3D SYSTEMS CORPORATION (DDD) Business, 2015

General

3D Systems Corporation (“3D Systems” or the “Company” or “we” or “us”) is a holding company incorporated in Delaware in 1993 that operates through subsidiaries in the Americas, Europe and the Middle East (collectively referred to as “EMEA”) and the Asia Pacific region (“APAC” or “Asia Pacific”). We market our products and services in those areas as well as in other parts of the world. We provide comprehensive 3D products and services, including 3D printers, print materials, on-demand parts services and digital design and manufacturing tools. Our ecosystem supports advanced applications from the product design shop to the factory floor to the operating room. Our precision healthcare capabilities include simulation, Virtual Surgical Planning (“VSP™”), and printing of medical and dental devices as well as patient-specific surgical instruments.

As the originator of 3D printing and a shaper of future 3D solutions, we have spent our 30 year history enabling professionals and companies to optimize their designs, transform their workflows, bring innovative products to market and drive new business models.

Customers can use 3D printing to design and manufacture complex and unique parts, eliminate expensive tooling, reduce lead times and produce parts locally. Over the past decades, many of our customers have strengthened their competitive advantage by embracing our solutions to enhance and accelerate their product development cycles. A growing number of customers have also transitioned to manufacturing end-use parts and custom products using 3D printing.

Today, we continue to drive the adoption of 3D printing solutions through ongoing product and technology development, focusing on professional and industrial applications and marketplaces, including aerospace and defense, automotive and healthcare.

We offer a comprehensive range of 3D printers, print materials, software, haptic devices, scanners and virtual surgical simulators.

Our 3D printers transform digital data input generated by 3D design software, CAD software, or other 3D design tools, into printed parts using several unique print engines that employ proprietary, additive layer by layer building processes with a variety of print materials, including plastic, metal, nylon, rubber, wax and composite materials. We offer a broad range of 3D printing technologies including Stereolithography (“SLA”), Selective Laser Sintering (“SLS”), Direct Metal Printing (“DMP”), MultiJet Printing (“MJP”), ColorJet Printing (“CJP”) and PlasticJet Printing (“PJP”).

Our proprietary print engines, which are discussed in more detail below, can produce highly accurate geometries in a wide range of sizes, shapes and materials for parts with a variety of performance characteristics.

SLA Printers

Our SLA 3D printers cure liquid resin materials with a laser beam to produce durable plastic parts with surface smoothness, high resolution, edge definition and tolerances that rival the accuracy of machined or molded plastic parts. We offer SLA printers with a wide range of materials, sizes and price points that are well-suited for prototypes, end-use parts, casting patterns and molds, tooling, fixtures and medical models.

SLS Printers

Our SLS 3D printers use a laser beam to melt and fuse powder-based nylon and engineered plastic and composite print materials to produce very strong and durable parts. Customer uses of our SLS printers include functional test models and end-use parts, such as housings, machinery components, ducting, jigs and fixtures and medical devices and personalized surgery kits and guides.

DMP Printers

Our Direct Metal 3D printers use a laser beam to sinter powders in a variety of metal materials to produce fully dense metal parts with outstanding surface finish and resolution. We offer DMP printers that can process a wide range of materials and powders, including those with very fine granularity, and have been proven in high volume manufacturing applications. We sell DMP systems in various sizes and certain models optimized for specific metals, including titanium, stainless steel and nickel super alloys. Our DMP printers are well-suited for medical and dental implants, aerospace, automotive, hi-tech and industrial applications, such as conformal cooling, simplifying assemblies, light weight parts, enhanced fluid flow, topology optimization and other complex parts.

MJP Printers

Our MultiJet 3D printers utilize jetting head technology to deliver precise, tough parts with exceptional resolution in tough plastic, wax, elastomer and engineered materials. These printers offer the capability to print in rigid or flexible materials and multiple materials in one build, making them ideal for mechanical functional testing, rapid tooling, jigs and fixtures, casting patterns, over-molding and medical models.

CJP Printers

Our ColorJet 3D printers produce parts from ceramic-like powder based materials. CJP printers build high-definition, full-color parts that can be sanded, drilled, tapped, painted and electroplated, which further expands the options available for finished part characteristics. CJP printers are ideal for producing models used in mechanical design, healthcare, architecture, education, entertainment and packaging applications.

PJP Printers

Our PlasticJet 3D printers utilize a simple, clean and compact plastic extrusion print engine technology to print parts in nylon and other plastics. Our PJP printers are designed to be accurate and affordable for prototyping, assembly and functional testing.

Our printers utilize a wide range of print materials, the majority of which are proprietary materials that we develop, blend and market. Our comprehensive range of print materials includes plastic, nylon, metal, composite, elastomeric, wax and Class IV bio-compatible materials. We augment and complement our own portfolio of engineered print materials with materials that we develop with or purchase from third parties under private label and distribution arrangements.

We work closely with our customers to optimize the performance of our print materials in their applications. Our expertise in materials science and formulation, combined with our process, software and equipment, enables us to help our customers select the material that best meets their needs with optimal cost and performance results.

As part of our solutions approach our currently offered printers, with the exception of direct metal printers, have built-in intelligence to make them integrated, closed systems. For these printers, we furnish integrated print materials that are specifically designed for use in those printers and that are packaged in smart cartridges and delivery systems. Integrated materials are designed to enhance system functionality, up-time, materials shelf life and overall printer reliability, in addition to the objective of providing our customers with a built-in quality management system and a fully integrated workflow solution.

SLA Materials

We offer a variety of liquid resin materials under the Accura® brand name that are designed to mimic specific, engineered thermoplastic and provide a wide range of characteristics, including tough, durable, clear, castable, polypropylene-like, ABS-like, high-temperature resistant, and Class IV bio-compatible. SLA print materials include general purpose as well as specialized materials, and are ideal for product design and testing, casting, patterns and molds, and healthcare applications such as medical models and devices.

SLS Materials

Our proprietary selective laser sintering materials include a range of soft and rigid plastics, nylon and composite materials marketed under the DuraForm, LaserForm™ and CastForm™ brand names. These lightweight, tough, versatile materials are available in formulations for a wide array of rapid prototyping and direct manufacturing applications. SLS materials are used for high-temperature resistant parts, flexible parts, functional tooling, injection molding tool inserts, investment casting, end-use parts for advanced manufacturing and patient-specific surgical guides.

DMP Materials

Our direct metal printing materials include metal powders. These materials include titanium, stainless steels, tool steels, super alloys, non-ferrous alloys, precious metals and aluminum. Our DMP printers and materials are used for fully dense, fine feature detail parts for industrial and healthcare applications, including aerospace, automotive, semi-conductor and medical and dental devices and implants.

VisiJet Print Materials

Our MJP and CJP printers utilize materials that we market under the VisiJet® brand name. These materials consist of a wide range of plastic, wax, elastomeric, ceramic-like, and engineered materials. VisiJet materials are used in advanced prototyping, design communication and testing, casting, medical modeling, and manufacturing applications.

PJP Print Materials

Materials for use in our PJP 3D printers include polylatic acid (PLA), acrylonitrile butadiene styrene (ABS), polyamide (Nylon) and rinse away support materials.

We also provide digital design tools, including software, scanners and haptic devices. We offer products for product design, mold & die design, 3D scan-to-print, reverse engineering, production machining and inspection. These products are designed to enable a more seamless workflow for customers. We also offer proprietary software and drivers embedded within our printers that provide part preparation, part placement, support placement, build platform management and print queue management.

As part of our solutions for precision healthcare, we also offer 3D virtual reality simulators and simulator modules for medical applications. These 3D simulators offer clinicians a realistic hands-on experience to master critical skills, prepare for upcoming procedures and create patient specific simulations. We also provide digitizing scanners for medical and mechanical applications.

Warranty, Maintenance and Training Services

We provide a variety of customer services, local application support and field support on a worldwide basis for our products, including installation of new printers at customers’ sites, printer warranties, maintenance agreements, periodic hardware upgrades and software updates. We also provide services to assist our customers and partners in developing new applications for our technologies, to facilitate the use of our technology for specific applications, to train customers on the use of printers and to maintain our printers at customers’ sites.

We provide these services and field support either directly or through a network of partners. We employ customer-support sales engineers globally to support our worldwide customer base, and we are continuing to strengthen and enhance our partner network. We distribute spare parts on a worldwide basis to our customers, primarily from locations in the Americas, EMEA and APAC.

All of our 3D printers are sold with maintenance support that generally covers a warranty period ranging from 90 days to one year. We generally offer service contracts that enable our customers to continue maintenance coverage beyond the initial warranty period. These service contracts are offered with various levels of support and options and are priced accordingly. Our service engineers provide regularly scheduled preventive maintenance visits to customer sites, and we also provide training to our partners to enable them to perform these services.

We also offer upgrade kits for certain of our printers that enable our existing customers to take advantage of new or enhanced printer capabilities. In some cases, we have discontinued upgrade support and maintenance agreements for certain of our older legacy printers.

On-Demand Parts Services

We provide on-demand custom parts manufacturing via our Quickparts® brand through a global network of facilities. We provide a broad range of production and finishing capabilities for precision plastic and metal parts and tooling with a wide range of additive and traditional manufacturing processes.

In addition to the sales of parts, we and our sales partners utilize our on-demand parts operation as a sales and lead generation tool, and third party preferred service providers can also use our on-demand parts service as their comprehensive order-fulfillment center. We also provide on-demand professional 3D scanning, printing and custom parts related to the entertainment industry through our Gentle Giant brand.

Software Services

In addition to our software license products, we offer software maintenance, which includes updates and software support for each software product. Our software products are sold with maintenance service that generally covers a period of one year. We generally offer multi-year maintenance contracts that enable our customers to continue maintenance coverage beyond the initial one year period. These software service contracts typically include free software updates and various levels of technical support.

Healthcare Services

Through our precision healthcare services, we provide medical prototyping and manufacturing services that involve printing and finishing of medical and dental devices, models and tools, as well as modeling and design services, including VSP™. We also provide service on our surgical simulators that are sold under our Simbionix brand.

We operate in the Americas, Europe, the Middle East and the Asia Pacific regions, and market our products and services in those areas as well as to other parts of the world. Revenue in countries outside the U.S. accounted for 49.0%, 49.1% and 44.5% of consolidated revenue in the years ended December 31, 2015, 2014 and 2013, respectively.

In maintaining foreign operations, we expose our business to risks inherent in such operations, including currency fluctuations. Information on foreign exchange risk appears in Part I, Item 1A “Risk Factors”, Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” and Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10‑K (“Form 10-K”).

Financial information about geographic areas, including revenue, long-lived assets, and cash balances, appears in Note 21 to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Form 10-K (“Consolidated Financial Statements”).

Our sales and marketing strategy focuses on an integrated approach that is directed at providing 3D printing centric solutions designed to meet a wide range of customer needs. This integrated approach includes the sales and marketing of our entire portfolio of products and services.

Our sales organization is responsible for the sale of all of our products and services on a worldwide basis and for the management and coordination of our growing network of channel partners. We sell our products and services primarily through partners who are supported by our own channel managers and direct sales people, consisting of salespersons who work throughout the Americas, EMEA and Asia Pacific. In addition, our application engineers provide services through pre-sales and post-sales support and assist customers so that they can take advantage of our latest software, printers, materials and techniques to improve part quality, productivity and range of applications. Our applications engineers also leverage our customer contacts to help identify new application opportunities that utilize our products and services, including access to our on-demand parts service. We maintain our on-demand parts service, a global network of locations providing parts and tooling through both additive and traditional manufacturing solutions, which we sell through a direct sales team and our online platform. In addition to providing a comprehensive range of services to customers, our on-demand parts service also provides relationship building and lead generation opportunities for future sales. We also sell certain of our other products through our website.

In certain areas of the world where we do not operate directly, we have appointed channel partners and distributors who are authorized to sell our products and services on our behalf. Certain of those channel partners and distributors also provide additional services to customers in those geographic areas.

Our customers include major companies and small and midsize businesses in a broad range of industries, including automotive, aerospace, government, defense, technology, electronics, education, consumer goods, energy and healthcare. No single customer accounted for more than 10 percent of our consolidated revenue for the years ended December 31, 2015, 2014 or 2013.

At our Rock Hill, South Carolina location, we assemble PJP, MJP, CJP and certain models of our SLA 3D printers, as well as other equipment related to these printers. We produce Vidar branded digitizers in our Herndon, Virginia facility and our Simbionix branded 3D simulators are produced in Airport City, Israel and Rock Hill, South Carolina. Our DMP printers are produced in Corvallis, Oregon, Riom, France and Leuven, Belgium.

We outsource certain SLA, SLS and DMP printer assembly and refurbishment activities to selected design and engineering companies and suppliers. These suppliers also carry out quality control procedures on our printers prior to their shipment to customers. As part of these activities, these suppliers have responsibility for procuring the components and sub-assemblies either from us or third party suppliers. We purchase finished printers from these suppliers pursuant to forecasts and customer orders that we supply to them. While the outsourced suppliers of our printers have responsibility for the supply chain and inventory of components for the printers they assemble, the components, parts and sub-assemblies that are used in our printers are generally available from several potential suppliers.

We produce print materials at our facilities in Barberton, Ohio; Marly and Grüningen, Switzerland and Rock Hill, South Carolina. We also have arrangements with third parties who blend certain print materials according to our specifications that we sell under our own brand names, and we purchase certain print materials from third parties for resale to our customers.

Our equipment assembly and print materials blending activities, on-demand parts services and certain research and development activities are subject to compliance with applicable federal, state and local provisions regulating the storage, use and discharge of materials into the environment. We believe that we are in compliance, in all material respects, with such regulations as currently in effect and that continued compliance with them will not have a material adverse effect on our capital expenditures, results of operations or consolidated financial position.

The 3D printing industry continues to experience technological change and developments in hardware, software and materials. Consequently, we have ongoing research and development programs to develop new products and to enhance our portfolio of products and services, as well as to improve and expand the capabilities of our 3D printers and platforms, materials, software and other products. Our efforts are often augmented by development arrangements with research institutions, customers, suppliers, and assembly and design firms that we have engaged to produce our printers. From time to time, we also engage third-party engineering companies and specialty print materials companies in specific development projects.

In addition to our internally developed technology platforms, we have acquired products or technologies developed by others by acquiring business entities that held ownership rights to the technologies. In other instances, we have licensed or purchased the intellectual property rights of technologies developed by third parties through agreements that may obligate us to pay a license fee or royalty, typically based upon a dollar amount per unit or a percentage of the revenue generated by such products. As noted below, the amount of such royalties was not material to our results of operations or consolidated financial position for the three-year period ended December 31, 2015.

Research and development expenses were $92.8 million, $75.4 million and $43.5 million in 2015, 2014 and 2013, respectively.

No software development costs from acquisitions were capitalized in 2015 or 2014. We capitalized $0.3 million of software development costs from acquisitions in 2013.

We regard our technology platforms and materials as proprietary and seek to protect them through copyrights, patents, trademarks and trade secrets. At December 31, 2015 and 2014, we held 1,114 and 1,061 patents worldwide, respectively. At December 31, 2015 and 2014, we had 264 and 262 pending patent applications worldwide, respectively; including applications covering inventions contained in our recently introduced printers and demonstrated technologies. The principal issued patents covering aspects of our various technologies will expire at varying times through the year 2027.

We are a party to various licenses that have had the effect of broadening the range of the patents, patent applications and other intellectual property available to us.

We have also entered into licensing or cross-licensing arrangements with various companies in the United States and other countries that enable those companies to utilize our technologies in their products or that enable us to use their technologies in our products. Under certain of these licenses, we are entitled to receive, or we are obligated to pay, royalties for the sale of licensed products in the U.S. or in other countries. The amount of such royalties was not material to our results of operations or consolidated financial position for the three-year period ended December 31, 2015.

We believe that, while our patents and licenses provide us with a competitive advantage, our success also depends on our marketing, business development, applications know-how and on our ongoing research and development efforts. Accordingly, we believe the expiration of any of the patents, patent applications or licenses discussed above would not be material to our business or financial position.

We face competition from the development of new technologies or techniques not encompassed by the patents that we own or license and from conventional technologies.

Our competitors also include other suppliers of 3D printers and materials, design and production software, tools and scanners, as well as suppliers of forming manufacturing solutions such as vacuum casting equipment, and suppliers of healthcare simulators. Numerous suppliers of these products operate both internationally and regionally, and many of them have well-recognized product lines that compete with us in a wide range of our product applications.

Competition for most of our 3D printers is based primarily on technology capabilities, process know-how, product application know-how and the ability to provide a full range of products and services to meet customer needs. Accordingly, our ongoing research and development programs are intended to enable us to maintain technological leadership. Certain of the companies providing competing products or services, and those currently developing 3D printing products and services, are well established and may have greater financial resources than us.

Our competitors are also companies that manufacture machines that are used to make models, prototypes, molds and parts. These competitors include suppliers of CNC machines, plastics molding equipment, including injection-molding equipment, traditional machining, milling and grinding equipment, and businesses that use such equipment to produce models, prototypes, and molds and manufacture parts. These conventional machining, plastic molding and metal casting techniques continue to be the most common methods by which plastic and metal parts and tool inserts are manufactured today.

We believe that our future success depends on our ability to provide high quality products and services, enhance our existing portfolio, introduce new products and services on a timely and cost-effective basis, meet changing customer needs, extend our core technologies to new applications and anticipate and respond to emerging standards, business models, service delivery methods and other technological changes.

Employees

At December 31, 2015 and 2014, we had 2,492 and 2,136 full-time employees, respectively. Although some of our employees outside the U.S. are subject to local statutory employment and labor arrangements, none of our U.S. employees are covered by collective bargaining agreements. We have not experienced any material work stoppages and believe that our relations with our employees are satisfactory.

Available Information

Our website address is www.3DSystems.com. The information contained on our website is neither a part of, nor incorporated by reference into, this Form 10-K. We make available free of charge through our website our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, amendments to those reports, and other documents that we file with the Securities and Exchange Commission (“SEC”), as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. In addition, the public may read and copy materials we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the public reference room can be obtained by calling the SEC at 1-800-SEC-0330.

Several of our corporate governance materials, including our Code of Conduct, Code of Ethics for Senior Financial Executives and Directors, Corporate Governance Guidelines, current charters of each of the standing committees of the Board of Directors and our corporate charter documents and by-laws are available on our website.

Executive Officers

The information appearing in the table below sets forth the position or positions held by each of our executive officers and his or her age as of March 1, 2016. All of our executive officers serve at the pleasure of the Board of Directors. There are no family relationships among any of our executive officers or directors.

Name and Current Position Age as of March 1, 2016 Andrew M. Johnson Interim President and Chief Executive Officer, Chief Legal Officer and Secretary 41 Charles W. Hull Executive Vice President and Chief Technology Officer 76 David R. Styka Executive Vice President and Chief Financial Officer 54 Mark W. Wright Executive Vice President and Chief Operating Officer 51 Kevin P. McAlea Executive Vice President and Chief Operating Officer, Healthcare 57 Cathy L. Lewis Executive Vice President and Chief Marketing Officer 64

Abraham N. Reichental resigned as our President and Chief Executive Officer and as a Director, effective at the close of business on October 28, 2015, by mutual agreement with the Board of Directors. Effective upon Mr. Reichental’s resignation on October 28, 2015, the Board of Directors appointed Andrew M. Johnson as our Interim President and Chief Executive Officer and established an Executive Management Committee to provide ongoing leadership and to support our companywide operations and strategic initiatives while it conducts a search for a permanent replacement of Mr. Reichental. This committee consists of Mr. Johnson, Mark Wright, David Styka and Charles Hull. Mr. Wright serves as our Chief Operating Officer, Mr. Styka serves as our Chief Financial Officer and Mr. Hull is our Co-founder, Director, Chief Technology Officer and Chairman of the Executive Management Committee. In addition to Interim President and Chief Executive Officer, Mr. Johnson continues to serve as our Chief Legal Officer and Secretary.

Mr. Johnson has served as Interim President and Chief Executive Officer, Chief Legal Officer and Secretary since October 28, 2015. He served as Executive Vice President and Chief Legal Officer from November 2014 to October 28, 2015, and as Vice President, General Counsel and Secretary from April 2012 to November 2014. Previously, he served as Assistant General Counsel and Assistant Secretary with 3D Systems from July 2006 to April 2012.

Mr. Hull is a founder of the Company and has served on our Board of Directors since 1993. He has served as Chief Technology Officer since 1997 and as Executive Vice President since 2000. He has also previously served in various other executive capacities at the Company since 1986, including Chief Executive Officer, Vice Chairman of the Board of Directors and President and Chief Operating Officer.

Mr. Styka joined the Company in January 2015 as Vice President, Chief Accounting Officer and was promoted to Executive Vice President, Chief Financial Officer in May 2015. Prior to joining the Company, Mr. Styka had served as Vice President – Finance and Treasurer at Family Dollar Stores, Inc. a value retailer, since April 2014, Vice President – Finance from March 2011 to April 2014, and Divisional Vice President – Tax and Inventory from July 2008 to March 2011. Prior to joining Family Dollar, Mr. Styka served in a variety of finance roles, including Chief Accounting Officer, at Wellman, Inc. a PET resin and polyester staple fiber manufacturer, from 1993 to 1997 and 1998 to 2008. Mr. Styka began his career in public accounting at Ernst & Young. Mr. Styka also served as the Chief Accounting Officer of Wellman, Inc., at the time that company filed for Chapter 11 bankruptcy protection at the U.S. Bankruptcy Court for the Southern District of New York in February 2008. He served in such role from March 2007 until he left the company in July 2008 to join Family Dollar Stores, Inc.

Mr. Wright joined the Company after an 18-year career at EMC Corporation, a Fortune 500 provider of web-based computing systems and data storage products. Most recently, he served as Senior Vice President of Business Development and Operations – Lenovo, since April 2014. He served as the Chief Operating Officer, Flash Product Division from October 2012 to April 2014, served as Senior Vice President, Strategic Operations, IIP Division from January to October 2012, Senior Vice President, Business Operations, Unified Storage Division from January 2011 to January 2012 and Vice President, Operations and Business Transformation, Unified Storage Division from 2008 to January 2011.

Dr. McAlea has served as a Vice President of the Company from May 2003 until May 2012. He served as Senior Vice President from May 2012 to October 2014 and as Executive Vice President and Chief Operating Officer, Healthcare since October 2014.

Ms. Lewis joined us as Vice President Global Marketing in October 2009 and served as a Vice President from October 2009 until May 2013. She served as Vice President and Chief Marketing Officer from May 2013 to October 2014 and has served as Executive Vice President and Chief Marketing Officer since October 2014. Before joining 3D Systems, she served as Chief Executive Officer of Desktop Factory, Inc. since 2006, a venture financed technology start-up focused on the development and delivery of a low cost 3D printer. From 2001 to 2006, Ms. Lewis served as Senior Vice President, Marketing for IKON Office Solutions, a global office copying/printing/imaging and related services company.