Note 7. Goodwill

Changes in the carrying amount of the Company’s goodwill for the years ended December 31, 2017 and 2016 were as follows:

Goodwill impairment charges for the year ended December 31, 2017

During the fourth quarter of 2017, 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 exceeded its carrying amount by approximately 7%, with a carrying amount of goodwill assigned to this reporting unit in the amount of $387 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. 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 profit margins 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 on management’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 have reduced the fair value of Stratasys-Objet reporting unit by approximately $48 million and $88 million, respectively.

Based on the Company’s assessment as of December 31, 2017, 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 the amount 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 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 flows projections, warrant further interim impairment testing.

Goodwill impairment charges for the year ended December 31, 2016

During 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 exceeded its carrying amount by approximately 5%, with a carrying amount of goodwill assigned to this reporting unit in the amount of $386 million.

Based on the Company’s assessment as of December 31, 2016, no goodwill was determined to be impaired.

Goodwill impairment charges for the year ended December 31, 2015

During 2015, the Company determined that certain indicators of potential impairment existed that required interim goodwill impairment analysis. Accordingly, the Company performed a quantitative two-step assessment 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 Company updated its Makerbot reporting unit cash flow projections and related assumptions based on the indicators mentioned above and performed the two-step goodwill impairment test. As a result of the two-step goodwill impairment test, the carrying amount of goodwill assigned to the MakerBot reporting unit exceeded its implied fair value and the Company recorded a non-tax deductible impairment charge of $150.4 million, 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.

Accordingly, the Company updated its cash flow projections and related assumptions for each of its reporting units and performed a two-step goodwill impairment test which was completed during the fourth quarter of 2015. 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’s reporting 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 of $384 million was assigned to the Stratasys-Objet reporting unit and there was no remaining goodwill balance assigned to the Company’s other reporting units.