not
counted
toward
meeting
the
16-day
holding
period
required
by
the
statute.
A
foreign
tax
credit
for
theIsraeli
tax
can
be
deferred
if
the
U.S.
holder
enters
into
certain
types
of
arrangements
to
defer
inclusion
of
the
related
dividend
in
income
for
tax
purposes.Taxation of the Disposition of Ordinary SharesSubject
to
the
discussion
below
under
“Tax
Consequences
if
We
Are
a
Passive
Foreign
Investment
Company,”
upon
the
sale,
exchange
or
other
taxable
disposition
of
our
ordinary
shares,
a
U.S.
holder
willrecognize
capital
gain
or
loss
in
an
amount
equal
to
the
difference
between
the
U.S.
holder’s
basis
in
the
ordinary
shares,
which
is
usually
the
cost
to
the
U.S.
holder
of
the
shares,
and
the
amount
realized
on
thedisposition.
Capital
gain
from
the
sale,
exchange
or
other
disposition
of
ordinary
shares
held
more
than
one
year
is
long-term
capital
gain
and
is
eligible
for
a
reduced
rate
of
taxation
in
the
case
of
non-corporatetaxpayers.
Gain
or
loss
recognized
by
a
U.S.
holder
on
the
sale,
exchange
or
other
disposition
of
ordinary
shares
generally
will
be
treated
as
U.S.
source
income
or
loss
for
U.S.
foreign
tax
credit
purposes.
Thedeductibility
of
capital
losses
is
subject
to
limitations.A
U.S.
holder
that
uses
the
cash
method
of
accounting
calculates
the
U.S.
dollar
value
of
foreign
currency
proceeds
received
on
a
sale
as
of
the
date
on
which
the
U.S.
holder
receives
the
foreign
currency.However,
a
U.S.
holder
that
uses
an
accrual
method
of
accounting
is
required
to
calculate
the
value
of
the
proceeds
of
the
sale
as
of
the
date
of
sale
and
may
therefore
realize
foreign
currency
gain
or
loss
on
asubsequent
disposition
of
the
foreign
currency
based
on
any
subsequent
appreciation
or
depreciation
in
the
value
of
the
foreign
currency
against
the
U.S.
dollar.
That
gain
or
loss
will
generally
be
U.S.
source
ordinaryincome
or
loss.94Table of ContentsTax Consequences if We Are a Passive Foreign Investment CompanyWe
will
be
a
passive
foreign
investment
company,
to
which
we
refer
as
a
PFIC,
if
75%
or
more
of
our
gross
income
in
a
taxable
year,
including
our
pro
rata
share
of
the
gross
income
of
any
corporation
in
whichwe
are
considered
to
own
25%
or
more
of
the
shares
by
value
(subject
to
certain
exceptions
in
the
case
of
a
U.S.
corporation),
is
passive
income.
Alternatively,
we
will
be
considered
to
be
a
PFIC
if
at
least
50%
of
ourassets
in
a
taxable
year,
ordinarily
determined
based
on
the
quarter-end
average
fair
market
value
of
our
assets
over
the
taxable
year
and
including
the
pro
rata
share
of
the
assets
of
any
corporation
in
which
we
areconsidered
to
own
25%
or
more
of
the
shares
by
value
(subject
to
certain
exceptions
in
the
case
of
a
U.S.
corporation),
produce
or
are
held
for
the
production
of
passive
income.If
we
were
a
PFIC,
and
a
U.S.
holder
did
not
make,
as
described
below,
a
timely
election
either
to
treat
us
as
a
qualified
electing
fund
or,
if
the
election
is
available,
to
mark
our
shares
to
market,
any
excessdistributions
we
pay
to
a
U.S.
holder
would
be
taxed
in
a
special
way.
Excess
distributions
are
amounts
paid
on
shares
in
a
PFIC
in
any
taxable
year
that
exceed
125%
of
the
average
distributions
paid
on
those
shares
inthe
shorter
of:●the
three
previous
years;
and

●the
U.S.
holder’s
holding
period
for
ordinary
shares
before
the
present
taxable
year.Excess
distributions
must
be
allocated
ratably
to
each
day
that
a
U.S.
holder
has
held
our
ordinary
shares.
A
U.S.
holder
would
then
be
required
to
include
amounts
allocated
to
the
current
taxable
year
and
eachprior
year
in
which
we
were
not
a
PFIC
(but
not
before
our
first
taxable
year
beginning
after
December
31,
1986)
in
its
gross
income
as
ordinary
income
for
the
current
year.
Further,
a
U.S.
holder
would
be
required
topay
tax
on
amounts
allocated
to
each
prior
taxable
year
in
which
we
were
a
PFIC
at
the
highest
rate
in
effect
for
that
year
on
ordinary
income,
and
the
tax
for
each
such
year
would
be
subject
to
an
interest
charge
at
therate
applicable
to
deficiencies
for
income
tax.The
entire
amount
of
gain
that
is
realized
or
treated
as
realized
by
a
U.S.
holder
upon
the
sale
or
other
disposition
of
ordinary
shares
(generally
whether
or
not
the
disposition
is
a
taxable
transaction)
will
also
betreated
as
an
excess
distribution
and
will
be
subject
to
tax
as
described
in
the
preceding
paragraph.In
some
circumstances
a
U.S.
holder’s
tax
basis
in
our
ordinary
shares
that
were
inherited
from
a
deceased
person
who
was
a
U.S.
holder
would
not
equal
the
fair
market
value
of
those
ordinary
shares
as
of
the
dateof
the
deceased
person’s
death
but
would
instead
be
equal
to
the
deceased’s
basis,
if
lower.The
special
PFIC
rules
described
above
will
not
apply
to
a
U.S.
holder
if
that
U.S.
holder
makes
an
election
to
treat
us
as
a
qualified
electing
fund,
to
which
we
refer
as
a
QEF,
in
the
first
taxable
year
in
which
theU.S.
holder
owns
ordinary
shares,
provided
we
comply
with
specified
reporting
requirements.
Instead,
a
U.S.
holder
who
has
made
such
a
QEF
election
is
required
for
each
taxable
year
in
which
we
are
a
PFIC
toinclude
in
income
a
pro
rata
share
of
our
ordinary
earnings
as
ordinary
income
and
a
pro
rata
share
of
our
net
capital
gain
as
long-term
capital
gain,
subject
to
a
separate
election
to
defer
payment
of
the
related
tax.
Ifdeferred,
the
taxes
will
be
subject
to
an
interest
charge.
We
would
supply
U.S.
holders
with
the
information
needed
to
report
income
and
gain
under
a
QEF
election
if
we
were
classified
as
a
PFIC.The
QEF
election
is
made
on
a
shareholder-by-shareholder
basis
and
can
be
revoked
only
with
the
consent
of
the
Internal
Revenue
Service,
to
which
we
refer
as
the
IRS.
A
shareholder
makes
a
QEF
election
byattaching
a
completed
IRS
Form
8621,
including
the
PFIC
annual
information
statement,
to
a
timely
filed
U.S.
federal
income
tax
return
and
by
filing
a
copy
of
the
form
with
the
IRS
Service
Center
in
Ogden,
UT84201-0201
.
Even
if
a
QEF
election
is
not
made,
a
United
States
person
who
is
a
shareholder
in
a
PFIC
must
file
every
year
a
completed
IRS
Form
8621
or
other
form
as
may
be
prescribed
by
the
IRS
pursuant
tolegislation
requiring
annual
reports
with
respect
to
PFICs.A
U.S.
holder
of
PFIC
shares
that
are
publicly
traded
may
elect
to
mark
the
stock
to
market
annually,
recognizing
as
ordinary
income
or
loss
each
year
an
amount
equal
to
the
difference
as
of
the
close
of
the
taxableyear
between
the
fair
market
value
of
the
PFIC
shares
and
the
U.S.
holder’s
adjusted
tax
basis
in
the
PFIC
shares.
Losses
would
be
allowed
only
to
the
extent
of
net
mark-to-market
gain
previously
included
in
incomeby
the
U.S.
holder
under
the
election
for
prior
taxable
years.
If
the
mark-to-market
election
were
made,
then
the
rules
described
above
(other
than
the
rules
for
excess
distributions,
which
would
apply
to
the
first
yearthe
election
is
made
if
we
were
a
PFIC
in
a
prior
year
and
a
QEF
election
were
not
made
for
the
first
year
we
were
a
PFIC)
would
not
apply
for
periods
covered
by
the
election.Although
we
do
not
believe
that
we
were
a
PFIC
in
2016,
we
cannot
assure
you
that
the
IRS
will
agree
with
that
conclusion
or
that
we
will
not
become
a
PFIC
in
2017
or
in
a
subsequent
year.
The
tests
fordetermining
PFIC
status
are
applied
annually,
and
it
is
difficult
to
make
accurate
predictions
of
future
income
and
assets,
which
are
relevant
to
this
determination.
U.S.
holders
who
hold
ordinary
shares
during
a
periodwhen
we
are
a
PFIC
will
be
subject
to
these
rules,
even
if
we
cease
to
be
a
PFIC
in
later
years,
subject
to
specified
exceptions
for
U.S.
holders
who
made
a
QEF
election
in
the
first
year
they
held
our
ordinary
sharesand
we
were
a
PFIC
or
if
in
a
later
year
they
made
any
of
certain
elections
to
purge
the
PFIC
taint
of
our
ordinary
shares,
which
elections
generally
require
the
payment
of
tax.
U.S.
holders
are
urged
to
consult
their
taxadvisers
about
the
PFIC
rules,
including
QEF
and
mark-to-market
elections.95Table of ContentsTax on Net Investment IncomeA
U.S.
holder
that
is
an
individual
or
estate,
or
a
trust
that
does
not
fall
into
a
special
class
of
trusts
that
is
exempt
from
the
tax,
will
be
subject
to
a
3.8%
tax
on
the
lesser
of
(1)
the
U.S.
holder’s
“net
investmentincome”
for
the
relevant
taxable
year
and
(2)
the
excess
of
the
U.S.
holder’s
modified
adjusted
gross
income
for
the
taxable
year
over
a
certain
threshold
(which
in
the
case
of
individuals
will
be
between
$125,000
and$250,000,
depending
on
the
individual’s
circumstances).
A
U.S.
holder’s
net
investment
income
generally
will
include
its
dividends
on
our
ordinary
shares
and
net
gains
from
dispositions
of
our
ordinary
shares,
unlessthose
dividends
or
gains
are
derived
in
the
ordinary
course
of
the
conduct
of
trade
or
business
(other
than
trade
or
business
that
consists
of
certain
passive
or
trading
activities).
Net
investment
income,
however,
may
bereduced
by
deductions
properly
allocable
to
that
income.
A
U.S.
holder
that
is
an
individual,
estate
or
trust
is
urged
to
consult
its
tax
adviser
regarding
the
applicability
of
the
Medicare
tax
to
its
income
and
gains
inrespect
of
its
investment
in
our
ordinary
shares.Tax Consequences for Non-U.S. Holders of Ordinary SharesExcept
as
described
in
“Information
Reporting
and
Backup
Withholding”
below,
a
non-U.S.
holder
of
ordinary
shares
will
not
be
subject
to
U.S.
federal
income
or
withholding
tax
on
the
payment
of
dividends
on,and
the
proceeds
from
the
disposition
of,
ordinary
shares,
unless:●the
income
is
effectively
connected
with
the
conduct
by
the
non-U.S.
holder
of
a
trade
or
business
in
the
United
States
and,
in
the
case
of
a
resident
of
a
country
that
has
an
income
treaty
with
the
United
States,the
income
is
attributable
to
a
U.S.
permanent
establishment,
or,
in
the
case
of
an
individual,
a
fixed
place
of
business
in
the
United
States;

●the
non-U.S.
holder
is
an
individual
who
holds
the
ordinary
shares
as
a
capital
asset
and
is
present
in
the
United
States
for
183
days
or
more
in
the
taxable
year
of
the
disposition
and
does
not
qualify
for
anexemption;
or

●the
non-U.S.
holder
is
subject
to
tax
under
the
provisions
of
U.S.
tax
law
applicable
to
U.S.
expatriates.A
non-U.S.
holder
is
a
beneficial
owner
of
our
ordinary
shares
that
is
(1)
a
nonresident
alien
as
to
the
United
States
for
U.S.
federal
income
tax
purposes;
(2)
a
corporation
created
or
organized
in
or
under
the
law
ofa
country,
or
any
of
its
political
subdivisions,
other
than
the
United
States;
or
(3)
an
estate
or
trust
that
is
not
a
U.S.
holder.Information Reporting and Backup WithholdingU.S.
holders
generally
are
subject
to
information
reporting
requirements
for
dividends
paid
in
the
United
States
on
ordinary
shares.
Dividends
paid
in
the
United
States
to
a
U.S.
holder
on
ordinary
shares
are
subjectto
backup
withholding
at
a
rate
of
28%
(for
taxable
years
through
2016)
unless
the
U.S.
holder
provides
IRS
Form
W-9
or
establishes
an
exemption.
U.S.
holders
generally
are
subject
to
information
reporting
andbackup
withholding
at
a
rate
of
28%
on
proceeds
paid
from
the
disposition
of
ordinary
shares
unless
the
U.S.
holder
provides
IRS
Form
W-9
or
establishes
an
exemption.The
Foreign
Account
Tax
Compliance
Act,
or
FATCA,
was
enacted
during
2014.
FATCA
generally
requires
foreign
financial
institutions
(FFIs)
to
identify
U.S.
account
holders
and
report
them
to
the
IRS
or
pay
a30%
withholding
tax.
Nonfinancial
foreign
entities
(or
NFFEs)
are
required
to
report
their
substantial
U.S.
owners
to
withholding
agents
or
pay
a
30%
withholding
tax.
FATCA’s
objective
is
to
prevent
tax
evasion
byrequiring
the
disclosure
of
account
holder
information
to
the
IRS.
Because
Stratasys
is
a
publicly
traded
company
that
is
not
a
financial
institution,
FATCA
has
less
impact
than
the
rules
discussed
above
that
are
still
ineffect
for
withholding
tax
purposes.A
non-U.S.
holder
who
effects
the
sale
of
his
ordinary
shares
by
or
through
a
U.S.
office
of
a
broker
is
subject
to
both
information
reporting
and
backup
withholding
tax
on
the
payment
of
the
proceeds
unless
hecertifies,
under
penalties
of
perjury,
that
he
is
not
a
U.S.
person
or
otherwise
establishes
an
exemption.
If
a
non-U.S.
holder
sells
his
ordinary
shares
through
a
non-U.S.
office
of
a
non-U.S.
broker
and
the
salesproceeds
are
paid
to
the
holder
outside
the
United
States,
then
information
reporting
and
backup
withholding
generally
will
not
apply
to
that
payment.
However,
information
reporting
requirements,
but
not
backupwithholding,
will
apply
to
a
payment
of
sales
proceeds,
even
if
that
payment
is
made
to
a
non-U.S.
holder
outside
the
United
States,
if
the
holder
sells
his
ordinary
shares
through
a
non-U.S.
office
of
a
broker
that
is
aU.S.
person
or
has
some
other
contacts
with
the
United
States.
Those
information
reporting
requirements
will
not
apply,
however,
if
the
broker
has
documentary
evidence
in
its
records
that
the
holder
is
a
non-U.S.person
and
certain
other
conditions
are
met,
or
the
holder
otherwise
establishes
an
exemption.Backup
withholding
is
not
an
additional
tax.
Rather,
the
amount
of
any
backup
withholding
will
be
allowed
as
a
credit
against
a
U.S.
or
non-U.S.
holder’s
U.S.
federal
income
tax
liability,
and
a
taxpayer
generallymay
obtain
a
refund
of
any
amounts
withheld
under
the
backup
withholding
rules
that
exceed
the
taxpayer’s
U.S.
federal
income
tax
liability
by
filing
a
refund
claim
with
the
IRS,
provided
in
each
case
that
requiredinformation
is
furnished
to
the
IRS.Information Reporting by Certain U.S. HoldersU.S.
citizens
and
individuals
taxable
as
resident
aliens
of
the
United
States
that
own
“specified
foreign
financial
assets”
with
an
aggregate
value
in
a
taxable
year
in
excess
of
certain
thresholds
(as
determined
underTreasury
regulations)
and
that
are
required
to
file
a
U.S.
federal
income
tax
return
generally
will
be
required
to
file
an
information
report
with
respect
to
those
assets
with
their
tax
returns.
IRS
Form
8938
has
beenissued
for
that
purpose.
“Specified
foreign
financial
assets”
include
any
financial
accounts
maintained
by
foreign
financial
institutions,
foreign
stocks
held
directly,
and
interests
in
foreign
estates,
foreign
pension
plansor
foreign
deferred
compensation
plans.
Under
those
rules,
our
ordinary
shares,
whether
owned
directly
or
through
a
financial
institution,
estate
or
pension
or
deferred
compensation
plan,
would
be
“specified
foreignfinancial
assets.”
Under
Treasury
regulations,
the
reporting
obligation
applies
to
certain
U.S.
entities
that
hold,
directly
or
indirectly,
specified
foreign
financial
assets.
Penalties
can
apply
if
there
is
a
failure
to
satisfythis
reporting
obligation.
A
U.S.
holder
is
urged
to
consult
his
tax
adviser
regarding
his
reporting
obligation.96Table of ContentsF. Dividends and Paying Agents.Not
applicable.G. Statement by Experts.Not
applicable.H. Documents on Display.We
are
subject
to
the
informational
requirements
of
the
Exchange
Act.
In
accordance
with
these
requirements,
we
are
required
to
file
reports
and
other
information
with
the
SEC.
You
may
read
and
copy
thesematerials,
including
this
annual
report
and
the
accompanying
exhibits
and
reports
and
other
information
that
we
have
previously
filed,
at
the
public
reference
facilities
maintained
by
the
SEC
at
100
F
Street,
N.E.,Washington,
D.C.
20549.
You
may
obtain
information
on
the
operation
of
the
public
reference
room
by
calling
1(800)-SEC-0330.
The
SEC
maintains
an
Internet
Site
at
http://www.sec.gov
that
contains
reports
andother
information
that
we
file
electronically.
The
reports
and
other
information
filed
by
us
with
the
SEC
are
also
available
at
our
websites,
www.stratasys.com
and
www.objet.com.
The
web
addresses
of
the
SEC
andour
company
have
been
included
as
inactive
textual
references
only.
Information
on
those
websites
is
not
part
of
this
annual
report.
In
addition,
documents
referred
to
in
this
annual
report
may
be
inspected
at
theoffices
of
the
NASDAQ
Global
Select
Market,
1735
K
Street,
N.W.,
Washington,
D.C.
You
can
also
obtain
copies
of
reports
and
other
information
that
we
file
electronically,
without
charge,
by
requesting
them
inwriting
or
by
telephone
from
our
company
at
the
following
address:Stratasys
Ltd.
c/o
Stratasys,
Inc.
7665
Commerce
Way
Eden
Prairie,
Minnesota
55344
Attention:
Shane
Glenn,
Vice
President
of
Investor
Relations
Tel:
(952)
937-3000As
a
foreign
private
issuer,
we
are
exempt
from
the
rules
under
the
Exchange
Act
prescribing
the
furnishing
and
content
of
proxy
statements,
and
our
officers,
directors
and
principal
shareholders
are
exempt
fromthe
reporting
and
“short-swing”
profit
recovery
provisions
contained
in
Section
16
of
the
Exchange
Act.
In
addition,
we
are
not
required
under
the
Exchange
Act
to
file
periodic
reports
and
financial
statements
with
theSEC
as
frequently
or
as
promptly
as
United
States
companies
whose
securities
are
registered
under
the
Exchange
Act.I. Subsidiary Information.Not
Applicable.ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.Market
risk
is
the
risk
of
loss
related
to
changes
in
market
prices,
including
interest
rates
and
foreign
exchange
rates,
of
financial
instruments
that
may
adversely
impact
our
consolidated
balance
sheets,
statementsof
operations
or
cash
flows.Foreign Currency Exchange RiskDue
to
our
international
operations,
currency
exchange
rates
impact
our
financial
performance.The
majority
of
our
balance
sheet
exposure
relates
to
foreign
currency
assets
and
liabilities
in
entities
which
their
functional
currency
is
Euro.
Our
net
Euro
balance
sheet
exposure
as
of
December
31,
2016
wasapproximately
$80.9
million.Our
total
revenues
amounted
to
$672.5
million
in
2016,
of
which
approximately
15.9%
were
denominated
in
Euros.
During
2016,
our
Euro-denominated
revenues
exceeded
our
Euro-denominated
expenses.Conversely,
our
expenses
denominated
in
shekels
are
higher
than
our
expected
shekel-denominated
revenues.
For
those
currencies
which
do
not
have
a
sufficient
natural
hedge
within
our
operations
(such
as
offsettingrevenues
and
expenses
recorded
in
a
given
currency,
or
some
other
hedge),
we
may
choose
to
hedge
in
order
to
reduce
the
impact
of
currency
fluctuations
on
our
operating
results.
In
2016,
we
entered
into
hedgingtransactions
to
reduce
the
potential
exposure
resulting
from
the
strengthening
of
the
U.S.
dollar
against
the
Euro
and
strengthening
of
the
shekel
against
the
U.S.
dollar.
Our
foreign
exchange
forward
contracts
in
effectas
of
December
31,
2016
were
for
the
conversion
of
$33.3
million
into
Euro
and
$24.8
million
into
NIS.97Table of ContentsThe
net
effect
of
these
risks
stemming
from
currency
exchange
rate
fluctuations
on
our
operating
results
can
be
quantified
as
follows:(i)
A
change
of
10%
in
the
value
of
the
Euro
relative
to
the
U.S.
dollar
in
the
year
ended
December
31,
2016
would
have
resulted
in
a
change
in
the
U.S.
dollar
reporting
value
of
our
consolidated
operating
incomeof
$
7.6
million
for
that
year,
mainly
due
to
revenues
earned
in
Euros.(ii)
A
change
of
10%
in
the
value
of
the
shekel
relative
to
the
dollar
in
the
year
ended
December
31,
2016
would
have
resulted
in
a
change
in
the
dollar-reported
value
of
our
consolidated
operating
income
of
$9.9million,
mainly
due
to
shekel-recorded
expenses.We
will
continue
to
monitor
exposure
to
currency
fluctuations.
Instruments
that
may
be
used
to
protect
us
against
future
risks
may
include
foreign
currency
forward
and
swap
contracts.
These
instruments
may
beused
to
selectively
manage
risks,
but
there
can
be
no
assurance
that
we
will
be
fully
protected
against
material
foreign
currency
fluctuations.
We
do
not
use
derivative
financial
instruments
for
speculative
or
tradingpurposes.Interest Rate RiskOur
cash
and
cash
equivalents
are
held
primarily
in
bank
deposits
with
maturities
of
less
than
90
days,
and
our
short-term
bank
deposits
have
maturities
of
more
than
90
days.
Both
are
subject
to
limited
interest
raterisk,
with
an
average
interest
rate
of
1.0
7%.
In
addition,
during
2016
we
borrowed
$26
million
with
an
average
interest
rate
of
4.35%.
An
immediate
10%
change
in
interest
rates
would
not
have
a
material
effect
on
ourfinancial
condition
or
results
of
operations.ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.Not
Applicable.PART IIITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES .NoneITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.NoneITEM 15. CONTROLS AND PROCEDURES.(a) Disclosure Controls and Procedures .We
carried
out
an
evaluation
under
the
supervision
and
with
the
participation
of
our
management,
including
our
chief
executive
officer
and
chief
financial
officer,
of
the
effectiveness
of
our
disclosure
controls
andprocedures
(as
defined
in
Rules
13a-15(e)
and
15d-15(e)
under
the
Exchange
Act),
as
of
December
31,
2016,
the
end
of
the
period
covered
by
this
annual
report.
We
maintain
disclosure
controls
and
proceduresdesigned
to
ensure
that
the
information
required
to
be
disclosed
by
us
in
filings
and
submissions
under
the
Exchange
Act,
is
recorded,
processed,
summarized,
and
reported
within
the
time
periods
specified
by
theSEC’s
rules
and
forms,
and
that
information
required
to
be
disclosed
by
us
in
reports
that
we
file
or
submit
under
the
Exchange
Act
is
accumulated
and
communicated
to
management,
including
our
chief
executiveofficer
and
chief
financial
officer,
as
appropriate
to
allow
timely
decisions
regarding
required
disclosure.
In
designing
and
evaluating
our
disclosure
controls
and
procedures,
our
management
recognizes
that
anycontrols
and
procedures,
no
matter
how
well
designed
and
operated,
can
provide
only
reasonable
assurance
of
achieving
their
objectives,
and
our
management
necessarily
applies
its
judgment
in
evaluating
the
cost-benefit
relationship
of
possible
controls
and
procedures.
Based
on
such
evaluation,
our
chief
executive
officer
and
chief
financial
officer
have
concluded
that
our
disclosure
controls
and
procedures
were
effective
as
ofDecember
31,
2016.(b) Management’s Annual Report on Internal Control Over Financial Reporting.Our
management
is
responsible
for
establishing
and
maintaining
adequate
internal
control
over
financial
reporting.
Our
internal
control
system
was
designed
to
provide
reasonable
assurance
to
our
management
andboard
of
directors
regarding
the
reliability
of
financial
reporting
and
the
preparation
and
fair
presentation
of
its
published
consolidated
financial
statements.Because
of
its
inherent
limitations,
internal
control
over
financial
reporting
may
not
prevent
or
detect
misstatements.
Also,
projections
of
any
evaluation
of
effectiveness
to
future
periods
are
subject
to
the
risk
thatcontrols
may
become
inadequate
because
of
changes
in
conditions,
or
that
the
degree
of
compliance
with
the
policies
or
procedures
may
deteriorate.Our
management
assessed
the
effectiveness
of
our
internal
control
over
financial
reporting
as
of
December
31,
2016.
In
making
our
assessment,
our
management
used
the
criteria
established
in
Internal
Control—Integrated
Framework
(2013)
issued
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(COSO).
Based
on
such
assessment,
management
has
concluded
that,
as
of
December
31,
2016,
ourinternal
control
over
financial
reporting
is
effective
based
on
those
criteria.Kesselman
&
Kesselman,
an
independent
registered
public
accounting
firm
in
Israel
and
a
member
of
PricewaterhouseCoopers
International
Limited,
to
which
we
refer
as
PwC,
which
audited
the
financialstatements
included
in
this
annual
report
containing
the
disclosure
required
by
this
Item
15
has
issued
an
attestation
report
regarding
the
effectiveness
of
our
internal
control
over
financial
reporting.98Table of Contents(c) Attestation Report of Registered Public Accounting Firm .PwC’s
attestation
report
regarding
the
effectiveness
of
our
internal
control
over
financial
reporting
is
included
in
“Item
18—Financial
Statements”
on
page
F-3
of
this
annual
report,
which
attestation
report
isincorporated
by
reference
in
this
Item
15(c).(d) Changes in Internal Control over Financial Reporting.Based
on
the
evaluation
conducted
by
our
management,
with
the
participation
of
our
chief
executive
officer
and
chief
financial
officer,
pursuant
to
Rules
13a-15(d)
and
15d-15(d)
promulgated
under
the
ExchangeAct,
our
management
(including
such
officers)
have
concluded
that
there
were
no
changes
in
our
internal
control
over
financial
reporting
(as
such
term
is
defined
in
Rules
13a-15(f)
and
15d-15(f)
under
the
ExchangeAct)
that
occurred
during
the
period
covered
by
this
annual
report
that
have
materially
affected,
or
that
are
reasonably
likely
to
materially
affect,
our
internal
control
over
financial
reporting.ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.Our
board
of
directors
has
determined
that
Mr.
Edward
J.
Fierko,
who
serves
on
the
audit
committee
of
our
board
of
directors,
meets
the
requirements
of
an
“audit
committee
financial
expert”,
as
defined
in
Item407(d)(5)
of
SEC
Regulation
S-K
and
Item
16A
of
SEC
Form
20-F
and
is
an
independent
director,
as
defined
in
Rule
5600(a)(2)
of
the
NASDAQ
Listing
Rules.ITEM 16B. CODE OF ETHICS.We
have
adopted
a
Code
of
Business
Conduct
and
Ethics,
to
which
we
refer
as
the
code
of
ethics,
that
applies
to
all
directors,
officers,
and
employees
of
our
company
and
its
subsidiaries,
including
our
chiefexecutive
officer,
principal
financial
officer,
principal
accounting
officer
or
controller
and
other
persons
performing
similar
functions
for
us.
A
copy
of
the
code
of
ethics
has
been
posted
on
our
Internet
website,http://investors.stratasys.com/governance.cfm
and
is
incorporated
herein
by
reference.
The
foregoing
website
has
been
provided
as
an
inactive
textual
reference
only,
and
the
content
of
that
website
is
not
a
part
of
thisannual
report.ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.The
following
table
sets
forth,
for
the
years
ended
December
31,
2015
and
2016,
the
fees
billed
to
us
and
our
subsidiaries
by
our
principal
accountant.
(1)Year endedDecember 31,2016




2015Audit
fees
(2)$1,265,897$972,988Tax
fees
(3)206,043

94,905All
other
fees
(4)
17,80052,500Total$      1,489,740$     1,120,393(1)Comprised
by
fees
billed
by
Kesselman
&
Kesselman,
a
member
firm
of
PricewaterhouseCoopers
International
Limited,
an
independent
registered
public
accounting
firm,
or
Kesselman
&
Kesselman
(whichserved
as
our
principal
accountant
with
respect
to
the
years
ended
December
31,
2015
and
2016).




(2)Audit
fees
consist
of
fees
for
professional
services
rendered
by
our
principal
accountant
in
connection
with
the
audit
of
our
consolidated
annual
financial
statements
and
services
that
would
normally
be
providedby
our
principal
accountant
in
connection
with
statutory
and
regulatory
filings
or
engagements.
(3)Tax
fees
are
fees
for
services
rendered
by
our
principal
accountant
in
connection
with
tax
compliance,
tax
planning
and
tax
advice.
(4)All
other
fees
are
fees
for
other
consulting
services
(if
any)
rendered
by
our
principal
accountant
to
us.ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.None.ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.None.ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.Not
applicable.99Table of ContentsITEM 16G. CORPORATE GOVERNANCE.The
NASDAQ
Global
Select
Market
requires
companies
with
securities
listed
thereon
to
comply
with
its
corporate
governance
standards.
As
a
foreign
private
issuer,
we
are
not
required
to
comply
with
all
of
therules
that
apply
to
listed
domestic
U.S.
companies.
Pursuant
to
NASDAQ
Listing
Rule
5615(a)(3),
we
have
notified
NASDAQ
that
with
respect
to
the
corporate
governance
practices
described
below,
we
will
insteadfollow
Israeli
law
and
practice
and
accordingly
will
not
follow
the
NASDAQ
Listing
Rules.
Except
for
the
differences
described
below,
we
do
not
believe
there
are
any
significant
differences
between
our
corporategovernance
practices
and
those
that
apply
to
a
U.S.
domestic
issuer
under
the
NASDAQ
Global
Select
Market
corporate
governance
rules.●Quorum
for
Shareholder
Meetings
:
As
permitted
under
the
Companies
Law,
under
a
recent
amendment
adopted
to
our
amended
and
restated
articles
of
association,
the
quorum
required
for
an
ordinary
meetingof
shareholders
consists
of
at
least
two
shareholders
present
in
person,
by
proxy
or
by
other
voting
instrument,
who
hold
at
least
25%
of
the
voting
power
of
our
shares
(and
in
an
adjourned
meeting,
with
someexceptions,
two
shareholders,
regardless
of
the
voting
power
associated
with
their
shares),
instead
of
33
1/3%
of
the
issued
share
capital
required
under
the
NASDAQ
Listing
Rules.

●Executive
Sessions
of
Independent
Directors
:
Under
the
Companies
Law,
our
independent
directors
(as
defined
under
the
NASDAQ
Listing
Rules)
do
not
need
to
meet
regularly
in
sessions
at
which
only
theyare
present,
as
is
required
of
U.S.
domestic
issuers
under
NASDAQ
Listing
Rule
5605(b)(2).

●Independent
Director
Oversight
of
Nominations
:
Under
Israeli
law,
there
is
no
requirement
to
have
an
independent
nominating
committee
or
the
independent
directors
of
a
company
select
(or
recommend
forselection)
director
nominees,
as
is
required
under
NASDAQ
Listing
Rule
5605(e)
for
a
U.S.
domestic
issuer.
Our
board
of
directors
(based
on
the
recommendation
of
the
executive
committee
thereof)
handlesthis
process,
as
is
permitted
by
our
amended
articles
and
the
Companies
Law.
We
also
need
not
adopt
a
formal
board
resolution
or
charter
addressing
the
director
nominations
process
and
such
related
matters
asmay
be
required
under
the
U.S.
federal
securities
laws,
as
NASDAQ
requires
for
a
U.S.
issuer.

●Shareholder
Approval
:
Pursuant
to
Israeli
law,
we
seek
shareholder
approval
for
all
corporate
actions
requiring
such
approval
under
the
requirements
of
the
Companies
Law,
which
are
different
from,
or
inaddition
to,
the
requirements
for
seeking
shareholder
approval
under
NASDAQ
Listing
Rule
5635.
See
“Item
6.
Directors,
Senior
Management
and
Employees—C.
Board
Practices
—
Fiduciary
Duties
of
OfficeHolders”
in
this
annual
report
for
a
description
of
the
some
of
the
transactions
requiring
shareholder
approval
under
the
Companies
Law.

●Distribution
of
Annual
and
Interim
Reports
:
As
opposed
to
NASDAQ
Listing
Rule
5250(d),
which
requires
listed
issuers
to
make
annual
and
quarterly
reports
available
to
shareholders
in
one
of
a
number
ofspecific
manners,
Israeli
law
does
not
require
us
to
distribute
such
reports
directly
to
shareholders,
and
the
generally
accepted
business
practice
in
Israel
is
not
to
distribute
such
reports
to
shareholders
but
tomake
such
reports
available
through
a
public
website.
In
addition,
we
will
make
our
annual
report
containing
audited
financial
statements
available
to
our
shareholders
at
our
offices
(in
addition
to
a
publicwebsite).
We
reserve
the
right
to
limit
our
mailing
of
such
report
to
shareholders
to
an
upon-request
basis.ITEM 16H. MINE SAFETY DISCLOSURE.Not
applicable.PART IIIITEM 17. FINANCIAL STATEMENTS.We
have
elected
to
provide
financial
statements
and
related
information
pursuant
to
Item
18.ITEM 18. FINANCIAL STATEMENTSThe
consolidated
financial
statements
and
the
related
notes
required
by
this
Item
are
included
in
this
annual
report
beginning
on
page
F-1.Index to Consolidated Financial Statements




PageReport
of
Independent
Registered
Public
Accounting
Firm
F-2Consolidated
Balance
Sheets
at
December
31,
2016
and
2015F-3Consolidated
Statements
of
Operations
and
Comprehensive
Loss
for
the
Years
Ended
December
31,
2016,
2015








and
2014F-4Consolidated
Statements
of
Changes
in
Equity
for
the
Years
Ended
December
31,
2016,
2015
and
2014F-5Consolidated
Statements
of
Cash
Flows
for
the
Years
Ended
December
31,
2016,
2015
and
2014F-6
to
F-7Notes
to
the
Consolidated
Financial
StatementsF-8
to
F-
41Index to Financial Statement ScheduleSchedule
II-Valuation
and
Qualifying
Accounts
and
ReservesS-1100Table of ContentsSTRATASYS LTD.CONSOLIDATED
FINANCIAL
STATEMENTSDECEMBER
31,
2016CONTENTSReport of Independent Registered Public Accounting FirmF-2
Consolidated Financial Statements        Consolidated Balance SheetsF-3        Consolidated Statements of Operations and Comprehensive LossF-4        Consolidated Statements of Changes in EquityF-5        Consolidated Statements of Cash FlowsF-6
to
F-7        Notes to Consolidated Financial StatementsF-8
to
F-41Schedule II - Valuation and Qualifying Accounts and ReservesS-1F-1Table of ContentsReport of Independent Registered Public Accounting FirmTo
the
shareholders
of
Stratasys
Ltd.In
our
opinion,
the
accompanying
consolidated
balance
sheets
and
the
related
consolidated
statements
of
operations
and
comprehensive
loss,
changes
in
equity
and
cash
flows
present
fairly,
in
all
material
respects,the
financial
position
of
Stratasys
Ltd.
and
its
subsidiaries
at
December
31,
2016
and
December
31,
2015,
and
the
results
of
their
operations
and
their
cash
flows
for
each
of
the
three
years
in
the
period
ended
December31,
2016
in
conformity
with
accounting
principles
generally
accepted
in
the
United
States
of
America.
In
addition,
in
our
opinion,
the
financial
statement
schedule
listed
in
the
accompanying
index,
presents
fairly,
in
allmaterial
respects,
the
information
set
forth
therein
when
read
in
conjunction
with
the
related
consolidated
financial
statements.
Also
in
our
opinion,
the
Company
maintained,
in
all
material
respects,
effective
internalcontrol
over
financial
reporting
as
of
December
31,
2016,
based
on
criteria
established
in
Internal Control - Integrated Framework (2013) issued
by
the
Committee
of
Sponsoring
Organizations
of
the
TreadwayCommission
(COSO).
The
Company’s
management
and
Board
of
Directors
are
responsible
for
these
financial
statements
and
the
financial
statement
schedule,
for
maintaining
effective
internal
control
over
financialreporting
and
for
its
assessment
of
the
effectiveness
of
internal
control
over
financial
reporting,
included
in
the
“
Management’s Annual Report on Internal Control Over Financial Reporting ”
appearing
under
Item
15.Our
responsibility
is
to
express
opinions
on
these
financial
statements,
on
the
financial
statement
schedule
and
on
the
Company’s
internal
control
over
financial
reporting
based
on
our
integrated
audits.
We
conductedour
audits
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States).
Those
standards
require
that
we
plan
and
perform
the
audits
to
obtain
reasonable
assurance
aboutwhether
the
financial
statements
are
free
of
material
misstatement
and
whether
effective
internal
control
over
financial
reporting
was
maintained
in
all
material
respects.
Our
audits
of
the
financial
statements
includedexamining,
on
a
test
basis,
evidence
supporting
the
amounts
and
disclosures
in
the
financial
statements,
assessing
the
accounting
principles
used
and
significant
estimates
made
by
management
and
Board
of
Directors,and
evaluating
the
overall
financial
statement
presentation.
Our
audit
of
internal
control
over
financial
reporting
included
obtaining
an
understanding
of
internal
control
over
financial
reporting,
assessing
the
risk
that
amaterial
weakness
exists,
and
testing
and
evaluating
the
design
and
operating
effectiveness
of
internal
control
based
on
the
assessed
risk.
Our
audits
also
included
performing
such
other
procedures
as
we
considerednecessary
in
the
circumstances.
We
believe
that
our
audits
provide
a
reasonable
basis
for
our
opinions.A
company’s
internal
control
over
financial
reporting
is
a
process
designed
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
externalpurposes
in
accordance
with
generally
accepted
accounting
principles.
A
company’s
internal
control
over
financial
reporting
includes
those
policies
and
procedures
that
(i)
pertain
to
the
maintenance
of
records
that,
inreasonable
detail,
accurately
and
fairly
reflect
the
transactions
and
dispositions
of
the
assets
of
the
company;
(ii)
provide
reasonable
assurance
that
transactions
are
recorded
as
necessary
to
permit
preparation
offinancial
statements
in
accordance
with
generally
accepted
accounting
principles,
and
that
receipts
and
expenditures
of
the
company
are
being
made
only
in
accordance
with
authorizations
of
management
and
directorsof
the
company;
and
(iii)
provide
reasonable
assurance
regarding
prevention
or
timely
detection
of
unauthorized
acquisition,
use,
or
disposition
of
the
company’s
assets
that
could
have
a
material
effect
on
the
financialstatements.Because
of
its
inherent
limitations,
internal
control
over
financial
reporting
may
not
prevent
or
detect
misstatements.
Also,
projections
of
any
evaluation
of
effectiveness
to
future
periods
are
subject
to
the
risk
thatcontrols
may
become
inadequate
because
of
changes
in
conditions,
or
that
the
degree
of
compliance
with
the
policies
or
procedures
may
deteriorate./s/
Kesselman
&
Kesselman
Certified
Public
Accountants
(Isr.)
A
member
firm
of
PricewaterhouseCoopers
International
LimitedTel-Aviv
, Israel
March
9,
2017F-2Table of ContentsSTRATASYS LTD. CONSOLIDATED FINANCIAL STATEMENTSConsolidated Balance Sheets(in
thousands,
except
share
data)
December 31,20162015ASSETS










Current assets






Cash
and
cash
equivalents$280,328$257,592






Accounts
receivable,
net120,411123,215






Inventories117,521123,658






Net
investment
in
sales-type
leases11,71711,704






Prepaid
expenses7,5718,469






Other
current
assets15,49122,435














Total
current
assets553,039547,073Non-current assets






Net
investment
in
sales-type
leases
-
long-term12,12617,785






Property,
plant
and
equipment,
net208,415201,934






Goodwill385,629383,853






Other
intangible
assets,
net177,458252,468






Other
non-current
assets29,38211,243













Total
non-current
assets813,010867,283Total assets$







1,366,049$






1,414,356
LIABILITIES AND EQUITY
Current liabilities






Accounts
payable$40,933$39,021






Current
portion
of
long-term
debt
3,714
-






Accrued
expenses
and
other
current
liabilities
28,282
31,314






Accrued
compensation
and
related
benefits34,18634,052






Income
taxes
payable3,925
11,395






Obligations
in
connection
with
acquisitions3,6194,636






Deferred
revenues49,95252,309













Total
current
liabilities164,611172,727Non-current liabilities






Long-term
debt22,286-






Deferred
tax
liabilities5,95216,040






Deferred
revenues
-
long-term12,9227,627






Obligations
in
connection
with
acquisitions
-
long-term-4,354






Other
non-current
liabilities22,25122,428













Total
non-current
liabilities63,41150,449Total liabilities$228,022$223,176Commitments
and
contingencies
(see
note
10)Redeemable non-controlling interests2,0292,379Equity






Ordinary
shares,
NIS
0.01
nominal
value,
authorized
180,000
thousands













shares;
52,639
thousands
shares
and
52,082
thousands
shares













issued
and
outstanding
at
December
31,
2016
and
2015,
respectively142141






Additional
paid-in
capital2,633,1292,605,957






Accumulated
other
comprehensive
loss(13,479)(10,774)






Accumulated
deficit(1,483,925)(1,406,706)













Equity
attributable
to
Stratasys
Ltd.1,135,8671,188,618






Non-controlling
interests131183













Total
equity1,135,9981,188,801Total liabilities and equity$1,366,049$1,414,356The accompanying notes are an integral part of these consolidated financial statements.F-3Table of ContentsSTRATASYS LTD. CONSOLIDATED FINANCIAL STATEMENTSConsolidated Statements of Operations and Comprehensive Loss(in
thousands,
except
share
and
per
share
data)
Years Ended December 31,



2016



2015



2014Net sales






Products$479,031$503,946$612,138






Services193,427192,049137,991672,458695,995750,129Cost of sales






Products234,653466,221302,838






Services120,499127,60284,897355,152593,823387,735Gross profit317,306102,172362,394
Operating expenses







Research
and
development,
net97,778122,360
82,270






Selling,
general
and
administrative307,113
434,619351,993







Goodwill
impairment
-942,408
102,470






Change
in
fair
value
of
obligations
in
connection
with
acquisitions(872)
(23,671)(26,150)404,0191,475,716510,583Operating loss(86,713)(1,373,544)(148,189)
Financial income (expense), net354(10,287)(6,529)Loss before income taxes(86,359)(1,383,831)(154,718)






Income
taxes
benefit(9,446)(10,320)(35,248)






Share
in
losses
of
associated
company(708)--Net loss(77,621)(1,373,511)(119,470)Net
loss
attributable
to
non-controlling
interests(402)(676)(50)Net
loss
attributable
to
Stratasys
Ltd.$






(77,219)$





(1,372,835)$






(119,420)
Net loss per ordinary share attributable to Stratasys Ltd.






Basic$(1.48)$(26.64)$(2.39)






Diluted$(1.48)$(26.64)$(2.39)
Weighted average ordinary shares outstanding






Basic52,33051,59250,019






Diluted52,58251,59250,019
Comprehensive LossNet
loss$(77,621)$(1,373,511)$(119,470)Other
comprehensive
income
(loss),
net
of
tax:













Losses
on
securities
reclassified
into
earnings--167













Foreign
currency
translation
adjustments(2,788)(8,263)(4,326)













Unrealized
gains
(losses)
on
derivatives
designated
as
cash
flow
hedge831,136(1,396)Other
comprehensive
loss,
net
of
tax(2,705)(7,127)(5,555)Comprehensive
loss(80,326)(1,380,638)(125,025)Comprehensive
loss
attributable
to
non-controlling
interests(402)(676)(50)Comprehensive loss attributable to Stratasys Ltd.$(79,924)$(1,379,962)$(124,975)The accompanying notes are an integral part of these consolidated financial statements.F-4Table of ContentsSTRATASYS LTD. CONSOLIDATED FINANCIAL STATEMENTSConsolidated Statements of Changes in Equity(in
thousands
)Years Ended December 31, 2016, 2015, and 2014RetainedAccumulated


Ordinary SharesAdditionalEarningsOtherEquityNumber of









Paid-In




(accumulated




Comprehensive




attributable to




Non-controlling




TotalsharesPar ValueCapitaldeficit)Income (Loss)Stratasys Ltd.InterestEquityBalances, January 1, 201449,211$133$2,412,197$85,549$1,908$2,499,787$-$2,499,787Issuance of shares in connection with stock-based       compensation plans55827,904--7,906-7,906Stock-based compensation--30,207--30,207-30,207Issuance of shares and options for acquisitions1,1544117,841--117,845-117,845Non-controlling interests arising from acquisitions------519519Comprehensive loss---(119,420)(5,555)(124,975)(50)(125,025)Balance as of December 31, 201450,923$139$2,568,149$(33,871)$(3,647)$2,530,770$469$2,531,239Issuance of shares in connection with stock-based

       compensation plans260*2,871--2,871-2,871
Stock-based compensation--30,010--30,010-30,010Tax deficit from stock-based compensation plans--(1,706)--(1,706)-(1,706)Issuance of shares for settlements of obligations in connection
       with acquisitions and other related items89928,433--8,435-8,435Adjustment to redemption value of redeemable non-controlling
interests--(1,800)--(1,800)-(1,800)Comprehensive loss--
-(1,372,835)(7,127)




(1,379,962)


















(286)



(1,380,248)Balance as of December 31, 201552,082$141$




2,605,957$




(1,406,706)$(10,774)$1,188,618$183$1,188,801Issuance of shares in connection with stock-based

       compensation plans301
1
1,185

-

-1,186
-1,186Stock-based compensation--20,773
-
-20,773
-


20,773Issuance of shares for settlements of obligations in connection



       with acquisitions and other related items256*5,214--
5,214-5,214Comprehensive loss---(77,219)(2,705)(79,924)(52)(79,976)Balance as of December 31, 201652,639$142$2,633,129$(1,483,925)$












(13,479)$1,135,867$131$1,135,998*
Represents
an
amount
less
than
0.5
thousandThe accompanying notes are an integral part of these consolidated financial statements.F-5Table of ContentsSTRATASYS LTD. CONSOLIDATED FINANCIAL STATEMENTSConsolidated Statements of Cash Flows(in
thousands)





Years ended December 31,



2016




2015




2014Cash flows from operating activitiesNet
loss$








(77,621)$






(1,373,511)$







(119,470)Adjustments
to
reconcile
net
loss
to






net
cash
provided
by
operating
activities:








Goodwill
impairment-942,408102,470






Impairment
of
other
long-lived
assets24,924288,977
14,636






Depreciation
and
amortization
92,877108,395109,429






Stock-based
compensation
20,77330,01030,207






Foreign
currency
transaction
loss
2,147

8,61210,327






Deferred
income
taxes(10,378)(19,129)(53,887)






Change
in
fair
value
of
obligations
in
connection
with
acquisitions(872)(23,671)(26,150)






Other
non-cash
items1,220

17
275
Change
in
cash
attributable
to
changes
in
operating
assets






and
liabilities,
net
of
the
impact
of
acquisitions:













Accounts
receivable,
net2,00925,075(46,717)













Inventories642(12,408)(39,370)













Net
investment
in
sales-type
leases5,646(6,497)(5,078)













Other
current
assets
and
prepaid
expenses39511,262(10,537)













Other
non-current
assets933(439)1,558













Accounts
payable1,969(1,937)(4,305)













Other
current
liabilities(6,330)(7,464)31,047













Deferred
revenues3,38010,14112,662














Other
non-current
liabilities259(1,751)6,719Net cash provided by (used in) operating activities61,973(21,910)13,816
Cash flows from investing activities







Purchase
of
property
and
equipment(45,125)
(84,299)(60,497)






Proceeds
from
maturities
of
bank
deposits
and
restricted
deposits73,836191,741
551,364






Investment
in
bank
deposits
and
restricted
deposits(67,177)(187,264)(361,571)






Cash
paid
for
acquisitions,
net
of
cash
acquired-

(9,905)(151,057)






Investment
in
unconsolidated
entities
(23,064)(250)(3,767)






Purchase
of
intangible
assets(2,002)(2,747)
(3,087)






Proceeds
from
maturities
and
sales
of
marketable
securities--
1,634






Other
investing
activities(457)(378)(458)Net cash used in investing activities(63,989)(93,102)(27,439)
Cash flows from financing activities






Proceeds
from
long-term
debt26,000--






Repayment
of
short-term
debt-(175,000)-






Proceeds
from
short-term
debt-125,00050,000






Payment
of
obligations
in
connection
with
acquisitions(1,386)(19,875)(10,795)






Proceeds
from
exercise
of
stock
options1,1852,8717,906






Acquisition
of
non-controlling
interest--(2,170)Net cash provided by (used in) financing activities25,799(67,004)44,941
Effect of exchange rate changes on cash and cash equivalents(1,047)(2,533)(3,265)
Net change in cash and cash equivalents22,736(184,549)28,053Cash and cash equivalents, beginning
of
year257,592442,141414,088
Cash and cash equivalents, end
of
year$280,328$257,592$442,141The accompanying notes are an integral part of these consolidated financial statements.F-6Table of ContentsSTRATASYS LTD. CONSOLIDATED FINANCIAL STATEMENTSConsolidated Statements of Cash Flows(in
thousands)

















Years ended December 31,201620152014Supplemental disclosure of cash flow information













Cash
paid
for
Income
taxes$



5,278$



13,487$



6,241













Cash
paid
for
interest-1,514235













Transfer
of
inventory
to
fixed
assets5,0858,88610,933













Transfer
of
fixed
assets
to
inventory1,0683,6613,819














Fair
value
of
assets
acquired
in
connection
with
acquisitions,
including














$0,
$509
and
$6,502
of
cash
acquired
for
the
years
ended













December
31,
2016,
2015
and
2014,
respectively$-$12,570$360,595














Less
liabilities
assumed-(2,156)(22,416)













Net
acquired
assets$-$10,414$338,179



















Cash
paid
for
merger
and
acquisitions$-$10,414$157,559













Shares
and
other
consideration--180,620













Total
consideration
paid
for
merger
and
acquisitions$-$10,414$338,179The accompanying notes are an integral part of these consolidated financial statements.F-7Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1. Nature of Operations and Summary of Significant Accounting Policiesa. Nature of OperationsStratasys
Ltd.
(collectively
with
its
subsidiaries,
the
“Company”)
is
a
3D
solutions
company,
offering
additive
manufacturing
(“AM”)
solutions
for
the
creation
of
parts
used
in
the
processes
of
designing
andmanufacturing
products
and
for
the
direct
manufacture
of
end
parts
across
a
broad
range
of
vertical
markets.
The
Company’s
solutions
include
products
ranging
from
entry-level
desktop
3D
printers
to
systems
for
rapidprototyping
(“RP”)
and
large
production
systems
for
direct
digital
manufacturing
(“DDM”).
The
Company
also
develops,
manufactures
and
sells
materials
for
use
with
its
systems
and
provides
related
service
offerings.The
Company
also
provides
a
variety
of
custom
manufacturing
solutions
through
its
direct
manufacturing
printed
parts
service
as
well
as
3D
printing
related
professional
services
offerings.The
Company
has
one
operating
segment,
which
generates
revenues
via
the
sale
of
its
3D
printing
systems
and
related
consumables
and
by
providing
additive
manufacturing
solutions.
The
Company
operatesmainly
through
offices
in
Israel,
the
United
States,
Germany,
Hong
Kong
and
Japan.
Entity-wide
disclosures
on
net
sales
and
property,
plant
and
equipment
are
presented
in
note
13.b. Summary of Significant Accounting PoliciesBasis of PresentationThe
consolidated
financial
statements
are
prepared
in
accordance
with
accounting
principles
generally
accepted
in
the
United
States
of
America
(“US
GAAP”).Principles of ConsolidationThe
accompanying
consolidated
financial
statements
include
the
accounts
of
Stratasys
Ltd.,
its
majority-owned
subsidiaries
and
a
Variable
Interest
Entity
(“VIE”)
in
which
the
Company
is
considered
the
primarybeneficiary.
All
intercompany
accounts
and
transactions,
including
profits
from
intercompany
sales
not
yet
realized
outside
the
Company,
have
been
eliminated
in
consolidation.Functional Currency and Foreign Currency TransactionsA
major
part
of
the
Company’s
operations
are
carried
out
by
Stratasys
Ltd.
in
Israel
and
its
subsidiaries
in
the
United
States.
The
functional
currency
of
these
entities
is
the
U.S.
dollar
(“dollar”
or
“$”).
Thefunctional
currency
of
other
subsidiaries
is
generally
their
local
currency.
The
financial
statements
of
those
subsidiaries
are
included
in
the
consolidated
financial
statements,
based
on
translation
into
U.S.
dollars.
Theeffects
of
foreign
currency
translation
adjustments
are
included
in
the
Company’s
shareholders’
equity
as
a
component
of
accumulated
other
comprehensive
loss
in
the
accompanying
consolidated
balance
sheets.Related
periodic
movements
are
summarized
as
a
line
item
in
the
Company’s
consolidated
statements
of
comprehensive
loss.
Gains
and
losses
arising
from
foreign
currency
remeasurements
of
monetary
balancesdenominated
in
non-functional
currencies
are
reflected
in
financial
income
(expense),
net
in
the
consolidated
statements
of
operations
and
comprehensive
loss.Use of EstimatesThe
preparation
of
financial
statements
in
conformity
with
U.S.
GAAP
requires
management
to
make
estimates
using
assumptions
that
affect
the
reported
amounts
of
assets
and
liabilities
and
related
disclosures
atthe
date
of
the
financial
statements
and
the
reported
amounts
of
expenses
during
the
reporting
period.
Actual
results
could
differ
from
those
estimates,
and
such
differences
may
have
a
material
impact
on
theCompany’s
financial
statements.
As
applicable
to
these
consolidated
financial
statements,
the
most
significant
estimates
relate
to
revenue
recognition,
inventories,
fair
value
of
stock-based
compensation,
long-livedassets,
goodwill,
uncertain
tax
positions
and
contingent
liabilities.Fair Value MeasurementsFair
value
is
defined
as
the
price
that
would
be
received
to
sell
an
asset
or
paid
to
transfer
a
liability
in
an
orderly
transaction
between
market
participants
at
the
measurement
date.
A
hierarchy
has
been
establishedfor
inputs
used
in
measuring
fair
value
that
maximizes
the
use
of
observable
inputs
and
minimizes
the
use
of
unobservable
inputs
by
requiring
that
the
most
observable
inputs
be
used
when
available.F-8Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSObservable
inputs
are
inputs
that
are
developed
using
market
data,
such
as
publicly
available
information
about
actual
events
or
transactions,
and
that
reflect
the
assumptions
that
market
participants
would
usewhen
pricing
the
asset
or
liability.
Unobservable
inputs
are
inputs
for
which
market
data
are
not
available
and
that
are
developed
using
the
best
information
available
about
the
assumptions
that
market
participantswould
use
when
pricing
the
asset
or
liability.
The
fair
value
hierarchy
categorizes
into
three
levels.
Level
1
inputs
are
quoted
prices
(unadjusted)
in
active
markets
for
identical
assets
or
liabilities
that
the
reportingentity
can
access
at
the
measurement
date.
Level
2
inputs
include
inputs
other
than
quoted
prices
included
within
Level
1
that
are
observable
for
the
asset
or
liability,
either
directly
or
indirectly.
Level
3
inputs
areunobservable
inputs
for
the
asset
or
liability.
The
fair
value
hierarchy
gives
the
highest
priority
to
quoted
prices
(unadjusted)
in
active
markets
for
identical
assets
or
liabilities
(Level
1
inputs)
and
the
lowest
priority
tounobservable
inputs
(Level
3
inputs).
Categorization
within
the
valuation
hierarchy
is
based
upon
the
lowest
level
of
input
that
is
significant
to
the
fair
value
measurement.Cash and Cash EquivalentsAll
highly
liquid
investments,
which
include
short-term
bank
deposits
that
are
not
restricted
as
to
withdrawal
or
use,
with
maturities
of
ninety
days
or
less
when
acquired,
are
considered
to
be
cash
equivalents.Accounts Receivable and Net investment in Sales-Type LeasesAccounts
receivable
and
net
investment
in
sales-type
leases
are
presented
in
the
Company’s
consolidated
balance
sheets
net
of
allowance
for
doubtful
accounts.
The
Company
estimates
the
collectability
of
itsaccounts
receivable
balances
and
adjusts
its
allowance
for
doubtful
accounts
accordingly.
The
Company
carries
its
investment
in
sales-type
leases
based
on
discounting
the
minimum
lease
payments
by
the
interest
rateimplicit
in
the
lease
and
less
an
allowance
for
doubtful
accounts
(see
also
note
5).On
a
periodic
basis,
the
Company
evaluates
its
accounts
receivable
and
its
investment
in
sales-type
leases
and
establishes
an
allowance
for
doubtful
accounts
based
on
past
write-offs
and
collections,
current
creditconditions
and
the
age
of
the
balances.
The
Company
evaluates
a
number
of
factors
to
assess
collectability,
including
an
evaluation
of
the
creditworthiness
of
the
specific
customer,
past
due
amounts,
payment
history,and
current
economic
conditions.Allowance
for
doubtful
accounts
due
to
the
Company’s
accounts
receivable
amounted
to
$843
thousands
and
$675
thousands
as
of
December
31,
2016
and
2015,
respectively.
Allowance
for
doubtful
accounts
dueto
the
Company’s
investment
in
sales-type
leases
amounted
to
$844
thousands
and
$682
thousands
as
of
December
31,
2016
and
2015,
respectively.
Accounts
are
written-off
against
the
allowance
when
managementdeems
the
accounts
are
no
longer
collectible.
Changes
in
the
allowance
for
doubtful
accounts
are
recognized
in
selling,
general
and
administrative
expenses.Derivative Instruments and Hedge AccountingThe
Company
is
exposed
to
global
market
risks
and
to
the
risk
that
its
earnings,
cash
flows
and
equity
could
be
adversely
impacted
by
fluctuations
in
foreign
exchange
rates.
As
part
of
the
Company’s
riskmanagement
strategy,
it
uses
foreign
currency
exchange
forward
contracts
to
hedge
against
certain
foreign
currency
exposures.
The
Company
does
not
enter
into
derivative
transactions
for
trading
purposes.
TheCompany
recognizes
these
derivative
instruments
as
either
assets
or
liabilities
in
the
consolidated
balance
sheets
at
their
fair
value.
Derivatives
in
a
gain
position
are
reported
in
other
current
assets
in
the
consolidatedbalance
sheets
and
derivatives
in
a
loss
position
are
recorded
in
accrued
expenses
and
other
current
liabilities
in
the
consolidated
balance
sheets,
on
a
gross
basis.On
the
date
that
the
Company
enters
into
a
derivative
contract,
it
designates
the
derivative
for
accounting
purposes,
as
either
a
hedging
instrument
which
qualifies
for
hedge
accounting
or
as
a
non-hedginginstrument
which
does
not
qualify
for
hedge
accounting.
In
order
to
qualify
for
hedge
accounting,
the
Company
formally
documents
at
the
inception
of
each
hedging
relationship
the
hedging
instrument,
the
hedgeditem,
the
risk
management
objective
and
strategy
for
undertaking
each
hedging
relationship,
and
the
method
used
to
assess
hedge
effectiveness.F-9Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor
each
hedging
instrument
that
hedges
the
exposure
to
variability
in
expected
future
cash
flows
and
that
is
designated
and
effective
as
a
cash
flow
hedge,
the
effective
portion
of
the
unrealized
gain
or
loss
on
thederivative
instrument
is
reported
as
a
component
of
accumulated
other
comprehensive
loss
in
the
Company’s
shareholders’
equity
and
is
reclassified
into
earnings
in
the
same
period
and
in
the
same
line
item
in
whichthe
hedged
transaction
affects
earnings.
The
ineffective
portion
of
the
gain
or
loss
on
the
derivative
instrument,
if
any,
is
recognized
in
financial
expense,
net.
The
cash
flows
associated
with
these
derivatives
arereported
in
the
consolidated
statements
of
cash
flows
consistently
with
the
classification
of
cash
flows
from
the
underlying
hedged
items
that
these
derivatives
are
hedging.For
non-hedging
instruments,
the
Company
records
the
changes
in
fair
value
of
derivative
instruments
in
financial
expense,
net
in
the
consolidated
statements
of
operations
and
comprehensive
loss.
The
cash
flowsassociated
with
these
derivatives
are
consistent
with
the
cash
flows
associated
with
the
hedged
item.
Refer
to
Note
12
for
further
information
regarding
the
Company’s
derivative
and
hedging
activities.InventoriesInventories
are
stated
at
the
lower
of
cost
or
net
realizable
value.
Cost
is
determined
mainly
using
standard
cost,
which
approximates
actual
cost,
on
a
first-in,
first-out
basis.
Inventory
costs
consist
of
materials,direct
labor
and
overhead.
Net
realizable
value
is
determined
based
on
estimated
selling
prices
in
the
ordinary
course
of
business,
less
reasonably
predictable
costs
of
completion,
disposal,
and
transportation.
TheCompany
periodically
assesses
inventory
for
obsolescence
and
excess
balances
and
reduces
the
carrying
value
by
an
amount
equal
to
the
difference
between
its
cost
and
the
net
realizable
value
based
on
assumptions
offuture
demand
and
historical
sales
patterns.
The
Company
provided
inventory
write-downs
for
obsolescence
and
excess
inventories
in
the
amounts
of
$7.7
million
and
$9.8
million
as
of
December
31,
2016
and
2015,respectively.Property, Plant and EquipmentProperty,
plant
and
equipment
are
stated
at
cost
less
accumulated
depreciation.
Depreciation
is
computed
using
the
straight-line
method
over
the
estimated
useful
lives
of
the
assets,
or
in
the
case
of
leaseholdimprovements,
the
shorter
of
the
lease
term
(including
any
renewal
periods,
if
appropriate)
or
the
estimated
useful
life
of
the
asset.
Repairs
and
maintenance
are
charged
to
expense
as
incurred,
while
betterments
andimprovements
that
extend
the
useful
life
or
add
functionality
of
property,
plant
and
equipment
are
capitalized.Depreciation
is
computed
primarily
over
the
following
periods:Useful Lifein YearsMachinery
and
equipment5
-
10Buildings25
-
40Buildings
improvements5
-
10Computer
equipment
and
software3
-
5Office
equipment,
furniture
and
fixtures5
-
14The
Company
reviews
the
carrying
amounts
of
property,
plant
and
equipment
for
potential
impairment
when
events
or
changes
in
circumstances
indicate
that
the
carrying
amount
of
an
asset
may
not
be
recoverable.In
evaluating
recoverability,
the
Company
groups
assets
and
liabilities
at
the
lowest
level
such
that
the
identifiable
cash
flows
relating
to
the
group
are
largely
independent
of
the
cash
flows
of
other
assets
and
liabilities.The
Company
then
compares
the
carrying
amounts
of
the
assets
or
asset
groups
with
the
related
estimated
undiscounted
future
cash
flows.
In
the
event
impairment
exists,
an
impairment
charge
is
recorded
at
theamount
by
which
the
carrying
amount
of
the
asset
or
asset
group
exceeds
the
fair
value.
In
addition,
the
remaining
depreciation
period
for
the
impaired
asset
would
be
reassessed
and,
if
necessary,
revised.
During
theyears
ended
December
31,
2016
and
2015,
the
Company
recorded
impairment
charges
of
$7.0
million
and
$10.5
million,
respectively,
related
to
certain
of
property
and
equipment
assets.
Refer
to
Note
6
for
furtherinformation.F-10Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSGoodwillGoodwill
reflects
the
excess
of
the
consideration
transferred
plus
the
fair
value
of
any
non-controlling
interest
in
the
acquiree
at
the
business
combination
date
over
the
fair
values
of
the
identifiable
net
assetsacquired.
Goodwill
is
not
amortized
but
rather
is
tested
for
impairment
annually
at
the
reporting
unit
level,
or
whenever
events
or
circumstances
present
an
indication
of
impairment.
Goodwill
is
an
asset
representingthe
future
economic
benefits
arising
from
other
assets
acquired
in
a
business
combination
that
are
not
individually
identified
and
separately
recognized.
The
Company
allocates
goodwill
to
its
reporting
units
based
onthe
reporting
unit
expected
to
benefit
from
the
business
combination.The
primary
items
that
generate
goodwill
include
the
value
of
the
synergies
between
the
acquired
companies
and
the
Company
and
the
acquired
assembled
workforce,
neither
of
which
qualifies
for
recognition
asan
intangible
asset.Goodwill
is
tested
for
impairment
on
an
annual
basis
in
the
fourth
quarter
and
whenever
indicators
of
potential
impairment
requires
an
interim
goodwill
impairment
analysis.
The
Company
may
first
assessqualitative
factors
to
determine
whether
it
is
more
likely
than
not
that
the
fair
value
of
a
reporting
unit
is
less
than
its
carrying
amount.
If
the
Company
performs
a
qualitative
assessment
and
concludes
that
it
is
morelikely
than
not
that
the
fair
value
of
a
reporting
unit
exceeds
its
carrying
value,
goodwill
is
not
considered
impaired
and
the
two-step
impairment
test
is
not
required.
However,
if
the
Company
concludes
otherwise,
it
isthen
required
to
perform
the
first
step
of
the
two-step
impairment
test.The
first
step
requires
the
Company
to
estimate
the
fair
value
of
its
reporting
unit.
If
the
fair
value
of
the
reporting
unit
is
determined
to
be
greater
than
its
carrying
amount,
the
applicable
goodwill
is
not
impairedand
no
further
testing
is
required.
If
the
reporting
unit’s
carrying
amount
is
determined
to
be
greater
than
its
fair
value,
the
second
step
must
be
performed
to
determine
the
implied
fair
value
of
the
reporting
unit’sgoodwill.
The
implied
fair
value
of
the
reporting
unit’s
goodwill
is
calculated
by
measuring
the
reporting
unit’s
assets,
including
any
unrecognized
intangible
assets,
liabilities
and
non-controlling
interests
at
fair
valuein
a
hypothetical
analysis
as
if
the
reporting
unit
was
acquired
in
a
business
combination.
If
the
carrying
value
of
a
reporting
unit’s
goodwill
exceeds
its
implied
fair
value,
then
the
difference
is
recorded
as
animpairment
loss.The
evaluation
of
goodwill
impairment
requires
the
Company
to
make
assumptions
about
future
cash
flows
of
the
reporting
unit
being
evaluated
that
include,
among
others,
growth
in
revenues,
margins
realized,level
of
operating
expenses
and
cost
of
capital.
These
assumptions
require
significant
judgment
and
actual
results
may
differ
from
assumed
and
estimated
amounts.During
the
years
ended
December
31,
2015
and
2014
the
Company
recorded
impairment
charges
of
$942.4
million
and
$102.5
million,
respectively
in
order
to
reduce
the
carrying
amount
of
goodwill
to
its
impliedfair
value.
There
was
no
impairment
of
goodwill
in
2016.
For
further
details
refer
to
note
7.Other Intangible AssetsIntangible
assets
and
their
useful
lives
are
as
follows:Weighted AverageUseful LifeDeveloped
technology6Patents8Trademarks
and
trade
names9Customer
relationships7Capitalized
software
development
costs5In-process
research
and
developmentIndefiniteDefinite
life
intangible
assets
are
amortized
using
the
straight-line
method
over
their
estimated
period
of
useful
life.
Amortization
of
acquired
developed
technology
is
recorded
in
cost
of
sales.
Amortization
of
tradename
and
customer
relationships
is
recorded
under
selling,
general
and
administrative
expenses.
The
Company
capitalizes
in-process
research
and
development
(“IPR&D”)
projects
acquired
as
part
of
a
businesscombination.
On
successful
completion
of
each
project,
IPR&D
assets
are
reclassified
to
developed
technology
and
amortized
over
their
estimated
useful
lives.
Impairment
of
IPR&D
assets
initially
capitalized
as
partof
a
business
combination
are
classified
under
research
and
development
expenses.F-11Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor
definite
life
intangible
assets,
the
Company
reviews
the
carrying
amounts
for
potential
impairment
when
events
or
changes
in
circumstances
indicate
that
the
carrying
amount
of
an
asset
may
not
be
recoverable.In
evaluating
recoverability,
the
Company
groups
assets
and
liabilities
at
the
lowest
level
such
that
the
identifiable
cash
flows
relating
to
the
group
are
largely
independent
of
the
cash
flows
of
other
assets
and
liabilities.The
Company
then
compares
the
carrying
amounts
of
the
asset
or
assets
groups
with
their
respective
estimated
undiscounted
future
cash
flows.
If
the
definite
life
intangible
asset
or
assets
group
are
determined
to
beimpaired,
an
impairment
charge
is
recorded
as
the
amount
by
which
the
carrying
amount
of
the
asset
or
assets
group
exceed
their
fair
value.Fair
value
is
determined
by
using
an
applicable
discounted
cash
flow
model.
In
addition,
the
remaining
amortization
period
for
the
impaired
asset
would
be
reassessed
and,
if
necessary,
revised.
During
the
yearsended
December
31,
2016,
2015
and
2014
the
Company
recorded
impairment
charges
of
$16.9
million,
$260.3
million
and
$11.6
million,
respectively,
related
to
its
definite
life
intangible
assets.
Refer
to
Note
8
forfurther
information.Indefinite-life
intangible
assets
are
not
amortized
but
rather
tested
for
impairment
annually,
or
whenever
events
or
circumstances
present
an
indication
of
impairment.
The
Company
applies
the
FinancialAccounting
Standards
Board
(“FASB”)
guidance,
which
permits
the
Company
to
make
a
qualitative
assessment
of
whether
the
indefinite-lived
intangible
asset
is
impaired,
or
opt
to
bypass
the
qualitative
assessmentand
proceed
directly
to
determine
the
indefinite-lived
intangible
asset’s
fair
value.
If
the
Company
determines,
based
on
the
qualitative
tests,
that
it
is
not
more
likely
than
not
that
the
indefinite-lived
intangible
asset
isimpaired,
no
further
action
is
required.
Otherwise,
the
Company
is
required
to
perform
the
quantitative
impairment
test
by
comparing
the
fair
value
of
the
indefinite-life
intangible
asset
to
its
carrying
amount.
If
theindefinite-life
intangible
asset
is
considered
to
be
impaired,
an
impairment
charge
is
recorded
as
the
amount
by
which
the
carrying
amount
of
the
asset
exceeds
its
fair
value.
During
the
years
ended
December
31,
2016,2015
and
2014
the
Company
recorded
impairment
charges
of
$1.0
million,
$18.2
million
and
$3.0
million,
respectively,
related
to
its
indefinite-life
intangible
assets.
Refer
to
Note
8
for
further
information.Non-Marketable Equity InvestmentsThe
Company’s
investments
in
certain
non-marketable
equity
securities
in
which
it
has
the
ability
to
exercise
significant
influence,
but
does
not
control
through
variable
interests
or
voting
interests,
are
accountedfor
under
the
equity
method
of
accounting
and
presented
as
other
non-current
assets
in
the
Company’s
consolidated
balance
sheets.
Under
the
equity
method,
the
Company
recognizes
its
proportionate
share
of
thecomprehensive
income
or
loss
of
the
investee.
The
Company’s
share
of
income
and
losses
from
equity
method
investments
is
included
in
share
in
losses
of
associated
company.
During
the
year
ended
December
31,2016,
the
Company
early
adopted
and
applied
a
new
Accounting
Standard
Update
(“ASU”)
issued
by
the
FASB
which
eliminates
the
requirement
that
an
investor
retrospectively
apply
the
equity
method
of
accountingwhen
an
investment
becomes
qualified
for
the
equity
method
of
accounting
as
a
result
of
an
increase
in
the
level
of
ownership
or
degree
of
influence.
Under
the
new
ASU
the
equity
method
investor
is
required
to
addthe
cost
of
acquiring
the
additional
interest
in
the
investee
to
the
current
basis
of
the
investor's
previously
held
interest
and
to
adopt
the
equity
method
of
accounting
as
of
the
date
the
investment
becomes
qualified
forequity
method
accounting.Other
non-marketable
equity
securities
in
which
the
Company
does
not
have
a
controlling
interest
or
significant
influence
are
recorded
at
cost
and
presented
as
other
non-current
assets
in
the
Company’sconsolidated
balance
sheets.The
Company
reviews
its
investments
accounted
for
under
the
cost
and
equity
methods
for
possible
impairment,
which
generally
involves
an
analysis
of
the
facts
and
changes
in
circumstances
influencing
theinvestments.
There
was
no
impairment
of
non-marketable
equity
investments
during
the
years
ended
December
31,
2016,
2015
and
2014.Contingent LiabilitiesThe
Company
is
subject
to
various
legal
proceedings
that
arise
from
time
to
time
in
the
ordinary
course
of
business.
The
outcomes
of
the
legal
proceedings
that
are
pending
as
of
the
date
the
financial
statements
areissued
are
subject
to
significant
uncertainty.
In
assessing
loss
contingencies
related
to
legal
proceedings
that
are
pending
against
the
Company
or
unasserted
claims
that
may
result
in
such
proceedings,
the
Company’smanagement
evaluates
the
perceived
merits
of
any
legal
proceedings
or
unasserted
claims
as
well
as
the
perceived
merits
of
the
amount
of
relief
sought
or
expected
to
be
sought.
Such
assessment
inherently
involves
anexercise
of
judgment.
If
the
assessment
of
a
contingency
indicates
that
it
is
probable
that
loss
would
be
incurred
and
the
amount
of
the
liability
can
be
reasonably
estimated,
then
the
Company
would
record
an
accruedexpense
in
the
Company’s
financial
statements
based
on
its
best
estimate.
Loss
contingencies
considered
to
be
remote
by
management
are
generally
not
disclosed
unless
material.
The
respective
legal
fees
are
expensedas
incurred.F-12Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSRevenue RecognitionThe
Company
derives
revenue
from
sales
of
AM
systems,
consumables,
and
services.
The
Company’s
AM
systems
include
software
and
hardware
that
function
together
to
provide
the
essential
functionality
of
thetangible
system.
The
Company
recognizes
revenue
when
(1)
persuasive
evidence
of
a
final
agreement
exists,
(2)
delivery
has
occurred
or
services
have
been
rendered,
(3)
the
selling
price
is
fixed
or
determinable,
and(4)
collectability
is
reasonably
assured.Revenues
from
sales
to
resellers
are
generally
recognized
on
sell-in
basis,
upon
shipment
and
when
title
and
risk
of
loss
have
been
transferred
to
the
resellers.
When
products
and
services
are
sold
to
a
reseller,
thereseller
is
responsible
for
the
installation
of
the
system
and
for
other
support
services
and
therefore
considered
the
primary
obligor
in
the
arrangement
with
the
end-customers.
Products
and
services
sold
directly
by
theCompany
or
marketed
by
independent
sales
agents
are
recognized
based
on
the
gross
amount
charged
to
the
end-customer
as
the
Company
is
considered
the
primary
obligor
in
the
arrangement,
retains
generalinventory
risk,
establishes
the
price
for
its
products
and
assumes
the
credit
risk
for
amounts
billed
to
its
end-customers.Revenue
from
sales-type
leases
may
include
systems,
other
products
and
maintenance
contracts.
The
Company
recognizes
revenue
from
sales-type
leases
based
on
the
net
present
value
of
future
minimum
leasepayments.
Product
revenue
from
sales-type
leases
is
generally
recognized
at
the
time
of
shipment.
The
portion
of
lease
agreements
related
to
maintenance
contracts
is
deferred
and
recognized
ratably
over
the
coverageperiod.
Revenue
from
operating
leases
is
recognized
ratably
over
the
lease
period.For
multiple-element
arrangements
the
Company
allocates
revenue
to
all
deliverables
based
on
their
relative
selling
prices
and
recognizes
revenue
when
each
element’s
revenue
recognition
criteria
are
met.
In
suchcircumstances,
the
Company
uses
the
following
hierarchy
to
determine
the
selling
price
to
be
used
for
allocating
revenue
to
deliverables:
(i)
vendor-specific
objective
evidence
of
fair
value
(“VSOE”),
(ii)
third-partyevidence
of
selling
price
(“TPE”),
and
(iii)
best
estimate
of
selling
price
(“BESP”).VSOE
exists
only
when
the
Company
sells
the
deliverable
separately
and
is
established
based
on
the
price
charged
in
such
stand-alone
transactions.
BESP
reflects
the
Company’s
best
estimates
of
the
price
at
whichthe
Company
would
have
sold
the
product
regularly
on
a
stand-alone
basis.Most
service
revenue
is
derived
from
the
Company’s
direct
manufacturing
printed
parts
services
and
sales
of
maintenance
contracts.
The
Company’s
direct
manufacturing
service
revenue
is
recognized
uponshipment
of
the
parts,
based
on
the
terms
of
the
sales
arrangement.The
Company
provides
customers
with
maintenance
under
a
warranty
agreement
and
defers
a
portion
of
the
revenue
from
the
related
printer
at
the
time
of
the
sale
based
on
the
relative
selling
price
of
thoseservices.
After
the
initial
warranty
period,
the
Company
offers
customers
optional
maintenance
contracts
ranging
generally
from
one
to
three
years.
Deferred
maintenance
revenue
is
recognized
ratably,
on
a
straight-line
basis,
over
the
period
of
the
service.
Deferred
revenues
are
derived
mainly
from
these
prepaid
maintenance
agreements.
The
Company
classifies
the
portion
of
deferred
revenue
not
expected
to
be
earned
in
thesubsequent
12
months
as
long-term.
The
changes
in
deferred
revenues
relating
to
warranty
commitments
were
as
follows:December 31,December 31,2016




2015(U.S.
$
in
thousands)Balance
at
beginning
of
year14,100
15,939Revenue
deferred
in
the
period22,309
19,413Revenue
recognized
in
the
period(18,854)(21,252)Balance
at
end
of
year$









17,555$









14,100The
Company
assesses
collectability
as
part
of
the
revenue
recognition
process.
This
assessment
includes
a
number
of
factors
such
as
an
evaluation
of
the
creditworthiness
of
the
customer,
past
due
amounts,
pastpayment
history,
and
current
economic
conditions.
If
it
is
determined
that
collectability
cannot
be
reasonably
assured,
the
Company
will
defer
recognition
of
revenue
until
collectability
is
assured.Sales and Value Added TaxesTaxes
collected
from
customers
and
remitted
to
governmental
authorities
are
recorded
on
a
net
basis
(excluded
from
revenues)
in
the
Company’s
consolidated
statements
of
operations
and
comprehensive
loss.F-13Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAdvertisingAdvertising
costs
are
expensed
as
incurred
and
were
approximately
$19.4
million,
$23.5
million
and
$23.5
million,
for
the
years
ended
December
31,
2016,
2015
and
2014,
respectively.Shipping and handling costsShipping
and
handling
costs
are
classified
as
cost
of
revenues.Research and Development CostsResearch
and
development
costs
consist
primarily
of
employee
compensation
expenses,
materials,
laboratory
supplies,
costs
for
related
software,
and
costs
for
facilities
and
equipment.
Expenditures
for
researchand
development
are
expensed
as
incurred.
Government
reimbursements
and
other
participations
for
development
of
approved
projects
are
recognized
as
a
reduction
of
expenses
as
the
related
costs
are
incurred.
TheCompany
is
not
required
to
pay
royalties
on
sales
of
products
developed
using
its
government
funding.Income TaxesThe
Company
and
its
subsidiaries
are
subject
to
income
taxes
in
the
jurisdictions
in
which
they
operate.
The
Company’s
provision
for
income
taxes
is
based
on
statutory
income
tax
rates
in
the
tax
jurisdictionswhere
it
operates,
permanent
differences
between
financial
reporting
and
tax
reporting,
and
available
credits
and
incentives.Deferred
taxes
are
determined
utilizing
the
“asset
and
liability”
method
based
on
the
estimated
future
tax
effects
of
temporary
differences
between
the
carrying
amount
and
tax
bases
of
assets
and
liabilities
underthe
applicable
tax
laws,
and
on
effective
tax
rates
in
effect
when
the
deferred
taxes
are
expected
to
be
settled
or
realized.
Deferred
taxes
for
each
jurisdiction
are
presented
as
a
non-current
net
asset
or
liability,
net
ofany
valuation
allowances.Deferred
taxes
have
not
been
provided
on
the
following
items:





1)





Taxes
that
would
apply
in
the
event
of
disposal
of
investments
in
foreign
subsidiaries,
as
it
is
generally
the
Company’s
intention
to
hold
these
investments,
not
to
realize
them.






2)





Dividends
distributable
from
the
income
of
foreign
companies
as
the
Company
does
not
expect
these
companies
to
distribute
dividends
in
the
foreseeable
future.
If
these
dividends
were
to
be
paid,
theCompany
would
have
to
pay
additional
taxes
at
a
rate
of
up
to
25%
on
the
distribution,
and
the
amount
would
be
recorded
as
an
income
tax
expense
in
the
period
the
dividend
is
declared.






3)





Amounts
of
tax-exempt
income
generated
from
the
Company’s
current
Approved
Enterprises
(see
note
9c),
as
the
Company
intends
to
permanently
reinvest
these
profits
and
does
not
intend
to
distributedividends
from
such
income.
If
these
dividends
were
to
be
paid,
the
Company
would
have
to
pay
additional
taxes
at
a
rate
up
to
10%
on
the
distribution,
and
the
amount
would
be
recorded
as
an
income
taxexpense
in
the
period
the
dividend
is
declared.Valuation AllowancesValuation
allowances
are
provided
unless
it
is
more
likely
than
not
that
all
or
a
portion
of
the
deferred
tax
asset
will
be
realized.
In
the
determination
of
the
appropriate
valuation
allowances,
the
Company
considersfuture
reversals
of
existing
taxable
temporary
differences,
the
most
recent
projections
of
future
business
results,
prior
earnings
history,
carryback
and
carry
forward
and
prudent
tax
strategies
that
may
enhance
thelikelihood
of
realization
of
a
deferred
tax
asset.
Assessments
for
the
realization
of
deferred
tax
assets
made
at
a
given
balance
sheet
date
are
subject
to
change
in
the
future,
particularly
if
earnings
of
a
subsidiary
aresignificantly
higher
or
lower
than
expected,
or
if
the
company
takes
operational
or
tax
positions
that
could
impact
the
future
taxable
earnings
of
a
subsidiary.F-14Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSUncertain Tax PositionsIn
accordance
with
the
FASB
guidance,
the
Company
takes
a
two-step
approach
to
recognizing
and
measuring
uncertain
tax
positions.
The
first
step
is
to
evaluate
the
tax
position
for
recognition
by
determiningwhether
the
weight
of
available
evidence
indicates
that
it
is
more
likely
than
not
that,
on
an
evaluation
of
the
technical
merits,
the
position
will
be
sustained
on
audit,
including
resolution
of
related
appeals
or
litigationprocesses,
if
any.The
second
step
is
performed
only
if
the
tax
position
meets
the
more-likely-than-not
recognition
threshold
and
is
to
measure
the
tax
benefit
as
the
largest
amount
which
is
more
than
50%
likely
of
being
realizedupon
ultimate
settlement.
The
Company
reevaluates
these
tax
positions
quarterly
and
makes
adjustments
as
required.
The
liabilities
relating
to
uncertain
tax
positions
are
classified
as
current
in
the
consolidated
balancesheets
to
the
extent
the
Company
anticipates
making
payments
within
one
year.
The
Company
classifies
interest
and
penalties
recognized
in
the
financial
statements
relating
to
uncertain
tax
positions
under
theprovision
for
income
taxes.The
Company
presents
unrecognized
tax
benefits
as
a
reduction
to
deferred
tax
asset
where
a
net
operating
loss,
a
similar
tax
loss,
or
a
tax
credit
carryforward
that
are
available,
under
the
tax
law
of
the
applicablejurisdiction,
to
offset
any
additional
income
taxes
that
would
result
from
the
settlement
of
a
tax
position.Stock-Based CompensationThe
Company
measures
and
recognizes
compensation
expense
for
its
equity
classified
stock-based
awards,
including
stock-based
option
awards
and
restricted
stock
units
(“RSUs”)
under
the
Stratasys
Ltd.
2012Omnibus
Equity
Incentive
Plan
(the
“2012
Plan”)
based
on
estimated
fair
values
on
the
grant
date.
The
Company
calculates
the
fair
value
of
stock-based
option
awards
on
the
date
of
grant
using
the
Black-Scholesoption
pricing
model.
The
option-pricing
model
requires
a
number
of
assumptions,
of
which
the
most
significant
are
the
expected
share
price
volatility
and
the
expected
option
term.
The
computation
of
expectedvolatility
is
based
on
historical
volatility
of
the
Company’s
shares.
The
expected
option
term
is
calculated
using
the
simplified
method
, as
the
Company
concludes
that
its
historical
share
option
exercise
experiencedoes
not
provide
a
reasonable
basis
to
estimate
its
expected
option
term.
The
interest
rate
for
periods
within
the
expected
term
of
the
award
is
based
on
the
U.S.
Treasury
yield
curve
in
effect
at
the
time
of
grant.
TheCompany’s
expected
dividend
rate
is
zero
since
the
Company
does
not
currently
pay
cash
dividends
on
its
shares
and
does
not
anticipate
doing
so
in
the
foreseeable
future.
Each
of
the
above
factors
requires
theCompany
to
use
judgment
and
make
estimates
in
determining
the
percentages
and
time
periods
used
for
the
calculation.
If
the
Company
were
to
use
different
percentages
or
time
periods,
the
fair
value
of
stock-basedoption
awards
could
be
materially
different.
Stock-based
compensation
expense
for
RSUs
is
measured
based
on
the
fair
value
of
the
Company’s
ordinary
shares
on
the
date
of
grant.
The
Company
recognizes
stock-based
compensation
cost
for
option
awards
and
RSUs
on
a
straight-line
basis
over
the
employee’s
requisite
service
period
(primarily
a
four-year
period),
net
of
estimated
forfeitures.Liability
classified
stock-based
awards
which
are
deemed
to
have
a
substantive
cash
settlement
feature
are
measured
at
each
reporting
date,
based
on
their
fair
value
until
the
awards
are
settled.
Compensation
costsfor
these
awards
are
expensed
over
the
requisite
service
period
and
adjusted
for
changes
in
fair
value
prorated
for
the
portion
of
the
requisite
service
period
rendered.Earnings per ShareBasic
earnings
per
share
is
computed
by
dividing
net
income
(loss)
attributable
to
ordinary
shareholders
of
Stratasys
Ltd.,
including
adjustment
of
redeemable
non-controlling
interest
to
its
redemption
amount,
bythe
weighted
average
number
of
ordinary
shares
(including
fully
vested
RSUs)
outstanding
for
the
reporting
periods.In
computing
the
Company’s
diluted
earnings
per
share,
the
numerator
used
in
the
basic
earnings
per
share
computation
is
adjusted
for
the
dilutive
effect,
if
any,
of
the
Company’s
deferred
payments
liabilityrevaluation
to
it
fair
value,
as
it
may
be
settled
in
shares
that
would
result
from
the
assumed
issuance
of
potential
ordinary
shares.
The
denominator
for
diluted
earnings
per
share
is
a
computation
of
the
weighted-average
number
of
ordinary
shares
and
the
potential
dilutive
ordinary
shares
outstanding
during
the
period.
Potential
dilutive
shares
outstanding
include
the
dilutive
effect
of
in-the-money
options
and
unvestedrestricted
stock
units
(“RSUs”)
using
the
treasury
stock
method,
as
well
as
presumed
share
settlement
of
the
Company’s
deferred
payments
liability
and
other
retention
settlements
in
connection
with
the
acquisitions.F-15Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSRestructuringThe
Company
may
incur
restructuring
charges
in
connection
with
certain
initiatives
designed
to
adjust
the
Company's
cost
and
operating
structure
and
improve
efficiencies
across
the
Company
to
better
align
withthe
Company’s
long-term
strategic
initiatives
and
overall
market
conditions.
Restructuring
charges
include
employee
severance
and
associated
termination
costs
related
to
the
reduction
of
workforce,
costs
related
tofacilities
closures,
impairment
charges
of
long-lived
assets
and
contract
termination
costs.
Restructuring
charges
for
employees’
termination
costs
are
recognized
when
the
required
actions
to
execute
the
restructuringinitiative
were
performed
and
the
initiatives
are
probable
and
costs
are
estimable.
Restructuring
charges
for
facilities
and
contract
terminations
are
recognized
when
the
Company
ceased
using
the
rights
conveyed
bythe
contract.
Significant
judgments
and
estimates
are
involved
in
estimating
the
impact
of
restructuring
plans
on
the
Company’s
consolidated
financial
statements.
Actual
results
may
differ
materially
from
theseestimates.Business CombinationsThe
Company
allocates
the
fair
value
of
consideration
transferred
in
a
business
combination
to
the
assets
acquired,
liabilities
assumed,
and
non-controlling
interests
in
the
acquired
business
based
on
their
fairvalues
at
the
acquisition
date.
Acquisition-related
expenses
and
restructuring
costs
are
recognized
separately
from
the
business
combination
and
are
expensed
as
incurred.
The
excess
of
the
fair
value
of
theconsideration
transferred
plus
the
fair
value
of
any
non-controlling
interest
in
the
acquiree
over
the
fair
value
of
the
assets
acquired,
liabilities
assumed
in
the
acquired
business
is
recorded
as
goodwill.
The
fair
value
ofthe
consideration
transferred
may
include
a
combination
of
cash,
equity
securities,
earn
out
payments
and
deferred
payments.
The
allocation
of
the
consideration
transferred
in
certain
cases
may
be
subject
to
revisionbased
on
the
final
determination
of
fair
values
during
the
measurement
period,
which
may
be
up
to
one
year
from
the
acquisition
date.
The
cumulative
impact
of
revisions
during
the
measurement
period
is
recognizedin
the
reporting
period
in
which
the
revisions
are
identified.
The
Company
includes
the
results
of
operations
of
the
businesses
that
it
has
acquired
in
its
consolidated
results
prospectively
from
the
respective
dates
ofacquisition.The
Company
records
obligations
in
connection
with
its
business
combinations
at
fair
value
on
the
acquisition
date.
Each
reporting
period
thereafter,
the
Company
revalues
earn-out
payments
and
deferredpayments
which
are
classified
as
liabilities
and
records
the
changes
in
their
fair
value
in
the
consolidated
statements
of
operations
and
comprehensive
loss.Changes
in
the
fair
value
of
the
obligations
in
connection
with
its
business
combinations
can
result
from
adjustments
to
the
discount
rates,
the
Company’s
shares
price,
sales
and
profitability
targets.
These
fair
valuemeasurements
represent
Level
3
measurements,
as
they
are
based
on
significant
inputs
not
observable
in
the
market.
Significant
judgment
is
required
in
determining
the
assumptions
utilized
as
of
the
acquisition
dateand
for
each
subsequent
measurement
period.
Accordingly,
changes
in
the
assumptions
described
above
could
have
a
material
impact
on
the
Company’s
consolidated
results
of
operations.Redeemable Non-controlling InterestsNon-controlling
interests
with
embedded
redemption
features,
such
as
put
options,
whose
settlement
is
not
at
the
Company’s
discretion,
are
considered
redeemable
non-controlling
interests.
Redeemable
non-controlling
interests
are
considered
to
be
temporary
equity
and
are
therefore
presented
as
a
mezzanine
section
between
liabilities
and
equity
on
the
Company’s
consolidated
balance
sheets.
Redeemable
non-controllinginterests
are
measured
at
the
greater
of
the
initial
carrying
amount
adjusted
for
the
non-controlling
interest’s
share
of
comprehensive
income
or
loss
or
its
redemption
value.
Adjustments
of
redeemable
non-controllinginterest
to
its
redemption
value
are
recorded
through
additional
paid-in
capital.Concentration of Credit RiskFinancial
instruments
that
potentially
subject
the
Company
to
concentrations
of
credit
risk
consist
principally
of
short
term
bank
deposits,
cash
and
cash
equivalents,
trade
receivables,
investment
in
sales-typeleases
and
foreign
currency
exchange
forward
contracts.
Most
of
the
Company’s
cash
and
cash
equivalents
are
invested
in
U.S.
dollar
instruments
with
major
banks
in
the
U.S.,
Israel
and
Europe.
Management
believesthat
the
credit
risk
with
respect
to
the
financial
institutions
that
hold
the
Company’s
cash,
cash
equivalents
and
deposits
is
low.Concentration
of
credit
risk
with
respect
to
accounts
receivable
is
limited
due
to
the
relatively
large
number
of
customers
and
their
wide
geographic
distribution.
In
addition,
the
Company
seeks
to
mitigate
its
creditexposures
to
its
accounts
receivable
by
credit
limits,
credit
insurance,
ongoing
credit
evaluation
and
account
monitoring
procedures.F-16Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSReclassificationsCertain
reclassifications
have
been
made
to
the
prior
years’
financial
statements
to
conform
to
the
current
year
presentation.
These
reclassifications
had
no
net
effect
on
previously
reported
results
of
operations.Recently Issued Accounting PronouncementsIn
January
2017,
the
FASB
issued
an
ASU
which
eliminates
the
requirement
to
determine
the
implied
fair
value
of
the
reporting
unit’s
goodwill
by
measuring
the
reporting
unit’s
assets
and
liabilities
at
fair
value
ina
hypothetical
analysis
as
if
the
reporting
unit
was
acquired
in
a
business
combination,
as
part
of
the
second
step
of
goodwill
impairment
testing.
Under
the
new
guidance,
goodwill
impairment
testing
will
be
performedby
comparing
the
fair
value
of
the
reporting
unit
with
its
carrying
amount
and
recognizing
an
impairment
charge
for
the
amount
by
which
the
carrying
amount
exceeds
the
reporting
unit’s
fair
value.
The
new
ASU
iseffective
for
annual
and
interim
goodwill
impairment
tests
in
fiscal
years
beginning
after
December
15,
2019,
and
should
be
applied
on
a
prospective
basis.
Early
adoption
is
permitted
for
annual
or
interim
goodwillimpairment
testing
performed
after
January
1,
2017.
The
Company
is
currently
evaluating
the
impact
of
the
adoption
of
this
guidance
on
its
consolidated
financial
statements.In
November
2016,
the
FASB
issued
an
ASU
which
requires
entities
to
include
amounts
generally
described
as
restricted
cash
and
restricted
cash
equivalents
in
cash
and
cash
equivalents
when
reconcilingbeginning-of-period
and
end-of-period
total
amounts
shown
on
the
statement
of
cash
flows.
The
ASU
is
effective
for
annual
reporting
periods
(including
interim
periods
within
those
annual
reporting
periods)beginning
after
December
15,
2017.
Early
adoption
is
permitted
and
should
be
adopted
retrospectively.
The
Company
is
currently
evaluating
the
impact
of
the
adoption
of
this
guidance
on
its
consolidated
statements
ofcash
flows.In
October
2016,
the
FASB
issued
an
ASU
which
eliminates
the
exception
for
an
intra-entity
transfer
of
an
asset
other
than
inventory.
This
ASU
requires
that
the
income
tax
consequences
of
an
intra-entity
assettransfer
other
than
inventory
are
recognized
at
the
time
of
the
transfer,
rather
than
when
the
transferred
asset
is
sold
to
a
third
party
or
otherwise
recovered
through
use.
The
ASU
is
effective
for
annual
reporting
periods(including
interim
periods
within
those
annual
reporting
periods)
beginning
after
December
15,
2017.
Early
adoption
is
permitted
as
of
the
beginning
of
an
annual
reporting
period
(as
of
the
first
interim
period
if
anentity
issues
interim
financial
statements).
The
new
guidance
requires
adoption
on
a
modified
retrospective
basis
through
a
cumulative-effect
adjustment
directly
to
retained
earnings
as
of
the
beginning
of
the
period
ofadoption.
The
Company
is
currently
evaluating
the
impact
of
the
adoption
of
this
guidance
on
its
consolidated
financial
statements.In
March
2016,
the
FASB
issued
an
ASU
which
simplifies
certain
aspects
of
the
accounting
for
share-based
payments,
including
accounting
for
income
taxes,
classification
of
awards
as
either
equity
or
liabilities,classification
on
the
statement
of
cash
flows
as
well
as
allowing
an
entity-wide
accounting
policy
election
to
either
estimate
the
number
of
awards
that
are
expected
to
vest
or
account
for
forfeitures
as
they
occur.
TheASU
is
effective
for
annual
reporting
periods
(including
interim
periods
within
those
annual
reporting
periods)
beginning
after
December
15,
2016
and
all
amendments
of
the
ASU
that
apply
must
be
adopted
in
thesame
period.
The
Company
is
currently
evaluating
the
effect
that
adoption
of
this
ASU
will
have
on
its
consolidated
financial
statements.In
February,
2016,
the
FASB
issued
a
new
ASU
which
revises
lease
accounting
guidance.
Under
the
new
guidance,
lessees
will
be
required
to
recognize
a
right-of-use
asset
and
a
lease
liability
for
all
leases,
otherthan
leases
that
meet
the
definition
of
a
short-term
lease.
The
liability
and
the
right-of-use
asset
arising
from
the
lease
will
be
measured
as
the
present
value
of
the
lease
payments.
The
new
standard
is
effective
for
fiscalyear
beginning
after
December
15,
2018,
including
interim
periods
within
those
fiscal
years.
Early
adoption
is
permitted.
The
new
standard
must
be
adopted
using
a
modified
retrospective
transition
approach.
TheCompany
is
currently
evaluating
the
impact
of
the
adoption
of
the
new
lease
accounting
guidance
on
its
consolidated
financial
statements.In
May
2014,
the
FASB
issued
guidance
on
revenue
from
contracts
with
customers
that
will
supersede
the
current
revenue
recognition
guidance.
The
new
revenue
recognition
standard
provides
a
unified
model
todetermine
when
and
how
revenue
is
recognized.
The
core
principle
of
the
new
revenue
recognition
standard
is
that
an
entity
should
recognize
revenue
to
depict
the
transfer
of
promised
goods
or
services
to
customers
inan
amount
that
reflects
the
consideration
to
which
the
entity
expects
to
be
entitled
in
exchange
for
those
goods
or
services.
The
new
revenue
recognition
standard
is
effective
for
annual
reporting
periods
beginning
afterDecember
15,
2017,
including
interim
periods
within
that
reporting
period.
Early
adoption
is
permitted
for
annual
reporting
periods
beginning
after
December
15,
2016.
This
standard
may
be
applied
retrospectively
toeach
prior
period
presented
(“full
retrospective
approach”)
or
retrospectively
with
the
cumulative
effect
recognized
as
of
the
date
of
adoption
(“modified
retrospective
approach”).
The
Company
has
developed
a
projectplan
to
analyze
the
potential
impact
this
guidance
will
have
on
its
consolidated
financial
statements
and
related
disclosures
as
well
as
its
business
processes,
systems
and
controls.
This
includes
reviewing
revenuecontracts
across
all
revenue
streams
and
evaluates
potential
differences
that
would
result
from
applying
the
requirements
under
the
new
guidance.
Based
on
the
analysis
conducted
to
date,
the
Company
expects
to
adoptthis
standard
using
the
modified
retrospective
approach
and
is
still
currently
evaluating
the
impact
of
the
adoption
of
this
standard
on
its
consolidated
financial
statements.F-17Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 2. Acquisitions and Other Significant Business ActivitiesYear
ended
December
31,
2016Investment in associated companyIn
June
2016,
the
Company
made
an
additional
investment
in
the
equity
interests
of
a
third
party
entity
which
offers
AM
solutions.
The
Company
increased
its
interest
in
the
third
party
entity
from
10%
toapproximately
40%
and
has
the
ability
to
exercise
significant
influence
over
the
third
party
entity
and
therefore
accounts
for
this
investment
under
the
equity
method
of
accounting.
This
investment
is
presented
as
othernon-current
asset
in
the
Company’s
consolidated
balance
sheets.Borrowing AgreementIn
December
2016,
the
Company
entered
into
a
secured
loan
agreement
with
Bank
Hapoalim
Ltd
(the
“Bank
Loan”).
Pursuant
to
the
Bank
Loan
the
Company
borrowed
$26
million
initially
and
secured
a
credit
linefor
an
additional
$24
million
(the
“Credit
Line”).
The
Bank
Loan
will
mature
in
December
2023
and
is
payable
in
equal
consecutive
quarterly
principal
installments
of
principal
and
accrued
interest.
The
repayment
ofthe
Bank
Loan
was
secured
by
a
first
priority
lien
in
the
name
of
the
lender
on
all
of
the
Company’s
rights
to
its
new
headquarters
property
in
Rehovot,
Israel
and
it
contains
certain
subjective
acceleration
clauses.
TheBank
Loan
bears
interest
at
the
rate
of
LIBOR
plus
3.35%.
As
of
December
31,
2016,
the
Company
had
not
utilized
the
Credit
Line.Year
ended
December
31,
2015Transaction in ChinaOn
February
10,
2015,
the
Company
acquired
in
consideration
for
cash
certain
assets
and
assumed
certain
liabilities
of
Intelligent
CAD/CAM
Technology
Ltd.,
a
Hong
Kong
company.
This
acquisition
was
aimedto
enable
the
Company
expand
its
operations
in
the
Chinese
market.Financial
information
giving
effect
to
this
business
combination
has
not
been
provided,
as
the
acquisition
is
not
material.New Facility in IsraelIn
April
2015,
the
Company
purchased
the
rights
to
land
and
a
new
building
complex
under
construction
in
Rehovot,
Israel
(the
“new
Rehovot
Property”).
The
new
Rehovot
Property
includes
approximately
26,300square
meters
(approximately
283,900
square
feet)
of
new
buildings
complex
under
construction
and
additional
building
rights
for
approximately
21,800
square
meters
(approximately
235,400
square
feet).
The
newRehovot
Property,
which
will
contain
two
buildings,
houses
the
Company’s
Israeli
headquarters,
research
and
development
facilities
and
certain
marketing
activities.
The
Company
entered
into
the
first
building
of
itsnew
Rehovot
Property
during
January,
2017.
As
of
December
31,
2016
the
Company
invested
in
the
new
Rehovot
Property
and
its
related
equipment
approximately
$58.4
million.Restructuring planIn
April
2015,
the
Company
initiated
certain
restructuring
actions
that
are
intended
to
focus
efforts
on
adjusting
its
cost
and
operating
structure
to
better
align
with
the
market
environment,
improving
and
iteratingproducts,
developing
new
3D
printing
solutions
and
expanding
its
presence
in
the
market.
These
restructuring
actions
included
a
reduction
in
the
Company’s
global
workforce,
consolidation
of
certain
facilities,
closingof
three
retail
stores
and
other
actions
designed
to
streamline
the
Company’s
operations
and
better
position
itself
for
market
penetration.During
2015
the
Company
incurred
restructuring
charges
of
$26.2
million,
including
$10.4
million
charges
related
to
workforce
reductions
and
$15.8
million
charges
related
to
facilities
consolidation
(primarilyMakerBot’s
facilities),
impairments
of
associated
long-lived
assets
and
other
related
costs.
$9.9
million,
$1.5
million
and
$14.8
million
of
these
restructuring
charges
were
included
in
cost
of
sales,
research
anddevelopment,
net
and
selling,
general
and
administrative
expenses,
respectively.
Payments
for
one-time
termination
benefits
in
connection
with
these
initiatives
were
substantially
completed
in
2016.During
2016,
the
Company
continued
to
rationalize
its
business
and
executed
specific
actions
in
order
to
achieve
its
strategic
objectives
and
to
improve
operating
efficiencies
in
light
of
the
ongoing
marketenvironment.
The
Company
incurred
charges
of
$6.6
million
in
connection
with
these
initiatives.F-18Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSRTC Rapid Technologies TransactionOn
July
1,
2015
the
Company
acquired
in
consideration
for
cash
100%
of
the
outstanding
shares
of
RTC
Rapid
Technologies
GmbH
(“RTC”),
which
is
a
key
channel
partner
in
Germany.
This
acquisition
wasaimed
to
strengthen
the
Company’s
presence
in
Germany,
Switzerland
and
Austria,
and
enable
the
Company
to
offer
full
suite
of
Stratasys
3D
printing
solutions
and
services
to
the
installed
base
of
RTC.Financial
information
giving
effect
to
this
business
combination
has
not
been
provided
as
the
acquisition
is
not
material.Termination of Credit FacilityIn
September
2015,
the
Company
terminated
its
$250
million
five-year
revolving
credit
facility
under
the
credit
agreement,
dated
November
7,
2013,
with
Bank
of
America,
N.A.,
or
BofA,
as
administrative
agentand
swing
line
lender,
and
the
other
lenders
party
thereto
(the
“Revolving
Credit
Facility”).
In
connection
with
the
termination
of
the
Revolving
Credit
Facility,
the
Company
repaid
all
of
its
outstanding
short-term
debtthereunder,
in
an
amount
of
approximately
$175
million.
That
payment
was
made
from
the
Company’s
available
cash
balances.
As
a
result
of
the
termination
of
its
short-term
debt
under
the
Revolving
Credit
Facility,the
Company
recorded
additional
financial
expense
of
$2.7
million
which
included
write-off
of
unamortized
deferred
issuance
costs
and
fees
paid
for
certain
creditors
and
other
third
parties.Year
ended
December
31,
2014Solid Concepts TransactionOn
July
14,
2014
(the
“Solid
Concepts
transaction
date”),
the
Company
completed
the
acquisition
of
100%
of
the
outstanding
shares
of
Solid
Concepts
Inc.
(“Solid
Concepts”),
an
independent
additivemanufacturing
service
bureau
for
total
consideration
of
approximately
$185.4
million.
This
transaction
has
enabled
the
Company
to
expand
its
existing
digital
manufacturing
printed
parts
services
and
to
create
aleading
strategic
platform
to
meet
a
broad
range
of
customers’
additive
manufacturing
needs
and
provide
opportunities
to
leverage
manufacturing
services
capabilities.In
exchange
for
100%
of
the
outstanding
shares
of
Solid
Concepts,
the
Company
issued
978,601
ordinary
shares,
paid
cash
upon
closing
and
was
obligated
to
pay
an
additional
holdback
cash
payment
deferred
forsix
months,
which
was
paid
in
January
2015.
In
addition,
the
Company
is
obligated
to
pay
additional
deferred
payments
in
three
separate
annual
installments
after
the
Solid
Concepts
transaction
date
(“Deferredpayments”).
Subject
to
certain
requirements
for
cash
payments,
the
Company
retains
the
discretion
to
settle
the
Deferred
payments
in
its
shares,
cash
or
any
combination
of
the
two.
The
Deferred
payments
are
alsosubject
to
certain
adjustments
based
on
the
Company’s
share
price.
The
first
and
second
annual
installments
of
the
Deferred
payments
were
settled
during
the
third
quarter
of
2015
and
2016,
respectively.The
Solid
Concepts
transaction
was
accounted
for
in
accordance
with
ASC
Topic
805,
“Business
Combinations”,
using
the
acquisition
method
of
accounting
with
the
Company
as
the
acquirer.
The
following
tablesummarizes
the
fair
value
of
the
consideration
transferred
to
Solid
Concepts
stockholders
for
the
Solid
Concepts
transaction:U.S. $ in thousandsIssuance
of
ordinary
shares$97,869Cash
paid
upon
closing40,130Holdback
amount3,839Deferred
payments43,576Total
fair
value
of
consideration
transferred$




185,414The
fair
value
of
the
ordinary
shares
issued
was
determined
based
on
the
closing
market
price
of
the
Company’s
ordinary
shares
on
the
Solid
Concepts
transaction
date.The
Deferred
payments
are
recognized
as
liabilities
at
fair
value
in
the
Company’s
consolidated
balance
sheets
and
are
classified
as
short-term
and
long-term
obligations
in
connection
with
acquisitions.
The
fairvalue
of
the
Deferred
payments
was
determined
based
on
the
closing
market
price
of
the
Company’s
ordinary
shares
on
the
Solid
Concepts
transaction
date,
adjusted
to
reflect
a
discount
for
lack
of
marketability
for
theapplicable
periods.
The
discount
for
lack
of
marketability
was
calculated
based
on
the
historical
volatility
of
the
Company’s
share
price
and
thus
represents
a
Level
3
measurement
within
the
fair
value
hierarchy.F-19Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDuring
the
third
quarter
of
2016,
the
Company
issued
152,633
ordinary
shares
valued
at
$3.1
million
and
paid
cash
of
$0.4
million
to
settle
the
second
annual
installment
of
the
Deferred
payments.
During
the
thirdquarter
of
2015,
the
Company
issued
118,789
ordinary
shares
valued
at
$4.1
million
and
paid
cash
of
$0.9
million
to
settle
the
first
annual
installment
of
the
Deferred
payments.
As
of
December
31,
2016
the
fair
valueof
the
remaining
Deferred
payment
was
$2.6
million.
As
of
December
31,
2016,
the
total
amount
of
the
remaining
deferred
payments,
which
does
not
reflect
a
discount
for
lack
of
marketability,
was
approximately
$2.8million,
based
on
the
Company’s
share
price
as
of
that
date.The
fair
value
of
the
Deferred
payments
is
primarily
linked
to
the
Company’s
share
price.
An
increase
of
10%
in
the
Company’s
share
price
as
of
December
31,
2016
would
have
increased
the
fair
value
of
theremaining
deferred
payments
by
$0.3
million.In
addition,
changes
in
Level
3
inputs
that
were
used
in
the
fair
value
calculation
might
change
the
fair
value
of
the
deferred
payments.
A
decrease
of
10%
in
the
Company’s
share
price
volatility
used
in
thecalculation
for
discount
for
lack
of
marketability
as
of
December
31,
2016
would
increase
the
fair
value
of
the
Company’s
Deferred
payments
liability
by
approximately
$0.2
million.During
the
years
ended
December
31,
2016,
2015
and
2014,
the
Company
recorded
a
gain
of
$0.9
million,
$23.7
million
and
$7.9
million,
respectively,
due
to
the
revaluation
of
the
Deferred
payments
underChange
in
fair
value
of
obligations
in
connection
with
acquisitions
in
the
Company’s
consolidated
statements
of
operations
and
comprehensive
loss.Under
the
terms
of
the
definitive
agreement,
certain
of
Solid
Concepts’
employees
may
also
qualify
for
retention-related
and
other
payments
of
$77.0
million,
based
on
the
Company’s
share
price
as
of
the
SolidConcepts
transaction
date,
of
which,
$19.6
million
was
paid
in
cash
upon
closing
and
was
expensed
as
incurred
during
the
third
quarter
of
2014.
The
remaining
retention
payments
will
be
paid
in
three
separate
annualinstallments
(“deferred
retention
payments”).The
first
and
second
annual
installments
of
the
deferred
retention
payments
were
settled
during
the
third
quarter
of
2015
and
2016,
respectively.
During
the
third
quarter
of
2015,
the
Company
issued
117,611ordinary
shares
valued
at
$4.1
million
and
paid
cash
of
$2.8
million
to
settle
the
first
annual
installment
of
the
deferred
retention
payments.
During
the
third
quarter
of
2016,
the
Company
issued
103,112
ordinaryshares
valued
at
$2.1
million
and
paid
cash
of
$1.9
million
to
settle
the
second
annual
installment
of
the
deferred
retention
payments.
Based
on
the
Company’s
share
price
as
of
December
31,
2016,
the
total
remainingdeferred
retention
payments
will
amount
to
approximately
$3.5
million.The
Company
recorded
an
expense
of
$0.9
million,
a
gain
of
$0.1
million
and
an
expense
of
$13.1
million
for
the
years
ended
December
31,
2016,
2015
and
2014,
respectively,
in
connection
with
the
deferredretention
payments
liability.Subject
to
certain
requirements
for
cash
payments,
the
Company
retains
the
discretion
to
settle
any
of
the
amounts
payable
under
the
definitive
agreement
in
its
shares,
cash
or
any
combination
of
the
two.
Theseamounts
are
also
subject
to
certain
adjustments
based
on
the
Company’s
share
price.In
addition
to
the
payments
described
above,
the
Company
incurred
approximately
$2.9
million
of
costs
related
to
the
Solid
Concepts
transaction
that
were
expensed
during
2014.
These
costs
are
included
in
selling,general
and
administrative
costs
in
the
Company’s
consolidated
statements
of
operations
and
comprehensive
income.The
following
table
summarizes
the
estimated
fair
values
of
the
assets
acquired
and
liabilities
assumed
at
the
Solid
Concepts
transaction
date,
prior
to
goodwill
and
other
intangibles
impairment.
The
allocation
ofthe
purchase
price
to
assets
acquired
and
liabilities
assumed
was
as
follows:Allocation of PurchasePrice(U.S. $ in thousands)Cash
and
cash
equivalents$3,225Accounts
receivable7,995Inventories2,391Other
assets2,962Property,
plant
and
equipment13,952Other
intangible
assets38,320Goodwill125,433Total
assets
acquired194,278Accounts
payable3,055Accrued
expenses
and
other
current
liabilities5,290Total
liabilities
assumed8,345Non
controlling
interest519Net
assets
acquired$185,414F-20Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe
allocation
of
the
purchase
price
to
the
net
assets
acquired
and
liabilities
assumed
resulted
in
the
recognition
of
intangible
assets
of
$38.3
million,
which
were
mainly
related
to
customer
relationships.
Theseintangible
assets
had
a
weighted
average
useful
life
of
approximately
6.6
years.The
fair
values
of
the
customer
relationships
were
estimated
using
a
discounted
cash
flow
method
with
the
application
of
the
multi-period
excess
earnings
method.
Under
this
method,
an
intangible
asset’s
fair
valueis
equal
to
the
present
value
of
the
incremental
after-tax
cash
flows
attributable
only
to
the
subject
intangible
asset
after
deducting
contributory
asset
charges.The
useful
life
of
the
intangible
assets
for
amortization
purposes
was
determined
considering
the
period
of
expected
cash
flows
used
to
measure
the
fair
value
of
the
intangible
assets
adjusted
as
appropriate
for
theentity-specific
factors,
including
legal,
regulatory,
contractual,
competitive,
economic
or
other
factors
that
may
limit
the
useful
life
of
intangible
assets.During
the
year
ended
December
31,
2015,
the
Company
recorded
impairment
charges
of
$12.4
million
in
order
to
reduce
the
carrying
amount
of
intangible
assets
related
to
customer
relationships
to
their
estimatedfair
value.
During
the
year
ended
December
31,
2016,
the
Company
recorded
additional
impairment
charges
of
$9.9
million
in
order
to
reduce
the
carrying
amount
of
these
intangible
assets
to
their
estimated
fair
value.As
a
result,
the
remaining
weighted
average
useful
of
the
intangible
assets
related
to
customer
relationships
was
changed
to
6.0
years.
For
further
information
refer
to
note
8.The
goodwill
recognized
as
a
result
of
the
Solid
Concepts
transaction
is
attributable
primarily
to
the
strategic
and
synergistic
opportunities
in
the
entry-level
portion
of
the
additive
manufacturing
spectrum,
cross-selling
synergies,
expanded
solutions
portfolio,
assembled
workforce
and
economies
of
scale.
The
related
goodwill
and
intangible
assets
are
deductible
for
tax
purposes.
During
the
year
ended
December
31,
2015,
theCompany
recorded
an
impairment
charge
in
order
to
reduce
the
carrying
amount
of
Solid
Concepts’
goodwill
to
its
implied
fair
value.
As
a
result,
as
of
December
31,
2015,
there
were
no
remaining
goodwill
balanceassigned
to
Solid
Concepts.
For
further
information
refer
to
note
7.The
unaudited
pro
forma
condensed
financial
results
have
been
prepared
using
the
acquisition
method
of
accounting
and
are
based
on
the
historical
financial
information
of
the
Company
and
Solid
Concepts.
Theunaudited
pro
forma
condensed
financial
results
have
been
prepared
for
illustrative
purposes
only
and
do
not
purport
to
be
indicative
of
the
results
of
operations
that
actually
would
have
resulted
had
the
acquisition
ofSolid
Concepts
occurred
on
January
1,
2013,
or
of
future
results
of
the
combined
entities.
The
unaudited
pro
forma
condensed
financial
information
does
not
reflect
any
operating
efficiencies
and
expected
realization
ofcost
savings
or
synergies
associated
with
the
acquisition.Unaudited
supplemental
pro
forma
combined
results
of
operations:Year ended December 31, 2014(U.S. $ in thousands, exceptper share data)Net
sales$785,385Net
loss
attributable
to
Stratasys
Ltd.







































(106,924)Net
loss
per
ordinary
share
attributable
to
Stratasys
Ltd.-
basic
and
diluted$(2.12)Adjustments
for
the
unaudited
supplemental
pro
forma
combined
results
of
operations
are
as
follows:Year ended December 31, 2014(U.S.
$
in
thousands)Adjustments
due
to
amortization
of
intangibles$2,261Adjustments
due
to
retention
bonuses(266)Adjustments
due
to
expenses
related
to
business
combination











































(26,012)Adjustments
due
to
financial
expenses
related
to
Solid
Concepts




debts(406)Taxes
related
adjustments
to
the
supplemental
pro
forma10,513$(13,910)Solid
Concepts’
results
of
operations
were
included
in
the
Company’s
consolidated
statements
of
operations
and
comprehensive
income
loss
commencing
July
14,
2014.
Due
to
the
full
integration
of
SolidConcepts’
operations
to
the
Company’s
direct
manufacturing
service
operations
it
is
impracticable
to
present
the
amounts
of
revenues
and
earnings
of
Solid
Concepts
since
the
acquisition
date
in
the
consolidatedstatements
of
operations
and
comprehensive
loss
for
the
period
commencing
July
14,
2014
through
December
31,
2014.F-21Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSGrabCAD transactionOn
September
22,
2014,
the
Company
acquired
100%
of
the
outstanding
shares
of
GrabCAD
Inc.
(“GrabCAD”),
which
operates
GrabCAD
Workbench,
a
cloud
based
3D
computer
aided-design
(“CAD”)collaboration
platform
enabling
engineering
teams
to
manage,
share
and
view
CAD
files
as
well
as
enhancing
collaboration
tools
and
improving
accessibility
relating
to
3D
CAD
content.The
acquisition
of
GrabCAD
was
aimed
to
contribute
accelerated
innovation
and
increased
value
to
a
growing
universe
of
customers
seeking
to
utilize
3D
printing
solutions
in
the
3D
ecosystem.Under
the
terms
of
the
definitive
agreement
with
GrabCAD,
certain
of
GrabCAD’s
employees
may
also
qualify
for
certain
retention-related
payments.Harvest transactionOn
August
1,
2014,
the
Company
acquired
100%
of
the
outstanding
shares
of
Harvest
Technologies
Inc.
(“Harvest”),
a
specialty
additive
manufacturing
service
bureau.
The
consideration
was
primarily
paid
in
theCompany’s
shares
and
the
remaining
balance
will
be
paid
in
cash.This
transaction,
together
with
the
Solid
Concepts
transaction
was
aimed
to
enable
the
Company
to
expand
its
existing
digital
manufacturing
printed
parts
services
and
to
enhance
its
expertise
in
parts
production,
aswell
as
materials
and
systems
know-how.
Under
the
terms
of
the
definitive
agreement
with
Harvest,
certain
of
Harvest’s
employees
may
also
qualify
for
certain
retention-related
payments.Financial
information
giving
effect
to
this
business
combination
has
not
been
provided
as
the
acquisition
is
not
material.MakerBot Europe transactionOn
August
1,
2014
the
Company
acquired
certain
assets
and
liabilities
of
HAFNER’S
BÜRO,
which
is
MakerBot’s
reseller
in
Germany.
This
acquisition
enabled
the
Company
to
expand
its
desktop
3D
printingoperations
throughout
the
European
market.The
Company
accounted
for
this
transaction
as
a
business
combination.
The
acquisition
consideration
was
attributed
to
net
assets
on
the
basis
of
the
fair
value
of
assets
acquired
and
liabilities
assumed
based
on
anappraisal
performed
by
management,
which
included
a
number
of
factors,
including
the
assistance
of
independent
appraisers.Financial
information
giving
effect
to
this
business
combination
has
not
been
provided
as
the
acquisition
is
not
material.Interfacial Solutions transactionIn
April
2014,
the
Company
acquired
certain
assets
and
liabilities
of
Interfacial
Solutions
LLC
(“Interfacial
Solutions”),
a
privately
held
provider
of
thermoplastics
research
and
development
and
productionservices.
This
transaction
was
designed
to
strengthen
the
Company’s
materials
research
and
development
skills
and
enable
it
to
become
vertically
integrated
in
material
development
and
manufacturing
and
alsoincrease
materials
production
space
and
capacity.The
Company
accounted
for
this
transaction
as
a
business
combination.
The
acquisition
consideration
was
attributed
to
net
assets
on
the
basis
of
the
fair
value
of
assets
acquired
and
liabilities
assumed
based
on
anappraisal
performed
by
management,
which
included
a
number
of
factors,
including
the
assistance
of
independent
appraisers.Financial
information
giving
effect
to
this
business
combination
has
not
been
provided
as
the
acquisition
is
not
material.F-22Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 3. Fair Value MeasurementThe
following
tables
summarize
the
Company’s
financial
assets
and
liabilities
that
are
carried
at
fair
value
on
a
recurring
basis,
by
fair
value
hierarchy,
in
its
consolidated
balance
sheets:December 31, 2016(U.S.
$
in
thousands)Level 2Level 3TotalAssets:






Foreign
exchange
forward
contracts
not























designated
as
hedging
instruments$




1,440$




-$




1,440






Foreign
exchange
forward
contracts













designated
as
hedging
instruments37-37
Liabilities:






Foreign
exchange
forward
contracts
not













designated
as
hedging
instruments(48)-(48)






Foreign
exchange
forward
contracts













designated
as
hedging
instruments(61)-(61)






Obligations
in
connection
with
acquisitions-(2,619)(2,619)$1,368$(2,619)$(1,251)
December 31, 2015(U.S.
$
in
thousands)Level 2Level 3TotalAssets:






Foreign
exchange
forward
contracts
not













designated
as
hedging
instruments$866$
-$866






Foreign
exchange
forward
contracts













designated
as
hedging
instruments23-23
Liabilities:






Foreign
exchange
forward
contracts
not













designated
as
hedging
instruments(432)-(432)






Foreign
exchange
forward
contracts













designated
as
hedging
instruments(131)-(131)






Obligations
in
connection
with
acquisitions-(6,991)(6,991)$326$(6,991)$(6,665)The
Company’s
foreign
exchange
forward
contracts
are
classified
as
Level
2,
as
they
are
not
actively
traded
and
are
valued
using
pricing
models
that
use
observable
market
inputs,
including
interest
rate
curves
andboth
forward
and
spot
prices
for
currencies
(Level
2
inputs).Other
financial
instruments
consist
mainly
of
cash
and
cash
equivalents,
current
and
non-current
receivables,
net
investment
in
sales-type
leases,
bank
loan,
accounts
payable
and
other
current
liabilities.
The
fairvalue
of
these
financial
instruments
approximates
their
carrying
values.The
following
table
is
a
reconciliation
of
the
change
for
those
financial
liabilities
where
fair
value
measurements
are
estimated
utilizing
Level
3
inputs,
which
consist
of
obligations
in
connection
with
acquisitions:2016



2015(U.S.
$
in
thousands)Fair
value
as
of
January
1,$




6,991$




35,656Settlements(3,500)(4,994)Change
in
fair
value
recognized
in
earnings(872)(23,671)Fair
value
as
of
December
31,$2,619$6,991F-23Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe
Company’s
settlements
during
2016
and
2015
of
the
obligations
in
connection
with
acquisitions
are
related
to
the
deferred
payments
for
the
Solid
Concepts
transaction.
Change
in
fair
value
recognized
inearnings
during
2016
includes
an
unrealized
gain
of
approximately
$0.7
million
and
a
realized
gain
of
$0.1
million
due
to
revaluation
of
the
deferred
payments
in
connection
with
the
Solid
Concepts
transaction.Change
in
fair
value
recognized
in
earnings
during
2015
includes
approximately
$17.5
million
unrealized
gain
and
a
realized
gain
of
$6.2
million
due
to
revaluation
of
the
deferred
payments
in
connection
with
theSolid
Concepts
transaction.
For
further
information
on
these
obligations
refer
to
note
2.Note 4. InventoriesInventories
consisted
of
the
following:December 31,December 31,2016




2015(U.S.
$
in
thousands)Finished
goods$




62,728$




82,219Work-in-process2,3892,944Raw
materials52,40438,495$117,521$123,658Note 5. Net Investment in Sales-type LeasesThe
Company’s
net
investment
in
sales-type
leases
consisted
of
the
following:December 31,December 31,20162015(U.S.
$
in
thousands)Future
minimum
lease
payments
receivable$










25,910




$










31,858Less
allowance
for
doubtful
accounts(844)(682)Net
future
minimum
lease
payment
receivable25,06631,176Less
unearned
interest
income(1,223)(1,687)Net
investment
in
sales-type
leases$23,843$29,489Future
minimum
lease
payments
due
from
customers
under
sales-type
leases
as
of
December
31,
2016
were
as
follows:Year ending December 31,U.S. $ in thousands2017$13,28320187,76220193,21720201,2912021
and
thereafter357$25,910The
interest
income
for
sales-type
leases
is
recorded
in
financial
expense,
net
and
amounted
to
approximately
$1.0
million,
$1.0
million
and
$0.8
million
for
the
years
ended
December
31,
2016,
2015
and
2014,respectively.F-24Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 6. Property, Plant and EquipmentProperty,
plant
and
equipment,
net
consisted
of
the
following:December 31,December 31,2016




2015(U.S.
$
in
thousands)Machinery
and
equipment$







128,187$







114,049Buildings
and
improvements121,970104,818Computer
equipment
and
software48,91748,249Office
equipment,
furniture
and
fixtures16,39316,400Land19,59119,674335,058303,190Accumulated
depreciation(131,327)(111,348)203,731191,842Construction
work
in
progress4,68410,092$208,415$201,934Depreciation
expenses
were
$33.8
million,
$33.4
million
and
$26.2
million
in
the
years
ended
December
31,
2016,
2015
and
2014,
respectively.During
the
year
ended
December
31,
2016,
the
Company
recorded
impairment
charges
of
$7.0
million,
related
to
certain
of
its
property
and
equipment
assets,
of
which
$5.1
million
were
related
to
the
Company’ssoftware
assets
and
were
classified
as
selling,
general
and
administrative
expenses.
The
impairment
charges
were
determined
due
to
changes
in
management’s
long-term
plans
regarding
the
expected
utilization
of
theseassets.
During
the
year
ended
December
31,
2015,
the
Company
recorded
impairment
charges
of
$10.5
million,
related
to
certain
of
its
facilities
in
the
United
States.Note 7. GoodwillChanges
in
the
carrying
amount
of
the
Company’s
goodwill
for
the
years
ended
December
31,
2016
and
2015
were
as
follows:20162015(U.S. $ in millions)Goodwill
as
of
January
1,$




383.9




$




1,323.5Goodwill
impairment
charges-(942.4)Goodwill
acquired-5.4Translation
differences1.7(2.7)Goodwill
as
of
December
31,$385.6$383.9During
the
fourth
quarter
of
2016,
the
Company
performed
a
quantitative
assessment
for
goodwill
impairment
for
its
Stratasys-Objet
reporting
unit.Following
its
quantitative
assessment,
the
Company
concluded
that
the
fair
value
of
Stratasys-Objet
reporting
unit
exceeds
its
carrying
amount
by
approximately
5%
,
with
a
carrying
amount
of
goodwill
assigned
tothis
reporting
unit
in
the
amount
of
$386
million.When
evaluating
the
fair
value
of
Stratasys-Objet
reporting
unit
the
Company
used
a
discounted
cash
flow
model
which
utilized
Level
3
measures
that
represent
unobservable
inputs
into
our
valuation
method.
Keyassumptions
used
to
determine
the
estimated
fair
value
include:
(a)
expected
cash
flow
for
5
years
following
the
assessment
date
which
(including
expected
revenue
growth,
costs
to
produce,
operating
profit
marginsand
estimated
capital
needs);
(b)
an
estimated
terminal
value
using
a
terminal
year
growth
rate
of
3.1%
determined
based
on
the
growth
prospects
of
the
reporting
unit;
and
(c)
a
discount
rate
of
14.0%
based
onmanagement’s
best
estimate
of
the
after-tax
weighted
average
cost
of
capital.
If
any
of
these
were
to
vary
materially
from
our
plans,
we
could
face
impairment
of
goodwill
allocated
to
this
reporting
unit
in
the
future.F-25Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSA
hypothetical
decrease
in
the
growth
rate
of
1%
or
an
increase
of
1%
to
the
discount
rate
would
reduce
the
fair
value
of
Stratasys-Objet
reporting
unit
by
approximately
$46
million
and
$83
million,
respectively
,and
could
trigger
a
potential
impairment
of
its
goodwill.Based
on
the
Company’s
assessment
as
of
December
31,
2016,
no
goodwill
was
determined
to
be
impaired.Determining
the
fair
value
of
Stratasys-Objet
reporting
unit
requires
significant
judgment,
including
judgments
about
the
appropriate
discount
rates,
terminal
growth
rates,
weighted
average
costs
of
capital
and
theamount
and
timing
of
projected
future
cash
flows.
The
Company
will
continue
to
monitor
the
fair
value
of
its
Stratasys-Objet
reporting
unit
to
determine
whether
events
and
changes
in
circumstances
such
as
furtherdeterioration
in
the
business
climate
or
operating
results,
further
significant
decline
in
our
share
price,
changes
in
management’s
business
strategy
or
downward
changes
of
our
cash
flows
projections,
warrant
furtherinterim
impairment
testing.Goodwill
impairment
charges
for
the
year
ended
December
31,
2015During
2015,
the
Company
determined
that
certain
indicators
of
potential
impairment
existed
that
required
interim
goodwill
impairment
analysis.
Accordingly,
the
Company
performed
a
quantitative
two-stepassessment
for
goodwill
impairment
for
each
of
its
reporting
units
as
described
below.During
the
first
quarter
of
2015,
the
Company
performed
a
quantitative
assessment
for
goodwill
impairment
for
its
MakerBot
reporting
unit.
The
indicators
for
the
quantitative
assessment
for
goodwill
impairmentfor
the
MakerBot
reporting
unit
included
a
decrease
in
MakerBot’s
operating
results
in
the
first
quarter
of
2015
as
compared
to
the
fourth
quarter
of
2014
and
below
the
Company’s
previous
projections,
as
well
aslower
forecasted
profitability
due
to
increasing
competition
and
other
deteriorated
trends
in
the
3D
desktop
market.
The
Company
updated
its
Makerbot
reporting
unit
cash
flow
projections
and
related
assumptionsbased
on
the
indicators
mentioned
above
and
performed
the
two-step
goodwill
impairment
test.
The
updated
MakerBot
reporting
unit’s
impairment
analysis
performed
as
part
of
step
two
of
the
goodwill
impairmenttest
determined
that
the
carrying
amount
of
goodwill
assigned
to
the
MakerBot
reporting
unit
exceeded
its
implied
fair
value.
As
a
result,
the
Company
recorded
a
non-tax
deductible
impairment
charge
of
$150.4million,
in
order
to
reduce
the
carrying
amount
of
goodwill
to
its
implied
fair
value.During
the
third
quarter
of
2015,
the
Company
determined
that
additional
indicators
of
potential
impairment
existed
that
required
an
interim
goodwill
impairment
analysis
for
all
of
its
reporting
units.
Theseindicators
included
a
further
significant
decline
in
the
Company’s
market
capitalization
for
a
sustained
period
and
weaker
than
expected
operating
results
of
its
reporting
units
for
the
third
quarter
of
2015.
Theseindicators
along
with
certain
reorganization
initiatives
for
the
Company’s
operations
and
the
increased
uncertainty
in
the
3D
printing
environment
resulted
in
changes
of
the
Company’s
near-term
cash
flowsprojections.
The
lower
near-term
cash
flows
projections
reflected
changes
in
assumptions
related
to
organic
revenue
growth
rates,
negative
effect
of
exchange
rate
differences,
costs
and
operating
structure,
the
expectedtiming
of
synergies
resulted
from
acquisitions
and
the
timing
of
utilization
of
strategic
opportunities
in
light
of
the
overall
weakness
in
the
uncertain
3D
printing
marketplace.
Accordingly,
the
Company
updated
itscash
flow
projections
and
related
assumptions
based
on
the
indicators
set
forth
above
for
each
of
its
reporting
units
and
performed
a
two-step
goodwill
impairment
test
which
was
completed
during
the
fourth
quarter
of2015.
The
impairment
analysis
performed
as
part
of
the
step
two
of
the
goodwill
impairment
test
determined
that
the
carrying
amount
of
goodwill
assigned
exceeded
its
implied
fair
value
for
each
of
the
Company’sreporting
units.
Therefore,
the
Company
recorded
impairment
charges
in
a
total
amount
of
$792.0
million
in
order
to
reduce
the
carrying
amount
of
goodwill
to
its
implied
fair
value
for
each
of
its
reporting
units.As
of
December
31,
2015,
the
remaining
goodwill
balance
was
assigned
to
the
Stratasys-Objet
reporting
unit
and
there
was
no
remaining
goodwill
balance
assigned
to
the
Company’s
other
reporting
units.Goodwill
impairment
charges
for
the
year
ended
December
31,
2014During
December
2014,
the
Company
determined
that
certain
indicators
of
potential
impairment
existed
to
require
an
additional
interim
goodwill
impairment
analysis
for
its
MakerBot
reporting
unit.
The
Companyupdated
its
cash
flow
projections
and
related
assumptions
based
on
the
indicators
mentioned
above
and
performed
the
two-step
goodwill
impairment
test.
The
updated
MakerBot
reporting
unit’s
impairment
analysisperformed
as
part
of
step
two
of
the
goodwill
impairment
test
determined
that
the
carrying
amount
of
goodwill
assigned
to
the
MakerBot
reporting
unit
exceeded
its
fair
value.
As
a
result,
the
Company
recorded
a
non-tax
deductible
impairment
charge
of
$102.5
million,
in
order
to
reduce
the
carrying
amount
of
goodwill
to
its
implied
fair
value.F-26Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 8. Other Intangible AssetsOther
intangible
assets
consisted
of
the
following:December 31, 2016December 31, 2015Carrying Amount,NetCarrying Amount,NetNet ofAccumulatedBookNet ofAccumulatedBookImpairmentAmortizationValueImpairmentAmortizationValueU.S. $ in thousandsDeveloped
technology$


304,766$


(198,632)$


106,134$


306,657$

(157,862)$

148,795Patents19,009(12,257)6,75217,785(10,008)7,777Trademarks
and
trade
names27,819(16,849)10,97032,443(14,463)17,980Customer
relationships106,571(54,258)52,313115,957(41,708)74,249Non-compete
agreements5,874(5,874)-5,874(5,874)-Capitalized
software
development
costs19,540(18,251)1,28920,010(17,351)2,659In
process
research
and
development---1,008-1,008
$483,579
$(306,121)
$177,458
$499,734
$(247,266)
$252,468Other intangible assets impairment charges for the year ended December 31, 2016During
2016,
the
Company
assessed
the
recoverability
of
certain
of
its
definite-life
intangibles
assets
based
on
their
projected
undiscounted
future
cash
flows
expected
to
result
from
each
intangible
asset.
Based
onthe
results
of
the
recoverability
assessment,
the
Company
determined
that
the
carrying
values
of
certain
of
its
intangible
assets
exceeds
their
undiscounted
cash
flows
projections
and
therefore
were
not
recoverable.
Forthose
unrecoverable
intangible
assets
that
considered
to
be
impaired,
the
Company
recorded
impairment
charges
of
$16.9
million
during
2016,
in
order
to
reduce
the
carrying
amount
of
those
intangible
assets
to
theirestimated
fair
value.
Impairment
charges
of
$1.8
million
related
to
developed
technology
intangible
assets
were
classified
as
costs
of
sales,
and
$
15.1
million
related
to
customer
relationships,
trade
names
,
capitalizedsoftware
development
costs
and
patents
were
classified
as
selling,
general
and
administrative
expenses.For
its
definite-life
intangible
assets
impairment
assessments
conducted
throughout
2016,
the
Company
used
discount
rates
of
14.0%
to
15.0%
based
on
management’s
best
estimate
of
the
after-tax
weightedaverage
cost
of
capital,
which
reflected
the
associated
specific
risks
for
each
intangible
asset’s
future
cash
flows.In
addition,
the
Company
recorded
$1
million
impairment
charge
for
the
full
carrying
value
of
its
IPR&D
project.Other intangible assets impairment charges for the year ended December 31, 2015Prior
to
conducting
the
quantitative
assessments
for
goodwill
impairment
of
its
reporting
units
during
2015,
the
Company
tested
the
recoverability
of
its
reporting
units'
long-lived
assets,
including
its
purchasedintangible
assets.The
Company
concluded
that
the
carrying
amount
of
certain
of
its
definite-life
purchased
intangible
assets
of
its
might
not
be
recoverable
due
to
certain
indicators
of
impairment
including
a
significant
decline
inthe
Company’s
market
capitalization
for
a
sustained
period,
weaker
than
expected
operating
results
for
2015,
certain
reorganization
initiatives
for
the
Company’s
operations
and
certain
technological
trends
in
theadditive
manufacturing
industry,
as
well
as
the
increased
uncertainty
in
the
3D
printing
environment.The
Company
assessed
the
recoverability
of
its
definite-life
intangibles
assets
based
on
their
projected
undiscounted
future
cash
flows
expected
to
result
from
each
intangible
asset.
Based
on
the
results
of
therecoverability
assessment,
the
Company
determined
that
the
carrying
values
of
certain
of
its
intangible
assets
exceeds
their
undiscounted
cash
flows
projections
and
therefore
were
not
recoverable.
For
thoseunrecoverable
intangible
assets
that
considered
to
be
impaired,
the
Company
recorded
impairment
charges
of
$260.3
million
during
2015,
in
order
to
reduce
the
carrying
amount
of
those
intangible
assets
to
theirestimated
fair
value.
Impairment
charges
of
$191.2
million
related
to
developed
technology
intangible
assets
were
classified
as
costs
of
sales,
and
$68.8
million
related
to
customer
relationships,
trade
names
and
non-compete
agreements
intangible
assets
were
classified
as
selling,
general
and
administrative
expenses.For
its
definite-life
intangible
assets
impairment
assessments
conducted
throughout
2015,
the
Company
used
discount
rates
of
13.0%
to
14.0%
based
on
management’s
best
estimate
of
the
after-tax
weightedaverage
cost
of
capital,
which
reflected
the
associated
specific
risks
for
each
intangible
asset’s
future
cash
flows.F-27Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn
addition,
the
Company
reviewed
for
impairment
its
indefinite-life
intangible
assets,
which
consists
of
IPR&D
projects.
The
indicators
for
the
impairment
assessment
were
the
weaker
than
expected
operatingresults
and
certain
reorganization
initiatives
along
with
review
of
the
strategic
research
and
development
roadmap
which
resulted
in
changes
in
long-term
projections.
The
Company
tested
for
impairment
certain
of
itsIPR&D
projects,
based
on
its
projected
discounted
future
cash
flows
expected
to
result,
by
using
the
probability-weighted
cash
flow
approach.
Based
on
the
results
of
the
impairment
assessment,
the
Companydetermined
that
the
carrying
value
of
certain
of
its
IPR&D
projects
exceeded
their
fair
value.
Accordingly,
the
Company
recorded
impairment
charges
of
$18.2
million,
related
to
its
in-process
research
anddevelopment
projects,
which
were
classified
as
research
and
development
expenses,
in
order
to
reduce
the
carrying
amount
of
those
intangible
assets
to
their
estimated
fair
value.Other intangible assets impairment charges for the year ended December 31, 2014During
2014
the
Company
evaluated
the
recoverability
of
one
of
its
developed
technology
asset
and
recorded
impairment
charges
of
$11.6
million
which
were
classified
as
costs
of
sales.
In
addition,
the
Companyreviewed
for
impairment
one
of
its
IPR&D
projects
which
resulted
in
impairment
charges
of
$3.0
million
that
were
classified
as
research
and
development
expenses.Amortization expenseAmortization
expense
relating
to
intangible
assets
for
the
years
ended
December
31,
2016,
2015
and
2014,
was
approximately
$59.0
million,
$75.0
million
and
$81.9
million,
respectively.As
of
December
31,
2016,
estimated
future
amortization
expense
relating
to
definite
life
intangible
assets
for
each
of
the
next
five
years
and
thereafter
were
as
follows:Estimatedamortization expenseYear ending December 31,(U.S.
$
in
thousands)2017$34,722201833,068201932,173202031,826202131,264Thereafter14,405Total$177,458F-28Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 9. Income Taxesa. Deferred Tax Assets and LiabilitiesThe
components
of
the
Company’s
deferred
tax
assets
and
liabilities
as
of
December
31,
2016
and
2015
were
as
follows:




December 31,




December 31,20162015(U.S.
$
in
thousands)Deferred tax assets






Tax
losses
carry
forwards$





139,914$





87,718






Inventory
related12,12418,317






Intangibles
assets38,37931,890






Provision
for
employee
related
obligations3,5687,672






Stock-based
compensation
expense6,0406,214






Deferred
revenue3,2113,344






Depreciation1,1401,994






Allowance
for
doubtful
accounts645776






Foreign
currency
losses587-






Research
and
development
credit
carry
forwards9,9988,355






Other
items1,5602,223













Gross
deferred
tax
assets217,166168,503






Valuation
allowance(201,376)(152,115)













Total
deferred
tax
assets$15,790$16,388
Deferred tax liabilities






Intangibles
assets$(17,053)$(28,387)






Foreign
currency
losses-(450)






Depreciation(2,662)(1,852)













Total
deferred
tax
liabilities$(19,715)$(30,689)






Net
deferred
tax
liabilities$(3,925)$(14,301)The
Company’s
deferred
tax
assets
and
liabilities
are
classified
in
the
consolidated
balance
sheets
as
follows:




December 31,




December 31,20162015(U.S.
$
in
thousands)Deferred
tax
assets
(under
"Other
non-current
assets")$











2,027$








1,739Deferred
tax
liabilities5,95216,040Net
deferred
tax
liabilities$(3,925)$(14,301)F-29Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs
of
December
31,
2016,
the
Company
had
a
tax
net
operating
losses
carry-forward
of
approximately
$381
million
related
to
its
U.S.
subsidiaries,
resulting
in
a
deferred
tax
asset
of
approximately
$140
million.As
a
result
of
losses
incurred
by
its
U.S.
subsidiaries
in
the
last
few
years,
and
since
the
near-term
realization
of
these
assets
is
uncertain,
the
Company
provided
a
full
valuation
allowance
for
its
deferred
tax
assetsrelated
to
its
U.S.
subsidiaries
that
are
not
expected
to
be
realized.Significant
judgment
is
required
in
determining
any
valuation
allowance
recorded
against
deferred
tax
assets.
In
assessing
the
need
for
a
valuation
allowance,
the
Company
considered
all
available
evidence,including
past
operating
results,
the
most
recent
projections
for
taxable
income,
and
prudent
and
feasible
tax
planning
strategies.
The
Company
reassess
its
valuation
allowance
periodically
and
if
future
evidence
allowsfor
a
partial
or
full
release
of
the
valuation
allowance,
a
tax
benefit
will
be
recorded
accordingly.Included
in
the
net
deferred
tax
liability
are
net
operating
loss
and
credit
carryovers
of
$150.6
million
which
expire
in
years
ending
from
December
31,
2022
through
December
31,
2036.In
addition
to
the
amounts
mentioned
above,
approximately
$7.5
million
of
net
operating
losses
carry-forwards,
resulting
from
tax
deductions
related
to
shared-based
compensation,
are
unrecognized
on
theCompany’s
consolidated
balance
sheets.
The
tax
benefits
of
these
deductions
will
be
realized
only
at
the
point
at
which
the
deductions
reduce
income
taxes
payable.The
Company
believes
that
all
future
profits
in
its
subsidiaries
will
be
indefinitely
reinvested
or
that
there
is
no
expectation
to
distribute
any
taxable
dividends
from
these
subsidiaries.
The
determination
of
theamount
of
the
unrecognized
deferred
tax
liability
related
to
the
undistributed
earnings
is
estimated
as
a
non-material
amount.b. Provision for Income TaxesLoss
before
income
taxes
for
the
years
ended
December
31,
2016,
2015
and
2014
was
as
follows:




2016




2015




2014(U.S.
$
in
thousands)Domestic$




(11,783)$




(635,721)$




25,903Foreign(74,576)(748,110)(180,621)$(86,359)$(1,383,831)$(154,718)The
components
of
income
taxes
for
the
years
ended
December
31,
2016,
2015
and
2014
were
as
follows:




2016




2015




2014(U.S.
$
in
thousands)Current






Domestic$




6,242$




4,564$




10,650






Foreign(5,310)8,3047,98993212,86818,639Deferred






Domestic(9,851)(18,607)(5,177)






Foreign(527)(4,581)(48,710)(10,378)(23,188)(53,887)






Total
income
taxes$(9,446)$(10,320)$(35,248)F-30Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSA
reconciliation
of
the
statutory
income
tax
rate
and
the
effective
tax
rate
for
the
years
ended
December
31,
2016,
2015,
and
2014
is
set
forth
below:




2016




2015




2014Statutory
tax
rate25.0%26.5%26.5%Approved
and
Privileged
enterprise
benefits7.0(0.4)3.7Goodwill
impairment-(15.3)(17.3)Revaluation
of
obligations
in
connection
with
acquisitions-0.23.1Stock
compensation
expense(2.4)(0.4)(3.7)Tax
contingencies(4.7)(0.3)1.6Non-deductible
acquisition
expenses(0.2)(0.1)(0.1)Earning
taxed
under
foreign
law34.41.49.6Valuation
allowance(57.0)(11.0)-Changes
to
the
prior
year’s
tax
assessment7.9--Other0.90.1(0.6)Effective
income
tax
rate10.9%0.7%22.8%For
the
year
ended
December
31,
2016,
the
above
rate
reconciliation
table
reflects
the
Company’s
valuation
allowance
on
its
US
deferred
tax
assets,
offset
by
the
mix
of
foreign
taxable
income
and
loss
and
anincome
tax
benefit
attributable
to
one
of
the
Company’s
foreign
subsidiaries
that
received
a
favorable
tax
ruling
from
the
tax
authorities.Uncertain tax positionsSignificant
judgment
is
required
in
evaluating
the
Company’s
tax
positions
and
determining
its
provision
for
income
taxes.
During
the
ordinary
course
of
business,
there
are
many
transactions
and
calculations
forwhich
the
ultimate
tax
determination
is
uncertain.
The
Company
establishes
reserves
for
tax-related
uncertainties
based
on
estimates
of
whether,
and
the
extent
to
which,
additional
taxes
will
be
due.
These
reserves
areestablished
when
the
Company
believes
that
certain
positions
might
be
challenged
despite
its
belief
that
its
tax
return
positions
are
fully
supportable.
The
Company
adjusts
these
reserves
in
light
of
changing
facts
andcircumstances,
such
as
the
outcome
of
a
tax
audit
or
changes
in
the
tax
law.
The
provision
for
income
taxes
includes
the
impact
of
reserve
provisions
and
changes
to
reserves
that
are
considered
appropriate.As
of
December
31,
2016,
2015
and
2014,
the
Company
had
unrecognized
tax
benefits
of
$18.0
million,
$13.9
million
and
$8.6
million,
respectively.
If
recognized,
these
benefits
would
favorably
impact
theeffective
tax
rate.
A
reconciliation
of
the
beginning
and
ending
balance
of
unrecognized
tax
benefits
is
as
follows:




2016




2015




2014(U.S.
$
in
thousands)Balance
at
beginning
of
year$




13,930$




8,552$




10,346Additions
for
tax
positions
related
to
the
current
year4,0394,1162,705Additions
for
tax
positions
related
to
previous
years1291,987734Reduction
of
reserve
for
statute
expirations(98)(725)(5,233)Balance
at
end
of
year$18,000$13,930$8,552The
Company’s
accrual
for
estimated
interest
and
penalties
was
$384
thousand
as
of
December
31,
2016.
The
Company
does
not
expect
uncertain
tax
positions
to
change
significantly
over
the
next
twelve
months.The
Company
is
subject
to
income
taxes
in
the
U.S.,
various
states,
Israel
and
certain
other
foreign
jurisdictions.
The
Company
files
income
tax
returns
in
various
jurisdictions
with
varying
statutes
of
limitations.Tax
returns
of
Stratasys
Inc.
submitted
in
the
United
States
through
2012
tax
year
are
considered
to
be
final
following
the
completion
of
the
Internal
Revenue
Service
examination.
Tax
returns
of
Stratasys
Ltd.submitted
in
Israel
through
the
2012
tax
year
are
considered
to
be
final
following
the
completion
of
the
Israeli
Tax
Authorities
examination
upon
audit.
The
expiration
of
the
statute
of
limitations
related
to
the
variousother
foreign
and
state
income
tax
returns
that
the
Company
and
its
subsidiaries
file
vary
by
state
and
foreign
jurisdiction.F-31Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSc. Basis of taxation:The
enacted
statutory
tax
rates
applicable
to
the
Company’s
major
subsidiaries
outside
of
Israel
are
as
follows:Company
incorporated
in
the
U.S.—tax
rate
of
approximately
35%.
Company
incorporated
in
Germany—tax
rate
of
approximately
28%.
Company
incorporated
in
Hong
Kong—tax
rate
of
16.5%.A
significant
portion
of
the
Company’s
income
after
the
December
1,
2012
merger
date
is
taxed
in
Israel.
The
following
is
a
summary
of
how
the
Company’s
income
is
taxed
in
Israel:Corporate
tax
rates
in
Israel
are
as
follows:
2014
and
2015-26.5%,
2016-25%,
2017-24%
and
2018
and
thereafter-23%.
The
Company
elected
to
compute
its
taxable
income
in
accordance
with
Income
TaxRegulations
(Rules
for
Accounting
for
Foreign
Investors
Companies
and
Certain
Partnerships
and
Setting
their
Taxable
Income),
1986.
Accordingly,
the
Company’s
taxable
income
or
loss
is
calculated
in
U.S.
dollars.Applying
these
regulations
reduces
the
effect
of
foreign
exchange
rate
fluctuations
(of
the
NIS
in
relation
to
the
U.S.
dollar)
on
the
Company’s
Israeli
taxable
income.Tax benefits under the Law for Encouragement of Capital Investments, 1959 (the “Investment Law”)Various
industrial
projects
of
the
Company
have
been
granted
“Approved
Enterprise”
and
“Beneficiary
Enterprise”
status,
which
provides
certain
benefits,
including
tax
exemptions
for
undistributed
income
andreduced
tax
rates.
Income
not
eligible
for
Approved
Enterprise
and
Beneficiary
Enterprise
benefits
is
taxed
at
the
regular
corporate
rate,
which
was
25%
in
2016.The
Company
is
a
Foreign
Investors
Company,
or
FIC,
as
defined
by
the
Investment
Law.
FICs
are
entitled
to
further
reductions
in
the
tax
rate
normally
applicable
to
Approved
Enterprises
and
BeneficiaryEnterprises,
depending
on
the
level
of
foreign
ownership.
When
foreign
(non-Israeli)
ownership
equal
or
exceeds
90%,
the
Approved
Enterprise
and
Beneficiary
Enterprise
income
is
either
tax-exempt
for
a
limit
periodbetween
two
to
ten
years
depending
on
the
location
of
the
enterprise
or
taxable
at
a
tax
rate
of
10%
for
a
10-year
period.
The
Company
cannot
assure
that
it
will
continue
to
qualify
as
a
FIC
in
the
future
or
that
thebenefits
described
herein
will
be
granted
in
the
future.In
the
event
of
distribution
of
dividends
from
the
said
tax-exempt
income
during
the
tax
exemption
period
as
described
above,
the
amount
distributed
will
be
subject
to
tax
in
respect
of
the
amount
of
dividenddistributed
(grossed
up
to
reflect
such
pre-tax
income
that
it
would
have
had
to
earn
in
order
to
distribute
the
dividend)
at
the
corporate
tax
rate
that
would
have
been
otherwise
applicable
if
such
income
had
not
beentax-exempted
under
the
alternative
benefits
program.
This
rate
generally
ranges
from
10%
to
25%,
depending
on
the
level
of
foreign
investment
in
the
company
in
each
year,
as
explained
above,
Dividends
paid
out
ofincome
attributed
to
Approved
Enterprise
or
Beneficiary
Enterprise
(or
out
of
dividends
received
from
a
company
whose
income
is
attributed
to
an
Approved
or
Beneficiary
Enterprise)
are
generally
subject
towithholding
tax
at
the
source
at
the
rate
of
15%,
unless
a
lower
rate
is
provided
in
a
treaty
between
Israel
and
the
shareholder’s
country
of
residence
(subject
to
the
receipt
in
advance
of
a
valid
certificate
from
the
IsraelTax
Authority
allowing
for
a
reduced
tax
rate).
The
15%
tax
rate
is
limited
to
dividends
and
distributions
out
of
income
derived
during
the
benefits
period
and
actually
paid
at
any
time
up
to
12
years
thereafter.
Afterthis
period,
the
withholding
tax
is
applied
at
a
rate
of
up
to
30%,
or
at
the
lower
rate
under
an
applicable
tax
treaty
(subject
to
the
receipt
in
advance
of
a
valid
certificate
from
the
Israel
Tax
Authority
allowing
for
areduced
tax
rate).
In
the
case
of
an
FIC,
the
12-year
limitation
on
reduced
withholding
tax
on
dividends
does
not
apply.The
entitlement
to
the
above
benefits
is
conditional
upon
the
Company’s
fulfilling
the
conditions
stipulated
by
the
Investment
Law
and
regulations
published
thereunder.
Should
the
Company
fail
to
meet
suchrequirements
in
the
future,
income
attributable
to
its
Approved
Enterprise
and
Beneficiary
Enterprise
programs
would
be
subject
to
the
statutory
Israeli
corporate
tax
rate
and
the
Company
would
be
required
to
refund
aportion
of
the
tax
benefits
already
received
with
respect
to
such
programs.
The
refund
will
be
subject
to
interest
and
index
changes
as
applicable
the
law
or
other
monetary
penalty.The
Company
does
not
intend
to
distribute
any
amounts
of
its
undistributed
tax-exempt
income
as
dividends,
as
it
intends
to
reinvest
its
tax-exempt
income
within
the
Company.
Accordingly,
no
deferred
incometaxes
have
been
provided
on
income
attributable
to
the
Company’s
Approved
or
Beneficiary
Enterprise
programs,
as
the
undistributed
tax
exempt
income
is
essentially
permanent
in
duration.As
of
December
31,
2016,
tax-exempt
income
of
approximately
$180
million
is
attributable
to
the
Company’s
various
Approved
and
Beneficiary
Enterprise
programs.
If
such
tax
exempt
income
is
distributed,
itwould
be
taxed
at
the
reduced
corporate
tax
rate
applicable
to
such
income,
and
taxes
of
approximately
$18
million
would
be
incurred
as
of
December
31,
2016.A
January
2011
amendment
to
the
Investment
Law
(the
“2011
Amendment”)
created
alternative
benefit
tracks
to
those
previously
in
place,
as
follows:
an
investment
grants
track
designed
for
enterprises
located
incertain
development
zones
and
two
new
tax
benefits
tracks
(“Preferred
Enterprise”
and
“Special
Preferred
Enterprise”),
which
provide
for
application
of
a
unified
tax
rate
to
all
preferred
income
of
the
company,
asdefined
in
the
Investment
Law.F-32Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe
2011
Amendment
canceled
the
availability
of
the
benefits
granted
in
accordance
with
the
provisions
of
the
Investment
Law
prior
to
2011
and,
instead,
introduced
new
benefits
for
income
generated
by
a“Preferred
Company”
through
its
"Preferred
Enterprise"
(as
such
terms
are
defined
in
the
Investment
Law)
effective
as
of
January
1,
2011
and
thereafter.
A
Preferred
Company
is
defined
as
either
(i)
a
companyincorporated
in
Israel
which
is
not
wholly
owned
by
a
governmental
entity,
or
(ii)
a
limited
partnership
that:
(a)
was
registered
under
the
Israeli
Partnerships
Ordinance,
and
(b)
all
of
its
limited
partners
are
companiesincorporated
in
Israel,
but
not
all
of
them
are
governmental
entities;
which
has,
among
other
things,
Preferred
Enterprise
status
and
is
controlled
and
managed
from
Israel.
Pursuant
to
the
2011
Amendment,
a
PreferredCompany
was
entitled
to
a
reduced
corporate
tax
rate
of
15%
with
respect
to
its
preferred
income
attributed
to
its
Preferred
Enterprise
in
2011
and
2012,
unless
the
Preferred
Enterprise
was
located
in
a
certaindevelopment
zone,
in
which
case
the
rate
was
10%.
Such
corporate
tax
rate
was
reduced
to
12.5%
and
7%,
respectively,
in
2013
and
was
increased
to
16%
and
9%,
respectively,
in
2014
until
2016.
In
2017
andthereafter,
the
corporate
tax
rate
for
Preferred
Enterprise
which
is
located
in
a
certain
development
zone
was
decreased
to
7.5%,
while
the
reduced
corporate
tax
rate
for
other
development
zones
remains
16%.
Incomederived
by
a
Preferred
Company
from
a
“Special
Preferred
Enterprise”
(as
such
term
is
defined
in
the
Investment
Law)
would
be
entitled,
during
a
benefits
period
of
10
years,
to
further
reduced
tax
rates
of
8%,
or
5%if
the
Special
Preferred
Enterprise
is
located
in
a
certain
development
zone.
As
of
January
1,
2017,
the
definition
for
"Special
Preferred
Enterprise"
includes
less
stringent
conditions.Dividends
paid
out
of
preferred
income
attributed
to
a
Preferred
Enterprise
or
to
a
Special
Preferred
Enterprise
are
generally
subject
to
withholding
tax
at
source
at
the
rate
of
20%,
or
such
lower
rate
as
may
beprovided
in
an
applicable
tax
treaty
(subject
to
the
receipt
in
advance
of
a
valid
certificate
from
the
Israel
Tax
Authority
allowing
for
a
reduced
tax
rate).
However,
if
such
dividends
are
paid
to
an
Israeli
company,
notax
is
required
to
be
withheld
(although,
if
such
dividends
are
subsequently
distributed
to
individuals
or
a
non-Israeli
company,
withholding
tax
at
a
rate
of
20%
or
such
lower
rate
as
may
be
provided
in
an
applicabletax
treaty
will
apply.
In
2017-2019,
dividends
paid
out
of
preferred
income
attributed
to
a
Special
Preferred
Enterprise,
directly
to
a
foreign
parent
company,
are
subject
to
withholding
tax
at
source
at
the
rate
of
5%(temporary
provisions).The
2011
Amendment
also
provided
transitional
provisions
to
address
companies
already
enjoying
current
benefits
under
the
Investment
Law.
These
transitional
provisions
provide,
among
other
things,
that
unlessan
irrevocable
request
is
made
to
apply
the
provisions
of
the
Investment
Law
as
amended
in
2011
with
respect
to
income
to
be
derived
as
of
January
1,
2011:●The
terms
and
benefits
included
in
any
certificate
of
approval
that
was
granted
to
an
Approved
Enterprise,
which
chose
to
receive
grants,
before
the
2011
Amendment
became
effective,
will
remain
subject
to
theprovisions
of
the
Investment
Law
as
in
effect
on
the
date
of
such
approval,
and
subject
to
certain
conditions.

●The
terms
and
benefits
included
in
any
certificate
of
approval
that
was
granted
to
an
Approved
Enterprise,
that
had
participated
in
an
alternative
benefits
program,
before
the
2011
Amendment
became
effectivewill
remain
subject
to
the
provisions
of
the
Investment
Law
as
in
effect
on
the
date
of
such
approval,
provided
that
certain
conditions
are
met.

●A
Beneficiary
Enterprise
can
elect
to
continue
to
benefit
from
the
benefits
provided
to
it
before
the
2011
Amendment
came
into
effect,
provided
that
certain
conditions
are
met.The
Company
has
examined
the
possible
effect,
if
any,
of
these
provisions
of
the
2011
Amendment
on
its
financial
statements
and
has
decided,
at
this
time,
not
to
opt
to
apply
the
new
benefits
under
the
2011Amendment.Tax benefits under the Israeli Law for the Encouragement of Industry (Taxation), 1969The
Company
is
an
“Industrial
Company”
as
defined
by
the
Israeli
Law
for
the
Encouragement
of
Industry
(Taxation),
1969,
and,
as
such,
is
entitled
to
certain
tax
benefits
including
accelerated
depreciation,deduction
of
public
offering
expenses
in
three
equal
annual
installments
and
amortization
of
other
intangible
property
rights
for
tax
purposes.F-33Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 10. Commitments and Contingenciesa. CommitmentsThe
Company
leases
certain
of
its
facilities
under
non-cancellable
operating
leases,
which
expire
through
2023.Future
minimum
annual
lease
payments
under
all
non-cancelable
operating
leases
with
an
initial
term
in
excess
of
one
year
as
of
December
31,
2016
are
as
follows:




Minimum futureoperating lease paymentsYear ending December 31,(U.S.
$
in
thousands)2017$
































8,96020187,58920194,79120204,12720212,990Thereafter2,88631,343Rent
expense
for
the
years
ended
December
31,
2016,
2015
and
2014
was
approximately
$14.0
million,
$14.3
million
and
$10.7
million,
respectively.As
described
in
note
2,
in
December
2016,
the
Company
borrowed
$26
million
under
a
secured
loan
agreement
in
connection
with
its
new
facility
in
Israel.
Future
annual
principal
payments
under
the
Bank
Loandebt
as
of
December
31,
2016
are
as
follows:




Loan pricipal amountYear ending December 31,(U.S.
$
in
thousands)2017$
































3,71420183,7142019
3,7142020
3,71420213,714Thereafter7,43026,000b. ContingenciesClaims Related to Company EquityOn
March
4,
2013,
five
current
or
former
minority
shareholders
(two
of
whom
were
former
directors)
of
the
Company
filed
two
lawsuits
against
the
Company
in
an
Israeli
central
district
court.
The
lawsuitsdemanded
that
the
Company
amend
its
capitalization
table
such
that
certain
share
issuances
prior
to
the
Stratasys-Objet
merger
to
certain
of
Objet’s
shareholders
named
as
defendants
would
be
cancelled,
with
aconsequent
issuance
of
additional
shares
to
the
plaintiffs
to
account
for
the
subsequent
dilution
to
which
they
have
been
subject.
The
lawsuits
also
named
as
defendants
Elchanan
Jaglom,
Chairman
of
the
Company’sboard
of
directors,
in
one
of
the
lawsuits,
Ilan
Levin,
the
Company’s
Chief
Executive
Officer
and
director,
various
shareholders
of
the
Company
who
were
also
shareholders
of
Objet,
and
David
Reis,
a
director.The
lawsuits
alleged
in
particular
that
a
series
of
investments
in
Objet
during
2002
and
2007
was
effected
at
a
price
per
share
that
was
below
fair
market
value,
thereby
illegally
diluting
those
shareholders
that
didnot
participate
in
the
investments.
The
plaintiffs
also
alleged
that
a
portion
of
the
amount
invested
in
those
transactions
was
actually
invested
by
an
investor
who
was
already
a
shareholder
of
Objet
and
allegedly
actingin
concert
with
Mr.
Jaglom,
and
that
the
interest
of
these
two
shareholders
in
these
transactions
was
not
properly
disclosed
to
the
minority
shareholders
at
the
time.
The
lawsuits
furthermore
claimed
that
the
Companyeffectively
engaged
in
backdating
the
issuance
of
certain
shares,
in
that
shares
that
Objet
reported
as
having
been
issued
in
2006
and
2007
were
actually
issued
at
a
subsequent
date—as
late
as
2009.
The
Company
filedits
statements
of
defense
in
May
2013
denying
the
plaintiffs’
claims.
In
2015,
the
court
dismissed
the
lawsuit
of
one
of
the
former
directors
due
to
lack
of
cause.
In
February
2017,
the
parties
reached
an
agreementpursuant
to
which
all
claims
were
settled
at
no
material
cost
to
the
Company
.
Notice
of
the
settlement
was
provided
to
the
court
with
a
motion
for
the
dismissal
of
the
suits.F-34Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSecurities Law Class ActionsOn
February
5,
2015,
a
lawsuit
styled
as
a
class
action
was
commenced
in
the
United
States
District
Court
for
the
District
of
Minnesota,
naming
the
Company
and
certain
of
the
Company’s
officers
as
defendants.Similar
actions
were
filed
on
February
9
and
20,
2015
in
the
Southern
District
of
New
York
and
the
Eastern
District
of
New
York,
respectively.
The
lawsuits
allege
violations
of
the
Securities
Exchange
Act
of
1934
inconnection
with
allegedly
false
and
misleading
statements
concerning
the
Company’s
business
and
prospects.
The
plaintiffs
seek
damages
and
awards
of
reasonable
costs
and
expenses,
including
attorneys’
fees.On
April
15,
2015,
the
cases
were
consolidated
for
all
purposes,
and
on
April
24,
2015,
the
Court
entered
an
order
appointing
lead
plaintiffs
and
approving
their
selection
of
lead
counsel
for
the
putative
class.
OnJuly
1,
2015,
lead
plaintiffs
filed
their
consolidated
complaint.
On
August
31,
2015,
the
defendants
moved
to
dismiss
the
consolidated
complaint
for
failure
to
state
a
claim.
The
Court
heard
the
motion
on
December
11,2015.
On
June
30,
2016,
the
Court
granted
defendants’
motion
to
dismiss
with
prejudice
and
entered
judgment
in
favor
of
defendants.
On
July
29,
2016,
lead
plaintiffs
filed
a
notice
of
appeal
to
the
United
States
Courtof
Appeals
for
the
Eighth
Circuit
from
the
Court’s
judgment.
On
September
22,
2016,
lead
plaintiffs
filed
the
opening
initial
brief
in
support
of
their
appeal.
On
October
24,
2016,
defendants
filed
their
answering
briefto
the
appeal.
On
November
18,
2016,
lead
plaintiffs
filed
their
reply
brief
in
support
of
the
appeal.
Oral
arguments
for
appeal
are
scheduled
for
March
9,
2017.The
Company
is
a
party
to
various
other
legal
proceedings,
the
outcome
of
which,
in
the
opinion
of
management,
will
not
have
a
significant
adverse
effect
on
the
financial
position
or
profitability
of
the
Company.Note 11. Equitya. Share capitalThe
Company’s
issued
share
capital
is
composed
of
ordinary
shares
at
NIS
0.01
par
value.
Ordinary
shares
confer
upon
their
holders
the
right
to
receive
notice
to
participate
and
vote
in
general
meetings
of
theCompany,
and
the
right
to
receive
dividends
if
declared.As
of
December
31,
2016,
and
2015,
there
were
52,639
thousands
ordinary
shares
and
52,082
thousands
ordinary
shares
issued
and
outstanding,
respectively.
The
Company’s
ordinary
shares
are
traded
in
theUnited
States
on
the
Nasdaq
Global
Select
Market
under
the
ticker
symbol
“SSYS”.For
significant
share
issuance
in
connection
with
business
combinations
during
the
years
ended
December
31,
2016,
2015
and
2014,
refer
to
note
2.b. Stock-based compensation plansThe
Stratasys
Ltd.
2012
Omnibus
Equity
Incentive
Plan
(the
“2012
Plan”),
which
became
effective
upon
closing
of
the
Stratasys-Objet
merger,
provides
for
the
grant
of
options,
restricted
shares,
restricted
shareunits
(“RSUs”)
and
other
share-based
awards
to
the
Company’s
and
its
subsidiaries’
respective
directors,
employees,
officers,
consultants,
and
advisors
and
to
any
other
person
whose
services
are
considered
valuableto
the
Company
or
any
of
its
affiliates.
Under
the
2012
plan,
options
and
RSUs
generally
have
a
contractual
term
of
ten
years
from
the
grant
date.
Options
granted
become
exercisable
and
RSUs
are
vested
over
thevesting
period,
which
is
normally
a
four-year
period
beginning
on
the
grant
date,
subject
to
the
employee’s
continuing
service
to
the
Company.
As
of
December
31,
2016,
3.0
million
shares
were
available
for
equityawards
under
the
2012
plan.
On
January
1,
2017,
the
reserve
pool
under
the
2012
plan
was
automatically
increased
by
0.5
million
shares.F-35Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSStock optionsA
summary
of
the
stock
option
activity
for
the
year
ended
December
31,
2016
is
as
follows:









Weighted AverageNumber of OptionsExercise PriceOptions
outstanding
as
of
December
31,
2015

















2,449,742$






















39.73Granted559,34023.03Exercised(119,564)9.91Forfeited(274,057)42.74Options
outstanding
as
of
December
31,
20162,615,461$37.21Options
exercisable
as
of
December
31,
20161,426,304$38.63The
following
table
summarizes
information
about
stock
options
outstanding
at
December
31,
2016:Options Outstanding


Options Exercisable


Outstanding


Weighted- Average


Exercisable


options atRemainingWeighted- Averageoptions atWeighted- AverageRange ofDecember 31,ContractualExerciseDecember 31,ExerciseExercise Prices2016Life in YearsPrice2016Price$




2.21-$




22.16666,3532.21$11.03$







604,717$10.04
23.41-
25.50
663,895

6.17
23.93100,661

25.1029.37-45.00

654,586

7.29

34.99

247,231
35.14$46.87-
$120.51630,6274.1981.16473,69579.822,615,461$4.96$37.21
1,426,304$38.63
Aggregate
intrinsicvalue
(U.S.
$
inthousands)$







4,100$4,082As
of
December
31,
2016,
the
weighted-average
remaining
contractual
life
of
exercisable
options
was
3.6
years.
The
total
intrinsic
value
of
options
exercised
during
2016,
2015
and
2014
was
approximately
$1.5million,
$4.6
million
and
$55.6
million,
respectively.The
Company
used
the
Black-Scholes
option-pricing
model
to
determine
the
fair
value
of
options
granted
during
2016,
2015
and
2014.
The
following
assumptions
were
applied
in
determining
the
options’
fairvalue
on
their
grant
date:




2016




2015




2014Risk-free
interest
rate1.1%-1.5%1.6%
-
1.9%1.3%
-
2.0%Expected
option
term
(years)5.2-6.06.04.2
-
6.5Expected
share
price
volatility53.6%-56.1%
50.1%-53.5%45.8%
-
47.6%Dividend
yield-
-
-Weighted
average
grant
date
fair
value$










12.36$











15.49
$












60.82As
of
December
31,
2016,
the
Company
had
1.2
million
unvested
options.
As
of
December
31,
2016,
the
unrecognized
compensation
cost
related
to
all
unvested,
equity-classified
stock
options
of
$13.0
million
isexpected
to
be
recognized
as
an
expense
on
a
straight-line
basis
over
a
weighted-average
period
of
2.5
years.F-36Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSRestricted Stock UnitsA
summary
of
the
Company’s
RSUs
activity
for
the
year
ended
December
31,
2016
is
as
follows:




Weighted AverageGrant Date FairNumber of RSUsValueUnvested
RSUs
outstanding
as
of
December
31,
2015






















559,124$






















81.35Vested(184,621)94.36Forfeited(106,747)81.90Unvested
RSUs
outstanding
as
of
December
31,
2016267,756$72.17The
total
vesting-date
value
of
equity
classified
RSUs
vested
during
2016
was
$3.5
million.
As
of
December
31,
2016,
the
unrecognized
compensation
cost
related
to
all
unvested
equity
classified
RSUs
of
$11.5million
is
expected
to
be
recognized
as
an
expense
on
a
straight-line
basis
over
a
weighted-average
period
of
1.9
years.Stock-based
compensation
expense
for
stock
options
and
equity
classified
RSUs
included
in
the
Company’s
Statements
of
Operations
were
allocated
as
follows:2016




2015




2014(U.S.
$
in
thousands)Cost
of
sales$





2,780$





5,381$





4,493Research
and
development,
net4,7685,7594,862Selling,
general
and
administrative13,22518,87020,852Total
stock-based
compensation
expenses






$20,773$30,010$30,207c. Accumulated other comprehensive lossThe
following
tables
present
the
changes
in
the
components
of
accumulated
other
comprehensive
loss,
net
of
taxes
for
the
years
ended
December
31,
2016,
2015
and
2014:Year ended December 31, 2016Net unrealized gain




Foreign currency




(loss) on cash flowtranslationhedgesadjustmentsTotalU.S. $ in thousandsBalance
as
of
January
1,
2016$
























(107)$


















(10,667)$














(10,774)Other
comprehensive
loss
before






reclassifications523(2,788)(2,265)Amounts
reclassified
from
accumulated






other
comprehensive
loss(440)-(440)Other
comprehensive
income
(loss)83(2,788)(2,705)Balance
as
of
December
31,
2016$(24)$(13,455)$(13,479)F-37Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYear ended December 31, 2015Net unrealized gain




Foreign currency




(loss) on cash flowtranslationhedgesadjustmentsTotalU.S. $ in thousandsBalance
as
of
January
1,
2015$



















(1,243)$


















(2,404)$














(3,647)Other
comprehensive
loss
before








reclassifications(288)(8,263)$(8,551)Amounts
reclassified
from
accumulated







other
comprehensive
loss1,424-$1,424Other
comprehensive
income
(loss)1,136(8,263)(7,127)Balance
as
of
December
31,
2015$(107)$(10,667)$(10,774)Year ended December 31, 2014 




Net unrealized gain




Foreign currency









(loss) on cash flowtranslationhedgesadjustmentsOtherTotal(U.S.
$
in
thousands)Balance
as
of
January
1,
2014$





















153$

















1,922$




(167)$




1,908Other
comprehensive
income
before







reclassifications(2,222)(4,326)—(6,548)Amounts
reclassified
from
accumulated






other
comprehensive
income826—167993Other
comprehensive
income
(loss)(1,396)(4,326)167(5,555)Balance
as
of
December
31,
2014$(1,243)$(2,404)$—$(3,647)Realized
gains
and
losses
on
cash
flow
hedges
were
reclassified
primarily
to
research
and
development,
net
and
selling
and
general
and
administrative
expenses.
Other
reclassifications
from
accumulated
othercomprehensive
loss
were
reclassified
to
financial
expense,
net.Note 12. Derivatives and Hedging ActivitiesThe
Company
carries
out
transactions
involving
foreign
currency
exchange
derivative
financial
instruments.
The
transactions
are
designed
to
hedge
the
Company’s
exposure
in
currencies
other
than
the
U.S.
dollar.The
Company
is
primarily
exposed
to
foreign
exchange
risk
with
respect
to
recognized
assets
and
liabilities
and
forecasted
transactions
denominated
in
the
New
Israeli
Shekel
(“NIS”),
the
Euro
and
the
Japanese
Yen.The
Company
manages
its
foreign
currency
exposures
on
a
consolidated
basis,
which
allows
the
Company
to
net
exposures
and
take
advantage
of
any
natural
hedging.
In
addition,
the
Company
uses
derivativeinstruments
to
reduce
the
net
exposure
to
foreign
exchange.
Gains
and
losses
on
the
hedging
instruments
offset
losses
and
gains
on
the
hedged
items.
Financial
markets
and
currency
volatility
may
limit
the
Company’sability
to
hedge
these
exposures.F-38Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe
following
table
summarizes
the
consolidated
balance
sheets
classification
and
fair
values
of
the
Company’s
derivative
instruments:Fair ValueNotional AmountDecember 31,December 31,December 31,December 31,




Balance sheet location




2016




2015




2016




2015
(U.S.
$
in
thousands)Assets
derivatives
-Foreign
exchange
contracts,

not






designated
as
hedging
instrumentsOther
current
assets$












1,440$













866$







39,982$





54,586Assets
derivatives
-Foreign
exchange
contracts,







designated
as
cash
flow
hedgeOther
current
assets37238,3482,700Liability
derivatives
-Foreign
exchange
contracts,

notAccrued
expenses
and






designated
as
hedging
instrumentsother
current
liabilities(48)(432)13,27335,036Liability
derivatives
-Foreign
exchange
contracts,Accrued
expenses
and






designated
as
cash
flow
hedgeother
current
liabilities(61)(131)7,53413,682$1,368$326$69,137$106,004As
of
December
31,
2016,
the
Company
had
in
effect
foreign
exchange
forward
contracts,
not
designated
as
hedging
instruments,
for
the
conversion
of
$33.3
million,
$8.9
million
and
$11.1
million
into
Euro,
NISand
Japanese
Yen,
respectively.
These
derivatives
are
primarily
used
to
reduce
the
exposure
of
foreign
currency
fluctuations
on
certain
balance
sheet
items.
With
respect
to
such
derivatives,
gains
of
$2.1
million
and$4.9
million
were
recognized
under
financial
expense,
net
for
the
years
ended
December
31,
2016
and
2015,
respectively.
Such
gains
partially
offset
the
revaluation
losses
of
the
balance
sheet
items,
which
are
alsorecognized
under
financial
expense,
net.As
of
December
31,
2016
and
2015,
the
Company
had
in
effect
foreign
exchange
forward
contracts
for
the
conversion
of
$15.9
million
and
$16.4
million,
respectively,
into
NIS.
These
foreign
exchange
forwardcontracts
were
designated
as
cash
flow
hedge
for
accounting
purposes.
The
Company
uses
short-term
cash
flow
hedge
contracts
to
reduce
its
exposure
to
variability
in
expected
future
cash
flows
resulting
mainly
frompayroll
costs
denominated
in
New
Israeli
Shekels.
The
changes
in
fair
value
of
those
contracts
are
included
in
the
Company’s
accumulated
other
comprehensive
loss.
These
contracts
mature
through
June,
2017.Note 13. Entity-Wide DisclosureNet
sales
by
geographic
area
were
as
follows*:Year ended December 31,




2016




2015




2014(U.S.
$
in
thousands)North
America
(primarily
the
United
States)$




399,870$




413,017$




405,880EMEA137,924148,169183,462Asia
Pacific122,998122,257150,475Other11,66612,55210,312$672,458$695,995$750,129*Net
sales
are
attributed
to
geographic
areas
based
on
the
location
of
a
customer.F-39Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSProperty,
plant
and
equipment
by
geographical
area
were
as
follows:December 31,




2016




2015(U.S.
$
in
thousands)United
States$




91,230$




101,272EMEA108,97894,890Asia
Pacific7,5435,030Other664742$208,415$201,934Property,
plant
and
equipment
that
were
located
in
Israel
amounted
to
$92.1
million
and
$77.0
million
for
the
years
ended
December
31,
2016
and
2015,
respectively,
and
are
included
under
the
EMEA
region
in
theabove
table.No
single
customer
accounted
for
10%
or
more
of
the
Company’s
total
net
sales,
or
the
Company’s
net
accounts
receivable,
in
any
fiscal
year
presented.Note 14. Retirement Plans and Employee Rights Upon TerminationIsraeli
law
generally
requires
the
Company
to
pay
a
severance
payment
upon
dismissal
of
an
employee
or
upon
termination
of
employment
in
certain
other
circumstances.
The
Company
makes
ongoing
depositsinto
its
Israeli
employee
pension
plans
to
fund
their
severance
liabilities.
According
to
the
general
collective
pension
agreement
in
Israel,
Company
deposits
with
respect
to
employees
who
were
employed
by
theCompany
after
the
agreement
took
effect
are
made
in
lieu
of
the
Company’s
severance
liability,
therefore,
no
obligation
is
provided
for
in
the
Company’s
consolidated
financial
statements.Severance
pay
liabilities
with
respect
to
Israeli
employees
who
were
employed
by
the
Company
prior
to
the
collective
pension
agreement
effective
date,
as
well
as
employees
who
have
special
contractualarrangements,
are
provided
for
in
the
Company’s
consolidated
financial
statements
based
upon
the
number
of
years
of
service
and
their
latest
monthly
salary.
The
Company’s
liabilities
for
those
Israeli
employees,
inthe
amounts
of
$3.7
million
and
$3.8
million
as
of
December
31,
2016
and
2015,
respectively,
are
presented
as
other
non-current
liabilities
in
the
Company’s
consolidated
balance
sheets.
The
liability
is
funded
in
partfrom
the
purchase
of
insurance
policies
or
by
the
establishment
of
pension
funds
with
dedicated
deposits
in
the
funds.
The
amounts
used
to
fund
these
liabilities
are
included
in
the
Company’s
consolidated
balancesheets
under
other
non-current
assets.
As
of
December
31,
2016
and
2015,
the
Company
had
$2.7
million
deposited
in
these
insurance
policies
and
pension
funds.
These
policies
are
the
Company’s
assets.
However,under
employment
agreements
and
subject
to
certain
limitations,
any
policy
may
be
transferred
to
the
ownership
of
the
individual
employee
for
whose
benefit
the
funds
were
deposited.In
accordance
with
its
current
employment
agreements
with
certain
employees,
the
Company
makes
regular
deposits
with
certain
insurance
companies
for
accounts
controlled
by
each
applicable
employee
in
orderto
secure
the
employee’s
rights
upon
retirement.
The
Company
is
fully
relieved
from
any
severance
pay
liability
with
respect
to
each
such
employee
after
it
makes
the
payments
on
behalf
of
the
employee.
The
liabilityaccrued
in
respect
of
these
employees
and
the
amounts
funded,
as
of
the
respective
agreement
dates,
are
not
reflected
in
the
Company’s
balance
sheets,
as
the
amounts
funded
are
not
under
the
control
and
managementof
the
Company
and
the
pension
or
severance
pay
risks
have
been
irrevocably
transferred
to
the
applicable
insurance
companies.For
its
employees
in
the
United
States
the
Company
has
a
defined
contribution
retirement
plan
(the
“Plan”)
under
the
provisions
of
Section
401(k)
of
the
Internal
Revenue
Code
of
1986,
as
amended
(the
“Code”)that
covers
eligible
U.S.
employees
as
defined
in
the
Plan.
Participants
may
elect
to
contribute
up
to
50%
of
pre-tax
annual
compensation,
as
defined
by
the
Plan,
up
to
a
maximum
amount
prescribed
by
the
Code.
TheCompany,
at
its
discretion,
makes
matching
contributions
equal
to
the
lesser
of
$3,000
or
4
%
of
the
participant’s
annual
compensation.
For
the
years
ended
December
31,
2016,
2015
and
2014,
the
Company
made401(k)
Plan
contributions
of
approximately
$
3.8
million,
$4.2
million
and
$2.8
million,
respectively.F-40Table of ContentsSTRATASYS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 15. Earnings per ShareThe
following
table
presents
the
computation
of
basic
and
diluted
net
loss
per
share:Year ended December 31,




2016




2015




2014(In
thousands,
except
per
share
amounts)Numerator:Net
loss
attributable
to
Stratasys
Ltd.$




(77,219)$




(1,372,835)$




(119,420)Adjustment
of
redeemable
non-controlling
interest
to
redemption
amount-(1,800)-Net
loss
attributable
to
Stratasys
Ltd.
for
basic
loss
per
share(77,219)(1,374,635)(119,420)
Adjustment
of
deferred
payments
liability
revaluation(830)--Net
loss
attributable
to
Stratasys
Ltd.
for
diluted
loss
per
share(78,049)(1,374,635)(119,420)
Denominator:Add:






Weighted
average
shares
–
denominator
for
basic
net
loss
per
share52,33051,59250,019Add:






Shares
settlement
presumed
for
deferred
payments
liability252--Denominator
for
diluted
loss
per
share52,58251,59250,019Net
loss
per
shareBasic$(1.48)$




(26.64)$(2.39)Diluted$(1.48)$




(26.64)$(2.39)The
computation
of
diluted
net
loss
per
share
for
the
years
ended
December
31,
2016,
2015
and
2014
excluded
share
awards
of
3.1
million,
3.8
million
and
2.4
million,
respectively,
because
their
inclusion
wouldhave
had
an
anti-dilutive
effect
on
the
diluted
net
loss
per
share.F-41Table of ContentsSCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS AND RESERVESYears
ended
December
31,
2016,
2015,
and
2014
(U.S.
$
in
thousands):COLUMN
AColumn
BColumn
C
-
AdditionsColumn
DColumn
EChargedBalances
attoCharged
toBalancesbeginningcosts
andotherat
endDescription




of
period




expenses




accounts




Deductions




of
periodReserve
for
bad
debts
and
allowancesYear
ended
December
31,
2016$




1,357$




991$




-$




661$




1,687
Year
ended
December
31,
2015$1,477$514$-$634$1,357
Year
ended
December
31,
2014$1,987$958$-$1,468$1,477
Valuation
allowances
on
deferred
tax
assetsYear
ended
December
31,
2016$152,115$49,261$-$-$201,376
Year
ended
December
31,
2015$-$152,115$-$-$152,115S-1Table of ContentsITEM 19. EXHIBITS.Please
see
the
exhibit
index
incorporated
herein
by
reference.101Table of ContentsSIGNATURESThe
registrant
hereby
certifies
that
it
meets
all
of
the
requirements
for
filing
on
Form
20-F
and
that
it
has
duly
caused
and
authorized
the
undersigned
to
sign
this
annual
report
filed
on
its
behalf.STRATASYS
LTD.
/s/
Ilan
LevinIlan
LevinChief
Executive
OfficerMarch
9,
2017102Table of ContentsEXHIBIT INDEXExhibitNumberDocument Description1.1





Amended
and
Restated
Articles
of
Association
of
Stratasys
Ltd.
(1)
1.2Memorandum
of
Association
of
Stratasys
Ltd.
(2)
2.1Specimen
ordinary
share
certificate
of
Stratasys
Ltd.
(3)
4.1Stratasys
Ltd.
(formerly
known
as
Objet
Geometries
Ltd.)
Amended
and
Restated
2004
Omnibus
Stock
Option
and
Restricted
Stock
Incentive
Plan(4)
4.2.1Stratasys
Ltd.
2012
Omnibus
Equity
Incentive
Plan
(5)
4.2.2Amendment
to
Stratasys
Ltd.
2012
Omnibus
Equity
Incentive
Plan
(6)
4.3Form
of
Indemnification
Agreement
by
and
between
Stratasys
Ltd.
and
each
of
its
directors
and
executive
officers
(7)
4.4Employment
Agreement,
dated
June
27,
2011,
by
and
between
Stratasys
Ltd.
(formerly
known
as
Objet
Ltd.)
and
Ilan
Levin
(8)
4.5OEM
Purchase
and
License
Agreement,
effective
as
of
May
5,
2011,
by
and
between
Stratasys
Ltd.
(formerly
known
as
Objet
Geometries
Ltd.)
and
Ricoh
Printing
Systems
America,
Inc.
(9)
4.6Assignment,
dated
October
23,
1989,
from
S.
Scott
Crump
to
Stratasys,
Inc.
(a
subsidiary
of
Stratasys
Ltd.)
with
respect
to
a
patent
application
for
an
apparatus
and
method
for
creating
three-dimensionalobjects
(10)

4.7Assignment,
dated
June
5,
1992,
from
S.
Scott
Crump
to
Stratasys,
Inc.
(a
subsidiary
of
Stratasys
Ltd.)
with
respect
to
a
patent
application
for
a
modeling
apparatus
for
three
dimensional
objects
(10)
4.8Assignment,
dated
June
1,
1994,
from
S.
Scott
Crump,
James
W.
Comb,
William
R.
Priedeman,
Jr.,
and
Robert
Zinniel
to
Stratasys,
Inc.
(a
subsidiary
of
Stratasys
Ltd.)
with
respect
to
a
patent
applicationfor
a
process
and
apparatus
of
support
removal
for
three-dimensional
modeling
(10)
4.9Stratasys
Ltd.
Compensation
Policy
for
Executive
Officers
and
Directors
(11)
8.1Subsidiary
List
of
Stratasys
Ltd.
12.1Certificate
of
Chief
Executive
Officer
pursuant
to
Rule
13a-14(a)/Rule
15d-14(a)
under
the
Exchange
Act
12.2Certificate
of
Chief
Financial
Officer
pursuant
to
Rule
13a-14(a)/Rule
15d-14(a)
under
the
Exchange
Act
13Certification
of
Chief
Executive
Officer
and
Chief
Financial
Officer
pursuant
to
Rule
13a-14(b)/Rule
15d-14(b)
under
the
Exchange
Act
and
18
U.S.C.
Section
1350,
as
adopted
pursuant
to
Section
906
ofthe
Sarbanes-Oxley
Act
of
2002
15.1Consent
of
Kesselman
&
Kesselman,
a
member
firm
of
PricewaterhouseCoopers
International
Limited,
an
independent
registered
public
accounting
firm
101The
following
financial
information
from
Stratasys
Ltd.’s
Annual
Report
on
Form
20-F
for
the
year
ended
December
31,
2016
formatted
in
XBRL
(eXtensible
Business
Reporting
Language):
(i)Consolidated
Balance
Sheets
at
December
31,
2016
and
2015;
(ii)
Consolidated
Statements
of
Operations
and
Comprehensive
Income
for
the
years
ended
December
31,
2016,
2015
and
2014;
(iii)Consolidated
Statements
of
Changes
in
Equity
for
the
years
ended
December
31,
2016,
2015
and
2014;
(iv)
Consolidated
Statements
of
Cash
Flows
for
the
years
ended
December
31,
2016,
2015
and
2014;and
(v)
Notes
to
Consolidated
Financial
Statements,
tagged
as
blocks
of
text.
Users
of
this
data
are
advised,
in
accordance
with
Rule
406T
of
Regulation
S-T
promulgated
by
the
SEC,
that
this
InteractiveData
File
is
deemed
not
filed
or
part
of
a
registration
statement
or
prospectus
for
purposes
of
Sections
11
or
12
of
the
Securities
Act,
is
deemed
not
filed
for
purposes
of
Section
18
of
the
Exchange
Act,
andotherwise
is
not
subject
to
liability
under
those
sections.Table of Contents____________________(1)





Incorporated
by
reference
to
Appendix
A
to
the
registrant’s
proxy
statement
for
its
February
3,
2015
extraordinary
general
meeting
of
shareholders,
attached
as
Exhibit
99.1
to
the
registrant’s
report
of
foreignprivate
issuer
on
Form
6-K
furnished
to
the
SEC
on
January
6,
2015
(2)Incorporated
by
reference
to
Exhibit
3
to
the
registrant’s
registration
statement
on
Form
F-4,
SEC
File
No.
333-182025,
filed
with
the
SEC
on
June
8,
2012
(3)Incorporated
by
reference
to
Exhibit
4
to
the
registrant’s
registration
statement
on
Form
F-4,
SEC
File
No.
333-182025,
filed
with
the
SEC
on
June
8,
2012
(4)Incorporated
by
reference
to
Exhibit
10.7
to
the
registrant’s
registration
statement
on
Form
F-4,
SEC
File
No.
333-182025,
filed
with
the
SEC
on
June
8,
2012
(5)Incorporated
by
reference
to
Exhibit
10.8
to
the
registrant’s
registration
statement
on
Form
F-4,
SEC
File
No.
333-182025,
filed
with
the
SEC
on
June
8,
2012
(6)Incorporated
by
reference
to
Proposal
3
of
the
registrant’s
proxy
statement
for
its
February
2013
extraordinary
general
meeting
of
shareholders,
attached
as
Exhibit
99.1
to
the
registrant’s
report
of
foreignprivate
issuer
on
Form
6-K
furnished
to
the
SEC
on
January
28,
2013
(7)Incorporated
by
reference
to
Exhibit
10.9
to
the
registrant’s
registration
statement
on
Form
F-4,
SEC
File
No.
333-182025,
filed
with
the
SEC
on
June
8,
2012
(8)Incorporated
by
reference
to
Exhibit
10.9
to
the
registrant’s
registration
statement
on
Form
F-4,
SEC
File
No.
33-99108)
filed
with
the
SEC
on
June
8,
2012
(9)Incorporated
by
reference
to
Exhibit
10.10
to
the
registrant’s
registration
statement
on
Form
F-4,
SEC
File
No.
333-182025,
filed
with
the
SEC
on
June
8,
2012#
(10)Incorporated
by
reference
to
Amendment
No.
1
to
Stratasys,
Inc.’s
registration
statement
on
Form
SB-2
(SEC
File
No.
333-
99108)
filed
with
the
SEC
on
December
20,
1995
(11)Incorporated
by
reference
to
Appendix
B
to
the
registrant’s
proxy
statement
for
its
February
3,
2015
extraordinary
general
meeting
of
shareholders,
attached
as
Exhibit
99.2
to
the
registrant’s
report
of
foreignprivate
issuer
on
Form
6-K
furnished
to
the
SEC
on
January
6,
2015#
Portions
of
this
exhibit
have
been
omitted
and
filed
separately
with
the
SEC
pursuant
to
a
confidential
treatment
request.EXHIBIT 8.1Subsidiaries
JURISDICTION OFINCORPORATIONENTITY




OR ORGANIZATIONMakerBot
Industries,
LLCNew
YorkObjet
UK
Ltd.EnglandSolidscape,
Inc.DelawareStratasys
AP
LimitedHong
KongStratasys
Direct,
Inc.CaliforniaStratasys
GMBHGermanyStratasys,
Inc.DelawareStratasys
International
Ltd.IsraelStratasys
Japan
Co.
Ltd.JapanStratasys
Korea
Ltd.KoreaStratasys
Latin
America
Representacao
De
Equipamentos
Ltd.,BrazilStratasys
Mexico
S.A.
de
C.V.MexicoStratasys
Schweiz
AG
(Stratasys
Switzerland
Ltd.)SwitzerlandStratasys
Shanghai
Ltd.ChinaExhibit 12.1CERTIFICATION PURSUANT TO RULE 13a-14(a)/RULE 15d-14(a) UNDER THE EXCHANGE ACTI,
Ilan
Levin,
certify
that:1.
I
have
reviewed
this
annual
report
on
Form
20-F
of
Stratasys
Ltd.;2.
Based
on
my
knowledge,
this
report
does
not
contain
any
untrue
statement
of
a
material
fact
or
omit
to
state
a
material
fact
necessary
to
make
the
statements
made,
in
light
of
the
circumstances
under
which
suchstatements
were
made,
not
misleading
with
respect
to
the
period
covered
by
this
report;3.
Based
on
my
knowledge,
the
financial
statements,
and
other
financial
information
included
in
this
report,
fairly
present
in
all
material
respects
the
financial
condition,
results
of
operations
and
cash
flows
of
thecompany
as
of,
and
for,
the
periods
presented
in
this
report;4.
The
company’s
other
certifying
officer(s)
and
I
are
responsible
for
establishing
and
maintaining
disclosure
controls
and
procedures
(as
defined
in
Exchange
Act
Rules
13a-15(e)
and
15d-15(e))
and
internalcontrol
over
financial
reporting
(as
defined
in
Rules
13a-15(f)
and
15d-15(f))
for
the
company
and
have:(a)




Designed
such
disclosure
controls
and
procedures,
or
caused
such
disclosure
controls
and
procedures
to
be
designed
under
our
supervision,
to
ensure
that
material
information
relating
to
the
company,
includingits
consolidated
subsidiaries,
is
made
known
to
us
by
others
within
those
entities,
particularly
during
the
period
in
which
this
report
is
being
prepared;
(b)Designed
such
internal
control
over
financial
reporting,
or
caused
such
internal
control
over
financial
reporting
to
be
designed
under
our
supervision,
to
provide
reasonable
assurance
regarding
the
reliability
offinancial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally
accepted
accounting
principles;
(c)Evaluated
the
effectiveness
of
the
company’s
disclosure
controls
and
procedures
and
presented
in
this
report
our
conclusions
about
the
effectiveness
of
the
disclosure
controls
and
procedures,
as
of
the
end
of
theperiod
covered
by
this
report
based
on
such
evaluation;
and
(d)Disclosed
in
this
report
any
change
in
the
company’s
internal
control
over
financial
reporting
that
occurred
during
the
period
covered
by
the
annual
report
that
has
materially
affected,
or
is
reasonably
likely
tomaterially
affect,
the
company’s
internal
control
over
financial
reporting;
and5.
The
company’s
other
certifying
officer(s)
and
I
have
disclosed,
based
on
our
most
recent
evaluation
of
internal
control
over
financial
reporting,
to
the
company’s
auditors
and
the
audit
committee
of
thecompany’s
board
of
directors
(or
persons
performing
the
equivalent
functions):(a)




All
significant
deficiencies
and
material
weaknesses
in
the
design
or
operation
of
internal
control
over
financial
reporting
which
are
reasonably
likely
to
adversely
affect
the
company’s
ability
to
record,
process,summarize
and
report
financial
information;
and
(b)Any
fraud,
whether
or
not
material,
that
involves
management
or
other
employees
who
have
a
significant
role
in
the
company’s
internal
control
over
financial
reporting.Date:
March
9,
2017/s/
Ilan
LevinIlan
LevinChief
Executive
OfficerExhibit 12.2CERTIFICATION PURSUANT TO RULE 13a-14(a)/RULE 15d-14(a) UNDER THE EXCHANGE ACTI,
Lilach
Payorski,
certify
that:1.
I
have
reviewed
this
annual
report
on
Form
20-F
of
Stratasys
Ltd.;2.
Based
on
my
knowledge,
this
report
does
not
contain
any
untrue
statement
of
a
material
fact
or
omit
to
state
a
material
fact
necessary
to
make
the
statements
made,
in
light
of
the
circumstances
under
which
suchstatements
were
made,
not
misleading
with
respect
to
the
period
covered
by
this
report;3.
Based
on
my
knowledge,
the
financial
statements,
and
other
financial
information
included
in
this
report,
fairly
present
in
all
material
respects
the
financial
condition,
results
of
operations
and
cash
flows
of
thecompany
as
of,
and
for,
the
periods
presented
in
this
report;4.
The
company’s
other
certifying
officer(s)
and
I
are
responsible
for
establishing
and
maintaining
disclosure
controls
and
procedures
(as
defined
in
Exchange
Act
Rules
13a-15(e)
and
15d-15(e))
and
internalcontrol
over
financial
reporting
(as
defined
in
Rules
13a-15(f)
and
15d-15(f))
for
the
company
and
have:(a)




Designed
such
disclosure
controls
and
procedures,
or
caused
such
disclosure
controls
and
procedures
to
be
designed
under
our
supervision,
to
ensure
that
material
information
relating
to
the
company,
includingits
consolidated
subsidiaries,
is
made
known
to
us
by
others
within
those
entities,
particularly
during
the
period
in
which
this
report
is
being
prepared;
(b)Designed
such
internal
control
over
financial
reporting,
or
caused
such
internal
control
over
financial
reporting
to
be
designed
under
our
supervision,
to
provide
reasonable
assurance
regarding
the
reliability
offinancial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally
accepted
accounting
principles;
(c)Evaluated
the
effectiveness
of
the
company’s
disclosure
controls
and
procedures
and
presented
in
this
report
our
conclusions
about
the
effectiveness
of
the
disclosure
controls
and
procedures,
as
of
the
end
of
theperiod
covered
by
this
report
based
on
such
evaluation;
and
(d)Disclosed
in
this
report
any
change
in
the
company’s
internal
control
over
financial
reporting
that
occurred
during
the
period
covered
by
the
annual
report
that
has
materially
affected,
or
is
reasonably
likely
tomaterially
affect,
the
company’s
internal
control
over
financial
reporting;
and5.
The
company’s
other
certifying
officer(s)
and
I
have
disclosed,
based
on
our
most
recent
evaluation
of
internal
control
over
financial
reporting,
to
the
company’s
auditors
and
the
audit
committee
of
thecompany’s
board
of
directors
(or
persons
performing
the
equivalent
functions):(a)




All
significant
deficiencies
and
material
weaknesses
in
the
design
or
operation
of
internal
control
over
financial
reporting
which
are
reasonably
likely
to
adversely
affect
the
company’s
ability
to
record,
process,summarize
and
report
financial
information;
and
(b)Any
fraud,
whether
or
not
material,
that
involves
management
or
other
employees
who
have
a
significant
role
in
the
company’s
internal
control
over
financial
reporting.Date:
March
9,
2017/s/
Lilach
PayorskiLilach
PayorskiChief
Financial
OfficerExhibit 13CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(b)/RULE 15d-14(b) UNDER THE EXCHANGE ACT AND 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In
connection
with
the
Annual
Report
of
Stratasys
Ltd.
(the
“
Company ”)
on
Form
20-F
for
the
period
ended
December
31,
2016
as
filed
with
the
Securities
and
Exchange
Commission
on
the
date
hereof
(the
“Report ”),
we,
Ilan
Levin,
Chief
Executive
Officer
of
the
Company,
and
Lilach
Payorski,
Chief
Financial
Officer
of
the
Company,
certify,
pursuant
to
Rule
13a-14(b)/Rule
15d-14(b)
under
the
Securities
Exchange
Actof
1934,
as
amended
and
18
U.S.C.
§1350,
as
adopted
pursuant
to
§906
of
the
Sarbanes-Oxley
Act
of
2002,
that:(1)




The
Report
fully
complies
with
the
requirements
of
Section
13(a)
or
15(d)
of
the
Securities
Exchange
Act
of
1934;
and(2)The
information
contained
in
the
Report
fairly
presents,
in
all
material
respects,
the
financial
condition
and
result
of
operations
of
the
Company.Dated:
March
9,
2017By

/s/
Ilan
LevinIlan
LevinChief
Executive
Officer
By/s/
Lilach
PayorskiLilach
PayorskiChief
Financial
OfficerExhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe
hereby
consent
to
the
incorporation
by
reference
in
the
Registration
Statements
on
Form
S-8
(Nos.
333-185240
and
333-190963)
of
Stratasys
Ltd.
of
our
report
dated
March
9,
2017
relating
to
the
financialstatements,
financial
statement
schedule
and
the
effectiveness
of
internal
control
over
financial
reporting,
which
appears
in
this
Form
20-F.Tel-Aviv,
Israel/s/
Kesselman
&
KesselmanMarch
9,
2017Certified
Public
Accountants
(Isr.)
A
member
firm
of
PricewaterhouseCoopers
International
Limited