20-F 1 zk2431186.htm 20-F CHECK POINT SOFTWARE TECHNOLOGIES LTD - 1015922 - 2024
Comprised of Endpoint security, Mobile security and Security management products, each comprising of less than 10% of products and licenses revenues Not including amortization of technology shown separately. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 20-F

 
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2023
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                  to                   
 
OR
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report                    
Commission file number 000-28584
 

CHECK POINT SOFTWARE TECHNOLOGIES LTD.
(Exact name of Registrant as specified in its charter)

 
ISRAEL
(Jurisdiction of incorporation or organization)
 
5 Shlomo Kaplan Street Tel Aviv 6789159, Israel
(Address of principal executive offices)
 
Shira Yashar, Adv.
General Counsel
Check Point Software Technologies Ltd.
 
5 Shlomo Kaplan Street Tel Aviv 6789159, Israel
Tel: (+972) 3-753-4555
(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.
 
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Ordinary shares, NIS 0.01 nominal value
CHKP
NASDAQ Global Select Market
 
Securities registered or to be registered pursuant to Section 12(g) of the Act. None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
 

 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2023. 112,906,427 ordinary shares, nominal value NIS 0.01 per share.

 
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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes ☒    No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
 
Yes     No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated filer  
Accelerated filer  
Non-accelerated filer
Emerging growth company
 
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act.
 
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
 
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
 
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
 
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP 
International Financial Reporting Standards as issued
by the International Accounting Standards Board
Other
 
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
 
Auditor Firm Id:     1281
Auditor Name:       Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global
Auditor Location:      Tel-Aviv, Israel
 



Currency of Presentation and Certain Defined Terms
 
In this Annual Report on Form 20-F, or the Annual Report, references to “U.S.” or “United States” are to the United States of America, its territories and possessions; and references to “Israel” are to the State of Israel. References to “$”, “dollar” or “U.S. dollar” are to the legal currency of the United States of America; references to “NIS” or “Israeli shekel” are to the legal currency of Israel and references to “Euro” are to the legal currency of the European Union. Our financial statements are presented in U.S. dollars and are prepared in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP.
 
All references to “we,” “us,” “our” or “Check Point” shall mean Check Point Software Technologies Ltd., and, unless specifically indicated otherwise or the context indicates otherwise, our consolidated subsidiaries.
 
Forward-Looking Statements
 
In addition to historical fact, this Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are subject to risks and uncertainties, and include information about possible or assumed future results of our business, financial condition, results of operations, liquidity, plans and objectives. In some cases you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “would,” “should,” “expects,” “plans,” “anticipates,” “believes,” “intends,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements concerning the following:
 

our expectations for our business, trends related to our business and the markets in which we operate and into which we sell products;
 

uncertain macro-economic and industry trends (such as inflation and fluctuations in supply chains), which may impact demand and supply of our products;
 

the effects of increased competition in our market;
 

our ability to timely and effectively scale and adapt our existing technology and infrastructure to meet current and future market demands;
 

the effects on our business of global pandemics, such as COVID-19;
 

our ability to develop or acquire new and more technologically advanced products, and to successfully commercialize these products;
 

our ability to protect our proprietary technology and intellectual property;
 

our ability to protect our information technology systems, networks and products and services from various security threats;
 

our ability to increase adoption of our products and to maintain or increase our market share;
 

our ability to maintain our growth;
 

future amounts and sources of our revenue;
 

our future costs and expenses;
 

the adequacy of our capital resources;
 

our expectations to provide security for all organizations;
 

our expectations with respect to share repurchases by us and dividend payments by us;
 

the effects on our business of evolving laws and regulations, including government export or import controls and U.S. tax regulations;
 

the effects of the current terrorist attacks by Hamas, and the war and hostilities between Israel and Hamas and Israel and Hezbollah;
 

the impact of the significant military action against Ukraine launched by Russia and any related political or economic responses and counter-responses or otherwise by various global actors;
 

our ongoing relationships with our current and future customers and channel partners, suppliers, contract manufacturers and distributors; and
 

our other expectations, beliefs, intentions and strategies.
 
These statements are subject to known and unknown risks, uncertainties and other factors, which are difficult to predict and which may cause our actual results to differ materially and adversely from those implied by the forward-looking statements. Many of these risks, uncertainties and assumptions are described in the risk factors set forth in “Item 3 – Key Information – Risk Factors” and elsewhere in this Annual Report. All forward-looking statements included in this Annual Report are based on information available to us on the date of the filing. While we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to update or revise any of the forward-looking statements after the date of the filing, except as required by applicable law.

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TABLE OF CONTENTS
 
     
 
PART I
 
3
 
 
 
3
 
 
 
3
 
 
 
22
 
 
 
33
 
 
 
33
 
 
 
41
 
 
 
52
 
 
 
52
 
 
 
53
 
 
 
53
 
 
 
63
 
 
 
64
 
 
 
 
PART II
 
 
 
 
64
 
 
 
64
 
 
 
64
 
 
 
65
 
 
 
65
 
 
 
66
 
 
 
66
 
 
 
66
 
 
 
67
 
 
 
67
 
 
 
68
68
68
68
 
PART III
 
 
 
 
70
 
 
 
70
 
 
 
70
 
2

 
PART I
 
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable.
 
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ITEM 3. KEY INFORMATION
 
Risk Factors
 
An investment in our ordinary shares involves a high degree of risk. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks materialize, our business, financial condition, results of operations and prospects could be materially harmed. In that event, the market price of our ordinary shares could decline and you could lose part or all of your investment.
 
Risk Factors Summary
 
The following is a summary of the principal risks that could materially and adversely affect our business, financial condition, operating results and growth prospects.
 
Risks Related to Our Business and Our Market
 

If the market for information and network security solutions does not continue to grow, our business will be adversely affected.
 

We may not be able to successfully compete, which could adversely affect our business and results of operations.
 

If we fail to enhance our existing products, develop or acquire new and more technologically advanced products, or fail to successfully commercialize these products, our business and results of operations will suffer.
 

We may need to change our pricing models to compete successfully.
 

Our business, results of operations and financial condition are subject to the risks of earthquakes, fire, floods, pandemics such as COVID 19 pandemic and other natural events, as well as manmade problems such as power disruptions or terrorism or war, such as the war and hostilities between Israel and Hamas and Israel and Hezbollah have been and may continue to be adversely affected.
 

Prolonged economic uncertainties or downturns, globally or in certain regions or industries, could materially adversely affect our business.
 

If our products fail to protect against attacks and our customers experience security breaches, our reputation and business could be harmed.
 
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Product defects may increase our costs and impair the market acceptance of our products and technology.
 

We are subject to risks relating to acquisitions.
 

We are dependent on a limited number of product families.
 

Competition for highly skilled personnel is intense.
 
Risks Related to Our Dependence on Third-Parties
 

We are dependent on a small number of distributors.
 

We purchase several key components and finished products from limited sources, and we are increasingly dependent on contract manufacturers for our hardware products.
 

We incorporate third-party technology in our products, which may make us dependent on the providers of these technologies and expose us to potential intellectual property claims.
 

Failures of the third-party servers, cloud service providers and other third-party hardware, software and infrastructure on which we rely could adversely affect our business.
 
Risks Related to Tax, Legal and Regulatory Matters
 

We are the defendants in various lawsuits and have been subject to tax disputes and governmental proceedings, which could adversely affect our business, results of operations and financial condition.
 

Uncertainties in the interpretation and application of worldwide tax reforms, complex tax laws and regulations could materially affect our tax obligations and effective tax rate.
 

Class action litigation due to stock price volatility or other factors could cause us to incur substantial costs and divert our management’s attention and resources.
 

We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.
 
Risks Related to Our Intellectual Property
 

We may not be able to successfully protect our intellectual property rights, which could cause substantial harm to our business.
 

We incorporate open source technology in our products which may expose us to liability and have a material impact on our product development and sales.
 

If a third-party asserts that we are infringing its intellectual property, whether successful or not, it could subject us to costly and time-consuming litigation or expensive licenses, which could harm our business.
 

Due to the global nature of our business, we must comply with various anti-bribery regimes and any failure to do so could adversely affect our business.
 
Other General Risks and Risks Related to the Ownership of Our Ordinary Shares
 

We are exposed to various legal, business, political, economic, health-related and other risks associated with our international operations; these risks could increase our costs, reduce future growth opportunities and affect our results of operations.
 

Our actual or perceived failure to adequately protect personal data could subject us to sanctions and damages and could harm our reputation and business.
 
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Compliance with new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance.
 

A small number of shareholders own a substantial portion of our ordinary shares, and they may make decisions with which you or others may disagree.
 

Our cash balances and investment portfolio have been, and may continue to be, adversely affected by market conditions and interest rates.
 

Currency fluctuations may affect the results of our operations or financial condition.
 

Our information technology systems, networks and products and services have been, and may continue to be, subject to various security threats.
 

We depend on our executive officers and other key employees, and the loss of one or more of these employees or an inability to attract and retain other highly skilled employees could adversely affect our business.
 
Risks Related to Our Operations in Israel
 

The ongoing war and other potential political, economic and military instability in Israel, where our principal executive offices and our principal research and development facilities are located, may adversely affect our results of operations.
 

Our operations may be disrupted by the obligations of our personnel to perform military service.
 

The tax benefits available to us require us to meet several conditions, and may be terminated or reduced in the future, which would increase our taxes.
 

Your rights and responsibilities as a shareholder are, and will continue to be, governed by Israeli law which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.
 

Provisions of Israeli law and our articles of association may delay, prevent or make difficult an acquisition of us, prevent a change of control, and negatively impact our share price.
 

As a foreign private issuer we are not subject to the provisions of Regulation FD or U.S. proxy rules and are exempt from filing certain Exchange Act reports.
 

As a foreign private issuer whose shares are listed on the Nasdaq Global Select Market, we may follow certain home country corporate governance practices instead of certain Nasdaq requirements.
 
Risks Related to Our Business and Our Market
 
If the market for information and network security solutions does not continue to grow, our business will be adversely affected
 
The market for information and network security solutions may not continue to grow. Continued growth of this market will depend, in large part, upon:
 

the continued expansion of Internet usage and the number of organizations adopting or expanding intranets;
 

the continued adoption of “cloud” infrastructure by organizations;
 

the ability of the infrastructures implemented by organizations to support an increasing number of users and services;
 

the continued development of new and improved services for implementation across the Internet and between the Internet and intranets;
 

the adoption of data security measures as it pertains to data encryption and data loss prevention technologies;
 

continued access to mobile API’s, APPs and application stores with Apple, Google and Microsoft;
 

government regulation of the Internet and governmental and non-governmental requirements and standards with respect to data security and privacy; and
 
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economic, social, or political conditions, including conditions resulting from a decline in the macroeconomic environment, rising interest rates, exchange rate fluctuations, inflation, global pandemics such as the COVID-19 pandemic, global supply chain disruptions and conditions resulting from geopolitical uncertainty and instability or war, including the war and hostilities between Israel and Hamas and Israel and Hezbollah, the Russia-Ukraine armed conflict and the tension between China and Taiwan.
 
In the last few years, global and regional economies around the world and financial markets remained volatile as a result of a multitude of factors, including economic and political uncertainty, the war and hostilities between Israel and Hamas and Israel and Hezbollah, rising interest rates, inflation, terrorist groups in Yemen, which are threatening to limit the movement of marine shipments to Israel through the Red Sea, global pandemics such as COVID-19, the war in Ukraine, terrorism, governmental instability and other factors. During this period, many organizations limited their expenditures and a significant portion of such organizations have remained reluctant to increase expenditures. If challenging conditions continue or worsen, it may cause our customers to reduce or postpone their technology spending significantly, which could result in reductions in sales of our products, longer sales cycles, slower adoption of new technologies and increased price competition.
 
Further, if the necessary infrastructure or complementary products and services are not developed in a timely manner and, consequently, the enterprise security, data security, Internet or intranet markets fail to grow or grow more slowly than we currently anticipate, our business, results of operations and financial condition may be materially adversely affected. Additional details are provided in “Item 4 – Information on Check Point”.
 
We may not be able to successfully compete, which could adversely affect our business and results of operations

The market for information and network security solutions is intensely competitive and we expect that competition will continue to increase in the future. Our competitors include Cisco Systems, Inc., Fortinet Inc., Palo Alto Networks, Inc. and SonicWall Inc. and other companies in the network security space. We also compete with several other companies, including Zscaler, Inc., Trellix, Trend Micro Inc., NortonLifeLock Inc., Lookout, Inc., Zimperium, Inc, CrowdStrike Holdings, Inc., SentinelOne, Inc., Sophos Group plc, Proofpoint, Inc.,  Broadcom, Inc. Mimecast Limited, Microsoft Corp., Wiz Ltd., and Netskope, Inc., with respect to specific products that we offer.

In addition, there are hundreds of small and large companies that offer security products and services that we may compete with from time to time.
 
Some of our current and potential competitors have various advantages over us, including longer operating histories; access to larger customer bases; significantly greater financial, technical and marketing resources; a broader portfolio of products, applications and services; and larger patent and intellectual property portfolios. As a result, they may be able to adapt better than we can to new or emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their products. Furthermore, some of our competitors with more diversified product portfolios and larger customer bases may be better able to withstand a reduction in spending on information and network security solutions, as well as a general slowdown or recession in economic conditions in the markets in which they operate. In addition, some of our competitors have greater financial resources than we do, and they have offered, and in the future may offer, their products at lower prices than we do, or may bundle security products with their other offerings, which may cause us to lose sales or to reduce our prices in response to competition.
 
In addition, consolidation in the markets in which we compete may affect our competitive position. This is particularly true in circumstances where customers are seeking to obtain a broader set of products and services than we are able to provide.
 
The markets in which we compete also include many niche competitors, generally smaller companies at a relatively early stage of operations, which are focused on specific Internet and data security needs. These companies’ specialized focus may enable them to adapt better than we can to new or emerging technologies and changes in customer requirements in their specific areas of focus. In addition, some of these companies can invest relatively large resources on very specific technologies or customer segments. The effect of these companies’ activities in the market may result in price reductions, reduced gross margins and loss of market share, any of which will materially adversely affect our business, results of operations and financial condition.
 
Further, vendors of operating system software, networking hardware or central processing units, or CPUs, may enhance their products to include functionality that is currently provided by our products. The widespread inclusion of similar functionality to that which is offered by our solutions, as standard features of operating system software and networking hardware could significantly reduce the demand for our products, particularly if the quality of such functionality were comparable to that of our products. Furthermore, even if the network or application security functionality provided as standard features by operating systems software and networking hardware is more limited than that of our solutions, a significant number of customers may elect to accept more limited functionality in lieu of purchasing additional products.
 
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We may not be able to continue competing successfully against our current and future competitors, and increased competition within the market may result in price reductions, reduced gross margins and operating margins, reduced net income, and loss of market share, any or all of which may materially adversely affect our business, results of operations and financial condition. For additional information, see “Item 4 – Information on Check Point”.
 
If we fail to enhance our existing products, develop or acquire new and more technologically advanced products, or fail to successfully commercialize these products, our business and results of operations will suffer
 
The information and network security industry is characterized by rapid technological advances, changes in customer requirements, frequent new product introductions and enhancements, and evolving industry standards in computer hardware and software technology. In particular, the markets for data security, Internet and intranet applications are rapidly evolving. As a result, we must continually change and improve our products in response to changes in operating systems, application software, computer and communications hardware, networking software, programming tools, and computer language technology. We must also continually change our products in response to changes in network infrastructure requirements, including the expanding use of cloud computing. Further, we must continuously improve our products to protect our customers’ data and networks from evolving security threats.
 
Our future results of operations will depend upon our ability to enhance our current products and to develop and introduce new products on a timely basis; to address the increasingly sophisticated needs of our customers; and to keep pace with technological developments, new competitive product offerings, and emerging industry standards. Our competitors’ introduction of products embodying new technologies and the emergence of new industry standards may render our existing products obsolete or unmarketable. While we have historically been successful in developing, acquiring, and marketing new products and product enhancements that respond to technological change and evolving industry standards, we may not be able to continue to do so. In addition, we may experience difficulties that could delay or prevent the successful development, introduction, and marketing of these products, as well as the integration of acquired products. Furthermore, our new products or product enhancements may not adequately meet the requirements of the marketplace or achieve market acceptance. In some cases, a new product or product enhancements may negatively affect sales of our existing products. If we do not respond adequately to the need to develop and introduce new products or enhancements of existing products in a timely manner in response to changing market conditions or customer requirements, our business, results of operations and financial condition may be materially adversely affected.
 
 
For additional information, see “Item 4 – Information on Check Point” and under the caption “We may not be able to successfully compete, which could adversely affect our business and results of operations” in this “Item 3 – Key Information – Risk Factors”.
 
We may need to change our pricing models to compete successfully
 
The intense competition we face in the sales of our products and services and general economic and business conditions can put pressure on us to change our prices. If our competitors offer deep discounts on certain products or services or develop products that the marketplace considers more valuable, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect results of operations. Additionally, the increasing prevalence of cloud and SaaS delivery models offered by us and our competitors may unfavorably impact pricing in both our on-premise enterprise software business and our cloud business, as well as overall demand for our on-premise software product and service offerings, which could reduce our revenues and profitability. Our competitors may offer lower pricing on their support offerings, which could put pressure on us to further discount our product or support pricing.
 
Our business, results of operations and financial condition are subject to the risks of earthquakes, fire, floods, pandemics such as COVID 19 pandemic and other natural events, as well as manmade problems such as power disruptions or terrorism or war, such as the war and hostilities between Israel and Hamas and Israel and Hezbollah have been and may continue to be adversely affected.
 
We operate our business primarily from Israel, we sell our products and have operations worldwide. For example, our headquarters in the United States, as well as certain of our research and development operations, are located in the Silicon Valley area of Northern California, a region known for seismic activity. We also have significant operations in other regions that have experienced natural disasters. A significant natural disaster occurring at our facilities in Israel or the United States or elsewhere, or where our channel partners are located, could have a material adverse impact on our business, results of operations and financial condition. In addition, acts of terrorism or war (including the war and hostilities between Israel and Hamas and Israel and Hezbollah and the significant military action against Ukraine launched by Russia and any related political or economic responses and counter-responses or otherwise by various global actors or general effect on the global economy) could cause disruptions to our or our customers’ businesses or the economy as a whole. Further, we rely on information technology systems to communicate among our workforce located worldwide. Any disruption to our internal communications, whether caused by a natural disaster, pandemics or by manmade problems, such as power disruptions or terrorism or war, could delay our research and development efforts. To the extent any of the foregoing causes disruptions or result in delays or cancellations of customer orders, our research and development efforts or the deployment of our products, our business and results of operations would be materially and adversely affected.
 
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In addition, following the Russia-Ukraine armed conflict, the United States and other countries imposed economic sanctions and severe export control restrictions against Russia and Belarus, and the United States and other countries could impose wider sanctions and export restrictions and take other actions should the conflict further escalate, which affect our exports or sales into Russia and Belarus and create difficulties in business planning and forecasting due to the uncertainty of the impact of the war on aspects of our business, such as on our distributors, resellers and end-customers.  Our efforts to comply with such measures may be costly and time consuming. We take precautions to ensure that we and our partners comply with all relevant sanctions-related regulations, any alleged or actual failure by us or our partners to comply with such laws and regulations could have negative consequences for us, including reputational harm, government investigations and penalties.  The sanctions and other macroeconomic effects of the war may also result in the devaluation of the local currency and other inflationary effects.

Prolonged economic uncertainties or downturns, globally or in certain regions or industries, could materially adversely affect our business.
 
Our business depends on our current and prospective customers’ ability and willingness to invest money in our products and security, which in turn is dependent upon their overall economic health and the strength of the broader macroeconomic environment. The negative economic conditions in the global economy or certain regions, including conditions resulting from financial and credit market fluctuations (including rising interest rates), exchange rate fluctuations, or inflation, and the potential for regional or global recessions could cause a decrease in corporate spending on cybersecurity software. Other matters that influence customer confidence and spending, such as, political unrest, public health crises, including global pandemic such as COVID-19, terrorist attacks, armed conflicts (such as the war and hostilities between Israel and Hamas and Israel and Hezbollah and the ongoing conflict between Russia and Ukraine), rising energy costs, and natural disasters, could also negatively affect our customers’ spending on our products and services. The terrorist groups in Yemen, which are threatening to limit the movement of marine shipments to Israel through the Red Sea, and the armed conflict involving Russia and Ukraine has resulted in sanctions which restrict the selling of goods, services, or technology in affected regions. The instability in these regions could further exacerbate the macroeconomic impacts on a global scale. 
 
Negative economic conditions may cause existing and prospective customers to reduce their spending. Customers may delay or cancel cybersecurity projects or seek to lower their costs by renegotiating renewals or maintenance and support agreements. Further, customers or channel partners may be more likely to refrain from making payments and/or make late payments in worsening economic conditions. If the economic conditions of the general economy or industries in which we operate continue to worsen from present levels, our business, results of operation and financial condition could be adversely affected.
 
If our products fail to protect against attacks and our customers experience security breaches, our reputation and business could be harmed
 
Hackers and other malevolent actors are increasingly sophisticated, often affiliated with organized crime and operate large scale and complex attacks. In addition, their techniques change frequently and generally are not recognized until launched against a target. If we fail to identify and respond to new and increasingly complex methods of attack and to update our products to detect or prevent such threats in time to protect our customers’ high-value business data, our business and reputation will suffer.
 
In addition, an actual or perceived security breach or theft of the sensitive data of one of our customers, regardless of whether the breach is attributable to the failure of our products, could adversely affect the market’s perception of our security products. Despite our best efforts, there is no guarantee that our products will be free of flaws or vulnerabilities, and even if we discover these weaknesses, we may not be able to correct them promptly, if at all. Our customers may also misuse our products, which could result in a breach or theft of business data.
 
Product defects may increase our costs and impair the market acceptance of our products and technology
 
Our products are complex and must meet stringent quality requirements. They may contain undetected hardware or software errors or defects, especially when new or acquired products are introduced or when new versions are released. In particular, the personal computer hardware environment is characterized by a wide variety of non-standard configurations that make pre-release testing for programming or compatibility errors very difficult and time-consuming. We may need to divert the attention of our engineering personnel from our research and development efforts to address instances of errors or defects.
 
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Our products are used to deploy and manage Internet security and protect information, which may be critical to organizations. As a result, the sale and support of our products entails the risk of product liability and related claims. We do not know whether, in the future, we will be subject to liability claims or litigation for damages related to product errors, or will experience delays as a result of these errors. Our sales agreements and product licenses typically contain provisions designed to limit our exposure to potential product liability or related claims. In selling our products, we rely primarily on “shrink wrap” licenses that are not signed by the end user, and for this and other reasons, these licenses may be unenforceable under the laws of some jurisdictions. As a result, the limitation of liability provisions contained in these licenses may not be effective. Although we maintain product liability insurance for most of our products, the coverage limits of these policies may not provide sufficient protection against an asserted claim. If litigation were to arise, it could, regardless of its outcome, result in substantial expense to us, significantly divert the efforts of our technical and management personnel, and disrupt or otherwise severely impact our relationships with current and potential customers. In addition, if any of our products fail to meet specifications or have reliability, quality or compatibility problems, our reputation could be damaged significantly and customers might be reluctant to buy our products, which could result in a decline in revenues, a loss of existing customers, and difficulty attracting new customers.
 
We are subject to risks relating to acquisitions
 
We have made acquisitions in the past, including the acquisitions of Perimeter 81, Atmosec and rmsource in 2023, Spectral in 2022 and Avanan in 2021, and we may make additional acquisitions in the future. The pursuit of acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.
 
 
Competition within our industry for acquisitions of businesses, technologies, assets and product lines has been, and may in the future continue to be, intense. As such, even if we are able to identify an acquisition that we would like to consummate, we may not be able to complete the acquisition on commercially reasonable terms or because the target is acquired by another company. Furthermore, in the event that we are able to identify and consummate any future acquisitions, we could:
 

issue equity securities which would dilute the current shareholders’ percentage of ownership;
 

incur substantial debt;
 

assume contingent liabilities; or
 

expend significant cash.
 
These financing activities or expenditures could harm our business, results of operations and financial condition or the price of our ordinary shares. Alternatively, due to difficulties in the capital and credit markets, we may be unable to secure capital on acceptable terms, or at all, to complete acquisitions. In addition, we may not be able to integrate acquired personnel, operations, and technologies successfully or effectively manage the combined business following the completion of any future acquisition. Additionally, such integration may impact our revenue and operating results. We may also not achieve the anticipated benefits from the acquired businesses due to a number of factors, including:
 

unanticipated costs or liabilities associated with the acquisition;
 

incurrence of acquisition-related costs;
 

diversion of management’s attention from other business concerns;
 

harm to our existing business relationships with manufacturers, distributors and customers as a result of the acquisition;
 

the potential loss of key employees;
 

use of resources that are needed in other parts of our business;
 

use of substantial portions of our available cash to consummate the acquisition; or
 

unrealistic goals or projections for the acquisition.
 
Moreover, even if we do obtain benefits from acquisitions in the form of increased sales and earnings, there may be a delay between the time when the expenses associated with an acquisition are incurred and the time when we recognize such benefits.
 
We are dependent on a limited number of product families
 
Currently, we derive the majority of our revenues from sales of integrated appliances and Internet security products, as well as related revenues from security subscriptions and from software updates and maintenance. We expect that this concentration of revenues from a small number of product families will continue for the foreseeable future. Endpoint security products and associated software updates, maintenance, and security subscriptions represent an additional revenue source as well as our cloud initiatives. Our future growth depends heavily on our ability to effectively develop and sell new and acquired products as well as add new features to existing products. For more details, see “Item 4 – Information on Check Point” and “Item 5 – Operating and Financial Review and Prospects”.

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Competition for highly skilled personnel is intense
 
We compete in a market marked by rapidly changing technologies and an evolving competitive landscape. In order for us to successfully compete and grow, we must attract, recruit, retain and develop personnel, at an appropriate cost, with requisite qualifications to provide expertise across the entire spectrum of our intellectual capital and business needs. In recent years, the industry has experienced record growth and activity and as a result, the high-tech industry in Israel has experienced significant levels of employee attrition and is currently facing a shortage of skilled human capital. Similar competition for highly skilled personnel exists in the U.S. and in other markets in which we operate. Failure to retain or attract qualified personnel, at an appropriate cost, could have a material adverse effect on our business, financial condition and results of operations.
 
Risks Related to Our Dependence on Third-Parties
 
We are dependent on a small number of distributors
 
We derive our sales primarily through indirect channels. During 2023, 2022 and 2021, we derived approximately 56%, 59% and 57%, respectively, of our sales from our ten largest distributors. In each of 2023, 2022 and 2021, our three largest distributors accounted for approximately 40%, of our sales. We expect that a small number of distributors will continue to generate a significant portion of our sales. Furthermore, there has been an industry trend toward consolidation among distributors, and we expect this trend to continue in the near future which could further increase our reliance on a small number of distributors for a significant portion of our sales. If these distributors reduce the amount of their purchases from us for any reason, including because they choose to focus their efforts on the sales of the products of our competitors, our business, results of operations and financial condition could be materially adversely affected.

 
Our future success is highly dependent upon our ability to establish and maintain successful relationships with our distributors. In addition, we rely on these entities to provide many of the training and support services for our products and equipment. Accordingly, our success depends in large part on the effective performance of these distributors. Recruiting and retaining qualified distributors and training them in our technology and products requires significant time and resources. Further, we have no minimum purchase commitments with any of our distributors, and our contracts with these distributors do not prohibit them from offering products or services that compete with ours. Our competitors may be effective in providing incentives to existing and potential distributors to favor their products or to prevent or reduce sales of our products. Our distributors may choose not to offer our products exclusively or at all. Our failure to establish and maintain successful relationships with distributors would likely materially adversely affect our business, results of operations and financial condition.
 
We purchase several key components and finished products from limited sources, and we are increasingly dependent on contract manufacturers for our hardware products.
 
Many components, subassemblies, and modules necessary for the manufacture or integration of our hardware products are obtained from a limited group of suppliers. The majority of our hardware is manufactured in Taiwan. Any increase in the tension between China and Taiwan, could adversely affect our manufacturing operations in Taiwan. Although we do not manufacture in China, some of our component parts are sourced from China. Our reliance on sole or limited suppliers, particularly foreign suppliers, and our reliance on subcontractors involves several risks, including a potential inability to obtain an adequate supply of required components, subassemblies, or modules and limited control over pricing, quality, and timely delivery of components, subassemblies or modules. Such risks could become exacerbated to the extent such suppliers and subcontractors are materially disrupted by quarantines, factory slowdowns or shutdowns and border closings, as well as travel restrictions such as those experienced in 2020 and 2021 due to the COVID-19 pandemic. For example, global supply chain disruptions in the first half of 2022 impacted the availability of raw products and resulted in prolonged shipping and delivery times. Availability of specific components continues to impact the global supply chain, mainly influencing on lead times. Demand is increasing supply requirements and the fast growing technology innovation can impact the availability and manufacturers’ capacity. Any material supply chain disruption could negatively impact our business, financial condition and results of operations. Although we have been successful in the past, replacing suppliers may be difficult and it is possible it could result in an inability or delay in producing designated hardware products. Managing our supplier and contractor relationships is particularly difficult during time periods in which we introduce new products and during time periods in which demand for our products is increasing, especially if demand increases more quickly than we expect. We also have extended support contracts with these suppliers and have been dependent on their ability to perform over a period of years.
 
We incorporate third-party technology in our products, which may make us dependent on the providers of these technologies and expose us to potential intellectual property claims
 
Our products contain certain technology that we license from other companies. Third-party developers or owners of technologies may not be willing to enter into, or renew, license agreements with us regarding technologies that we may wish to incorporate in our products, either on acceptable terms or at all. If we cannot obtain licenses to these technologies, we may be at a disadvantage compared with our competitors who are able to license these technologies. In addition, when we do obtain licenses to third-party technologies that we did not develop, we may have little or no ability to determine in advance whether the technology infringes the intellectual property rights of others. In the event such third-party developers and owners are otherwise unable to provide such technology or services to us, our ability to provide our products and services could be disrupted. This includes mandated government shutdowns. Our suppliers and licensors may not be required or may not be able to indemnify us in the event that a claim of infringement is asserted against us, or they may be required to indemnify us only up to a maximum amount, above which we would be responsible for any further costs or damages. Any failure to obtain licenses to intellectual property or any exposure to liability as a result of incorporating third-party technology into our products could materially and adversely affect our business, results of operations and financial condition.
 
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Failures of the third-party servers, cloud service providers and other third-party hardware, software and infrastructure on which we rely could adversely affect our business
 
We rely on servers, cloud service providers and other third-party hardware, software and infrastructure to support our operations. The owners and operators of the data centers and cloud services with which we are engaged do not guarantee uninterrupted or error-free services. Problems faced by our third-party hosting providers, including technological or business-related disruptions, could adversely impact our business and results of operations.
 
 Our servers, data centers and other facilities are also vulnerable to damage or interruption from fires, natural disasters, terrorist attacks, power loss, telecommunications failures, pandemics or similar catastrophic events. Disruptions to these servers or facilities could interrupt our ability to provide our products and services and materially adversely affect our business and results of operations.

Risks Related to Tax, Legal and Regulatory Matters
 
We are the defendants in various lawsuits and have been subject to tax disputes and governmental proceedings, which could adversely affect our business, results of operations and financial condition
 
As a global company we are subject to taxation in Israel, the United States and various other countries. We attempt to utilize an efficient operating model and accordingly to pay taxes based on the laws in the countries in which we operate. Nonetheless, various tax authorities in different parts of the world may disagree with our operating sale model. This may lead to disputes and to tax assessments, which can have a negative effect on our tax liabilities.
 
In addition, we are subject to the continuous examination by tax authorities around the world. It is possible that tax authorities may disagree with certain positions we have taken and any adverse outcome of such a review, investigation or audit could have a negative effect on our financial position and results of operations. We regularly assess the likelihood of adverse outcomes resulting from these examinations, and audits to determine the adequacy of our provision for income and other taxes, but the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made. There can be no assurance that the outcomes from continuous examinations will not have an adverse effect on our business, financial condition and results of operations.
 
In particular, following audits of the Company’s 2016 through 2020 corporate tax returns, the Israeli Tax Authority (the “ITA”) issued in January 2023 orders for the years 2016 through 2019 challenging our positions on several issues, including matters such as our position to claim a tax credit made for foreign taxes withheld on income payments that was due to us outside of Israel, taxation of interest earned outside of Israel by a wholly-owned Singapore subsidiary which the ITA is seeking to tax in Israel and deductibility of expenses attributed to employee stock options. The ITA orders also contest our positions on various other issues. The ITA therefore demanded the payment of additional taxes in the aggregate amount of NIS 479 million (approximately $132 million), not including an amount of NIS 421 million (approximately $116 million) related to expenses that will be deductible in future years, with respect of these four tax years (these amounts include interest and indexation through December 31, 2023). We believe we have good arguments against these orders and on November 29, 2023, filed an appeal to the District Court of Tel Aviv against these orders.
 
In addition, the ITA has issued tax assessment for the 2020 tax year, presenting similar arguments as those in the orders for the tax years 2016-2019, in which it demanded the payment of additional taxes in the aggregate amount of NIS 84 million (approximately $23 million), not including an amount of NIS 95 million (approximately $26 million) related to expenses that will be deductible in future years, with respect to this year (these amounts include interest and indexation through December 31, 2023). On December 31, 2023 we submitted an initial stage tax appeal against the 2020 tax assessment to the ITA (the Company may appeal such order to the district court). There is no assurance that the ITA will accept our positions on the matters raised and, if it does not, the ITA may also issue an order with respect to the 2020 tax year.
 
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We are the defendant in various other lawsuits, including employment-related litigation claims, construction claims and other legal proceedings in the normal course of our business. Litigation and governmental proceedings can be expensive, lengthy and disruptive to normal business operations, and can require extensive management attention and resources, regardless of their merit. While we currently intend to defend the aforementioned matters vigorously, we cannot predict the results of complex legal proceedings, and an unfavorable resolution of a lawsuit or proceeding could materially adversely affect our business, results of operations and financial condition. See also “Item 8 – Financial Information” under the caption “Legal Proceedings”.
 
Uncertainties in the interpretation and application of worldwide tax reforms, complex tax laws and regulations could materially affect our tax obligations and effective tax rate
 
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Tax Act”), which, among other provisions, beginning in 2022 eliminated the option to deduct research and development expenditures currently and required taxpayers to capitalize and amortize them over five or fifteen years. However, recently proposed tax legislation, if enacted, would restore the ability to deduct current U.S. research and development expenditures through 2025 and would retroactively restore this benefit for 2022 and 2023.

On August 16, 2022, Congress passed the Inflation Reduction Act of 2022. The tax provisions impose the newly introduced 15% corporate alternative minimum tax on large corporations with average annual financial statement income exceeding $1 billion and 1% excise tax on stock repurchases, which are both effective January 1, 2023. While we do not anticipate that these changes should impact our consolidated financial position regarding our U.S. subsidiaries to which this may potentially apply, we will continue to monitor as new information and guidance becomes available.

The base erosion and profit shifting (“BEPS”) project undertaken by the OECD may have adverse consequences to our tax liabilities. The first pillar of BEPS’s project is focused on the allocation of taxing rights between countries for in-scope large multinational enterprises that sell goods and services into countries with minor or no local physical presence. We do not expect to be within the scope of this Pillar 1.

In December 2022, the Council of the EU (i.e., the EU Member States) unanimously adopted the Directive on BEPS’s Pillar 2 ensuring a global minimum level of taxation at the rate of 15% for multinational enterprise (MNE) groups and large-scale domestic groups, with an annual global turnover exceeding €750 million, in the Union (the Directive). In December 2022, the OECD also issued the Safe Harbours and Penalty Relief for the Pillar Two’s Rules. On February and on July 2023, the OECD issued Guidance on the application of Pillar Two Rules. EU Member States and other non EU countries enacted legislation to integrate the provisions of the Directive and Pillar Two Rules into their national laws by  December 31, 2023 and the majority of those countries generally apply these provisions for fiscal years starting on or after  December 31, 2023.  Israel has not issued yet a proposed legislation to implement BEPS’s Pillar 2. It is anticipated that we would be impacted by the adoption of Pillar 2’s rules in the future, however it remains difficult to predict the magnitude of the effect of such new rules on our financial results. We are currently monitoring the local legislations in the relevant jurisdictions and awaiting further guidance and future local legislation expected to be enacted in Israel and its effective fiscal year to take into effect.
 
Indirect taxes including Digital Service tax (DST) measures as adopted unilaterally in certain countries could also adversely affect our tax obligations. These measures generally aim at securing taxation rights of the jurisdiction for the revenues/profits generated by the transnational e-commerce activities with customers who are resident in this specific jurisdiction. Current or future attempts to impose sales, income, or other taxes on commerce would likely increase the cost of doing business online and decrease the attractiveness of advertising and selling products over the internet, and could lead to significant increases in internal costs necessary to capture data and collect and remit taxes.
 
Additionally, we are subject to audit by taxing authorities in many jurisdictions, and tax laws may be interpreted differently by the competent tax authorities and courts, which could lead to an increase of our tax burden and increased costs to us to comply with new laws and interpretations thereof and tax auditors. New taxes or reporting obligations could also result in additional costs necessary to collect the data required to assess these taxes and to remit them to the relevant tax authorities or to comply with these reporting obligations.
 
Class action litigation due to stock price volatility or other factors could cause us to incur substantial costs and divert our management’s attention and resources
 
In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been instituted against that company. Companies such as ours in the technology industry are particularly vulnerable to this kind of litigation as a result of the volatility of their stock prices. We have been named as a defendant in this type of litigation in the past. Any litigation of this sort in the future could result in substantial costs and a diversion of management’s attention and resources.
 

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We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets
 
Because we incorporate encryption technology into our products, certain of our products are subject to U.S. export controls and may be exported outside the U.S. only with the required export license or through an export license exception. If we were to fail to comply with U.S. export licensing requirements, U.S. customs regulations, U.S. economic sanctions, or other laws, we could be subject to substantial civil and criminal penalties, including fines, incarceration for responsible employees and managers, and the possible loss of export or import privileges. Obtaining the necessary export license for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products to U.S. embargoed or sanctioned countries, governments, and persons. Even though we take precautions to ensure that we comply with all relevant regulations, any failure by us or any partners to comply with such regulations could have negative consequences for us, including reputational harm, government investigations, and penalties.
 
In addition, various countries regulate the import of certain encryption technology, including through import permit and license requirements, and have enacted laws that could limit our ability to distribute our products or could limit our end-customers’ ability to implement our products in those countries. Changes in our products or changes in export and import regulations may create delays in the introduction of our products into international markets, prevent our end-customers with international operations from deploying our products globally or, in some cases, prevent or delay the export or import of our products to certain countries, governments, or persons altogether. Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations. Any decreased use of our products or limitation on our ability to export to or sell our products in international markets would likely adversely affect our business, financial condition, and results of operations.

Risks Related to Our Intellectual Property
 
We may not be able to successfully protect our intellectual property rights, which could cause substantial harm to our business
 
We seek to protect our proprietary technology by relying on a combination of statutory as well as common law copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions as indicated below in the section entitled “Proprietary Rights” in “Item 4 – Information on Check Point”. We have certain patents in the United States and in several other countries, as well as pending patent applications. We cannot assure you that pending patent applications will be issued, either at all or within the scope of the patent claims that we have submitted. In addition, someone else may challenge our patents and these patents may be found invalid. Furthermore, others may develop technologies that are similar to or better than ours, or may work around any patents issued to us. Despite our efforts to protect our proprietary rights, others may copy aspects of our products or obtain and use information that we consider proprietary. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States and Israel. Our efforts to protect our proprietary rights may not be adequate and our competitors may independently develop technology that is similar to our technology.
 
In addition to patents, we rely on trade secret and other rights to protect our unpatented proprietary intellectual property and technology. Despite our efforts to protect our proprietary technologies and our intellectual property rights, unauthorized parties, including our employees, consultants, service providers or customers, may attempt to copy aspects of our products or obtain and use our trade secrets or other confidential information. We generally enter into confidentiality agreements with our employees, consultants, and other service providers, and generally limit access to and distribution of our proprietary information and proprietary technology through certain procedural safeguards. These agreements and arrangements may not effectively prevent unauthorized use or disclosure of our intellectual property or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our intellectual property or technology. We cannot be certain that the steps taken by us will prevent misappropriation of our intellectual property or technology or infringement of our intellectual property rights.
 
If we are unable to secure, protect and enforce our intellectual property rights, such failure could harm our brand and adversely impact our business, financial condition and results of operations.
 
We incorporate open source technology in our products which may expose us to liability and have a material impact on our product development and sales
 
Some of our products utilize open source technologies. These technologies are licensed to us under varying license structures, including the General Public License. If we have improperly used, or in the future improperly use, software that is subject to such licenses with our products in such a way that our software becomes subject to the General Public License, we may be required to disclose our own source code to the public. This could enable our competitors to eliminate any technological advantage that our products may have over theirs. Any such requirement to disclose our source code or other confidential information related to our products could materially and adversely affect our competitive position and impact our business, results of operations and financial condition.
 
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If a third-party asserts that we are infringing its intellectual property, whether successful or not, it could subject us to costly and time-consuming litigation or expensive licenses, which could harm our business
 
There is considerable patent and other intellectual property development activity in our industry. Our success depends, in part, upon our ability not to infringe upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, own or claim to own intellectual property relating to our industry. From time to time, third parties have brought, and continue to bring, claims that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. In addition, third-parties have in the past sent us correspondence claiming that we infringe upon their intellectual property, and in the future we may receive claims that our products infringe or violate their intellectual property rights. Furthermore, we may be unaware of the intellectual property rights of others that may cover some or all of our technology or products. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or royalty payments, prevent us from selling our products, or require that we comply with other unfavorable terms. In addition, we may decide to pay substantial settlement costs and/or licensing fees in connection with any claim or litigation, whether or not successfully asserted against us. Even if we were to prevail, any disputes or litigation regarding intellectual property matters could be costly and time-consuming and divert the attention of our management and key personnel from our business operations. As such, third-party claims with respect to intellectual property may increase our cost of goods sold and operating expenses, reduce the sales of our products, and may have a material and adverse effect on our business.
 
Due to the global nature of our business, we must comply with various anti-bribery regimes and any failure to do so could adversely affect our business
 
The global nature of our business creates various domestic and local regulatory challenges. The U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.K. Bribery Act 2010 (the “U.K. Bribery Act”), and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to foreign government officials and other persons for the purpose of obtaining or retaining business. In addition, companies are required to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. Further, changes in laws could result in increased regulatory requirements and compliance costs which could adversely affect our business, financial condition and results of operations.
 
As a result, we are exposed to a risk of violating anti-bribery laws in the countries where we operate. Although we have internal policies and procedures, including a code of ethics and proper business conduct, reasonably designed to promote compliance with anti-bribery laws, we cannot assure that our employees or other agents will not engage in prohibited conduct and render us responsible under the FCPA, the U.K. Bribery Act or any similar anti-bribery laws in other jurisdictions. If we are found to be in violation of the FCPA, the U.K. Bribery Act or other anti-bribery laws (either due to acts or inadvertence of our employees, or due to the acts or inadvertence of others), we could suffer criminal or civil penalties or other sanctions, which could have a material adverse effect on our business, results of operations, cash flows, financial condition, reputation and ability to win future business or maintain existing contracts.
 
Other General Risks and Risks Related to the Ownership of Our Ordinary Shares
 
We are exposed to various legal, business, political, economic, health-related and other risks associated with our international operations; these risks could increase our costs, reduce future growth opportunities and affect our results of operations
 
We operate our business primarily from Israel, we sell our products worldwide, and we generate a significant portion of our revenue outside the United States. We intend to continue to expand our international operations, which will require significant management attention and financial resources. In order to continue to expand worldwide, we will need to establish additional operations, hire additional personnel and recruit additional channel partners internationally. To the extent that we are unable to do so effectively, our growth is likely to be limited and our business, results of operations and financial condition may be materially adversely affected.
 
 
Our international sales and operations subject us to many potential risks inherent in international business activities, including, but not limited to:
 

technology import and export license requirements;
 

costs of localizing our products for foreign countries, and the lack of acceptance of localized products in foreign countries;
 

varying economic and political instability or war, including the war and hostilities between Israel and Hamas and Israel and Hezbollah and the significant military action against Ukraine launched by Russia;
 
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potential tariffs, sanctions, fines or other trade restrictions, including any political or economic responses and counter-responses or otherwise by various global actors to the significant military action against Ukraine launched by Russia;
 

imposition of or increases in tariffs or other payments on our revenues in these markets;
 

greater difficulty in protecting intellectual property;
 

difficulties in managing our overseas subsidiaries and our international operations;
 

economic, social, or political conditions, including conditions resulting from a decline in the macroeconomic environment, rising interest rates, exchange rate fluctuations and inflation;
 

political instability and civil unrest which could discourage investment and complicate our dealings with governments;
 

widespread health emergencies or pandemics, such as the COVID-19 pandemic;
 

difficulties in complying with a variety of foreign laws and legal standards and changes in regulatory requirements;
 

expropriation and confiscation of assets and facilities;
 

difficulties in collecting receivables from foreign entities or delayed revenue recognition;
 

recruiting and retaining talented and capable employees;
 

differing labor standards;
 

increased tax rates;
 

potentially adverse tax consequences, including taxation of a portion of our revenues at higher rates than the tax rate that applies to us in Israel;
 

fluctuations in currency exchange rates and the impact of such fluctuations on our results of operations and financial position; and
 

the introduction of exchange controls and other restrictions by foreign governments.
 
These difficulties could cause our revenues to decline, increase our costs or both. This is also specifically tied to currency exchange rates which have an impact on our financial statements based on currency rate fluctuations.
 
Our actual or perceived failure to adequately protect personal data could subject us to sanctions and damages and could harm our reputation and business
 
A variety of state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data. These privacy and data protection related laws and regulations, as demonstrated by the examples below, continue to evolve. New or modified laws and regulations are proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. Compliance with these laws and regulations can be costly and can delay or impede the development and offering of new products and services.
 
For example, the General Data Protection Regulation (“GDPR”) (which is applicable in both the EU and the UK), imposes stringent requirements for data processors and controllers. Such requirements include amongst other things, obligations to: i) provide data subjects with fulsome disclosures about the processing of personal information; ii) adhere to reasonable data retention limits; iii) comply with deletion requirements and requests; iv) comply with mandatory notification requirements in the case of a data breach and v) adhere to elevated standards regarding valid consent in some specific cases of data processing and vi) comply with stringent data transfer obligations (which have, since 2020, become more challenging to address). The GDPR also includes potentially severe penalties for failure to comply, inter alia, a fine up to 20 million Euros or up to 4% of the annual worldwide turnover, whichever is greater, which can be imposed. Compliance with these stringent requirements on privacy user notifications and data handling (both as they apply to us but also our customers) could increase our financial risk exposure, require us to adapt our business in order to comply with the GDPR requirements and incur additional costs.
 
Additionally, the United States has various privacy laws and its fragmented regulations increase the burden of compliance.  In California, the California Consumer Privacy Act (“CCPA”) provides data privacy rights for consumers and privacy related operational requirements for companies. California voters also passed the California Privacy Rights Act (“CPRA”) into law on November 3, 2020, which became effective on January 1, 2023. The CPRA, amongst other things, added new privacy rights and increased regulation on online advertising. Additionally, the CCPA and CPRA, and other legal and regulatory changes are making it easier for certain individuals to opt-out of having their personal data processed and disclosed to third parties through various opt-out mechanisms, which could result in an increase to our operational costs to ensure compliance with such legal and regulatory changes. The CCPA has prompted additional U.S. states to adopt privacy laws, including laws in Virginia, Colorado, Utah, and Connecticut that became effective in 2023, Texas, Montana, Oregon, and Florida that will become effective in 2024, Delaware, Iowa, New Jersey, and Tennessee that will become effective in 2025, and Indiana that will become effective in 2026.  Broad federal privacy legislation has also been proposed.
 
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Other jurisdictions have also enacted and strengthened data protection laws, which have increased the cost of complying with them for businesses. In Latin America, Brazil’s Lei Geral de Proteção de Dados (LGPD), one of the most impactful data protection laws in Latin America, came into force in August 2020 although the penalties provided by the law did not become enforceable until August 2021. The LGPD is largely aligned to the GDPR. In China, Personal Information Protection Law of the People’s Republic of China (“PIPL”) took effect on November 1, 2021. The PIPL has parallels with the GDPR given that is has extra-territorial effect, applying to data processing activities in China and outside of China in certain circumstances. In Australia, the Privacy Legislation Amendment (Enforcement and Other Measures) Bill 2022 was passed on November 28, 2022 and entered into force on December 13, 2022. This law enhances the sanctions and the maximum penalty is the greater of: (i) $50 million AUD; (ii) three (3) times the value of the benefit derived by the company from the breach; or (iii) 30% of the company’s adjusted turnover (if the value of the benefit cannot be derived).
 
 
Our actual or alleged failure to comply with applicable laws and regulations, relating to the processing and protection of personal data, could result in enforcement actions, significant penalties imposed by a regulator or data subject or other legal action against us or our customers or suppliers, which could result in negative publicity, increased operating costs, and damages, financial penalties and other liabilities, all of which could have a material adverse effect on our business and results of operations.
 
Compliance with new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance
 
Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), new SEC regulations, amendments to the Israeli Companies Law and Nasdaq Global Select Market rules are creating increased compliance costs and uncertainty for companies like ours. These new or changed laws, regulations and standards may lack specificity and are subject to varying interpretations. The implementation of these laws and their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards.
 
In addition, continuing compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal control over financial reporting requires the commitment of significant financial and managerial resources and the report of an independent registered public accounting firm on the Company’s internal control over financial reporting.
 
In connection with our Annual Report for fiscal 2023, our management assessed our internal control over financial reporting, and determined that our internal control over financial reporting was effective as of December 31, 2023, and our independent auditors have expressed an unqualified opinion over the effectiveness of our internal control over financial reporting as of December 31, 2023. However, we will undertake management assessments of our internal control over financial reporting in connection with each annual report, and any deficiencies uncovered by these assessments or any inability of our auditors to issue an unqualified report could harm our reputation and the price of our ordinary shares.
 
A small number of shareholders own a substantial portion of our ordinary shares, and they may make decisions with which you or others may disagree
 
As of February 29, 2024, our directors and executive officers owned approximately 22.4% of the voting power of  our  outstanding  ordinary shares, or 26.2% of our outstanding ordinary shares if the percentage includes options currently exercisable or exercisable within 60 days of February 29, 2024 and RSUs and PSUs vesting within 60 days of February 29, 2024. The interests of these shareholders may differ from your interests and present a conflict. If these shareholders act together, they could exercise significant influence over our operations and business strategy. For example, although these shareholders hold considerably less than a majority of our outstanding ordinary shares, they may have sufficient voting power to influence matters requiring approval by our shareholders, including the election and removal of directors and the approval or rejection of mergers or other business combination transactions. In addition, this concentration of ownership may delay, prevent or deter a change in control, or deprive a shareholder of a possible premium for its ordinary shares as part of a sale of our company.
 
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Our cash balances and investment portfolio have been, and may continue to be, adversely affected by market conditions and interest rates
 
We maintain substantial balances of cash and liquid investments, for purposes of general corporate purposes, which may include acquisitions, share repurchases and other purposes. Our cash, cash equivalents, short-term bank deposits and fixed-income marketable securities totaled $2,960 million as of December 31, 2023. The performance of the debt capital markets affects the market values of funds that are held in marketable securities. These assets are subject to price fluctuations, changes in interest rates and credit spreads, market liquidity and various other factors, including, without limitation, rating agency upgrades / downgrades that may impair some or all of their value, or unexpected changes in the financial markets’ healthiness worldwide.
 
We expect that market conditions will continue to fluctuate and the fair value of our investments may be affected accordingly. Moreover, in case we would like to liquidate some of our investments into cash – we are dependent on market conditions and liquidity opportunities, which may be impacted by economic, social, or political conditions, including, without limitation, conditions resulting from a decline in the macroeconomic environment, rising interest rates, exchange rate fluctuations, inflation, global pandemics such as the COVID-19 pandemic, global supply chain disruptions and conditions resulting from geopolitical uncertainty and instability or war, including the war and hostilities between Israel and Hamas and Israel and Hezbollah and the significant military action against Ukraine launched by Russia.
 
Financial income is an important component of our net income. The outlook for our financial income is dependent on many factors, some of which are beyond our control, and they include the future direction of interest rates, foreign exchange rates, amount of any share repurchases, acquisitions that we may execute and the amount of cash flows from operations that are available for investment. We rely on third-party money managers to manage the majority of our investment portfolio in a risk-controlled framework and subject to our investment policy. Our investment portfolio is invested primarily in fixed-income securities and short-term bank deposits, and is affected primarily by changes in interest rates and credit spreads. Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions, such as the war and hostilities between Israel and Hamas and Israel and Hezbollah and the significant military action against Ukraine launched by Russia and any related political or economic responses and counter-responses or otherwise by various global actors or general effect on the global economy. Any significant decline in our financial income or the value of our investments due to changes in interest rates, interest rate expectations, credit spreads, deterioration in the credit rating of the securities in which we have invested, or general market conditions, could have an adverse effect on our results of operations and financial condition.
 
We generally buy and hold our fixed income securities, while limiting credit risk by setting a maximum concentration limit per issuer as well as setting minimum credit rating requirement. Our fixed income investment portfolio consists primarily of government bonds, securities issued by government agencies and corporate debentures. Although we believe that we generally adhere to conservative investment guidelines, a turmoil in the financial markets may result in impairments of the carrying value of our investment assets. We classify our investments in fixed maturity securities as available-for-sale. Changes in the fair value of investments classified as available-for-sale are not recognized as income during the period, but rather are recognized as a separate component of equity until realized. Realized losses in our investments portfolio may adversely affect our financial position and results. Had we reported the cumulative changes in the fair value of our fixed income securities as part of our income, our reported net income for the year ended December 31, 2023, would have decreased by $40 million.
 
Currency fluctuations may affect the results of our operations or financial condition
 
Our functional and reporting currency is the U.S. dollar. We generate a majority of our revenues and expenses in U.S. dollars. In 2023, we incurred approximately 47% of our expenses in foreign currencies, primarily Israeli Shekels and Euros. As such, changes in exchange rates may have a material adverse effect on our business, results of operations and financial condition. The exchange rates between the U.S. dollar and certain foreign currencies have fluctuated substantially in recent years and may continue to fluctuate substantially in the future. We expect that a majority of our revenues will continue to be generated in U.S. dollars for the foreseeable future and that a significant portion of our expenses, including payroll related costs, as well as capital and operating expenditures, will continue to be denominated in the currencies referred to above. The results of our operations may be adversely affected in relation to foreign exchange fluctuations. During 2023, we entered into forward contracts to hedge against some of the risk of foreign currency exchange rates fluctuations resulting in changes in future cash flow from payments of payroll and related expenses denominated in Israeli Shekels and Euros. As of December 31, 2023, our total outstanding forward contracts that hedge against these fluctuations in foreign currency exchange rates were $207 million.
 
In addition, we entered into forward contracts to hedge the impact of fluctuations in exchange rates on assets and liabilities denominated in Israeli Shekels and other currencies. As of December 31, 2023, the total amount of outstanding forward contracts that did not qualify for hedge accounting, was $242 million. We may use derivative financial instruments, such as foreign exchange forward contracts, put and call options, and others, to mitigate the risk of fluctuations changes in foreign exchange rates on assets, cash flows receivables and payables denominated in certain currencies. We may not be able to purchase derivative instruments adequate to fully protect us from foreign currency exchange risks.
 
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Additionally, our hedging activities may also generate losses as a result of volatility in foreign currency markets. If foreign exchange markets continue to be volatile, such fluctuations in foreign exchange rates could materially and adversely affect our profit margins and results of operations in future periods. Also, the volatility in the foreign exchange markets may make it difficult to hedge our foreign currency exposures effectively.
 
The imposition of exchange or price controls or other restrictions on the conversion of foreign currencies could also have a material adverse effect on our business, results of operations and financial condition.
 
Changes in foreign exchange rates around the globe, could have an adverse impact on our business and results of operations. These changes may have an impact on some of our expenses which are paid in local currencies (non US dollar), as well as an impact on our non-US customers which have their financials in non-US dollar currencies.
 
Our information technology systems, networks and products and services have been, and may continue to be, subject to various security threats
 
Our information technology systems, networks, products, and services may be subject to various security threats or cybersecurity incidents, including from computer malware, ransomware, viruses, social engineering (including phishing attacks), denial of service or other attacks, human error, employee theft or misuse and general hacking. For example, we regularly face attempts by others to gain unauthorized access, or to introduce malicious software to our information technology systems. Additionally, malicious hackers have attempted and in the future likely will attempt to gain unauthorized access to, or sabotage, take control of or otherwise corrupt, our information technology systems, networks, processes, products and services. We are also a target of attempts to gain access to our network or data centers or those of our customers or end users, steal proprietary information related to our business, products, services, employees, and customers, or interrupt our information technology systems or networks or those of our customers or others. We may also be subject to increasing risks in connection with geopolitical events and conflicts, such as the Russia-Ukraine and Hamas-Israel conflicts, including risks of a security breach or incident, ransomware, destructive malware, and distributed denial-of-service attacks, as well as fraud, spam and fake accounts, cyber-attacks or other threats or illegal activity. Additionally, with many of our employees continuing to work remotely, we face an increased risk of attempted security breaches and incidents.  To date, no intrusions or attempts at gaining unauthorized access to our information technology systems, networks, and products and services that we have identified have resulted in any material adverse impact to our business or operations.

We also have incorporated machine learning and other artificial intelligence technologies into aspects of our products, services, and business, and may continue to incorporate additional artificial technologies into our offerings and otherwise in our business and operations in the future. The use of artificial intelligence technologies may create additional cybersecurity risks or increase cybersecurity risks, and may result in security breaches or incidents. Further, there are risks in the ongoing development in how we use artificial intelligence and machine learning technologies associated with inaccurate, biased or otherwise poor quality data and/or potential violation of laws or contracts and/or potential breach of intellectual property rights. Further, artificial intelligence technologies may be used in connection with certain cybersecurity attacks, resulting in heightened risks of security breaches and incidents.
 
There also have been and may continue to be significant supply chain attacks (such as the attacks resulting from vulnerabilities in SolarWinds Orion and other widely-used software and technology infrastructure) and we cannot guarantee that our or our third-party providers’ systems have not been breached or compromised or that they do not contain exploitable defects, vulnerabilities, or bugs that could result in a security breach or incident of or impacting, or other disruption to, our information technology systems, networks, products or services, or those of third parties that support us and our platform. We have taken steps to protect our information technology systems, networks and products and services, but our security measures or those of our customers or third-party service providers could be insufficient and breached or otherwise compromised or disrupted, including as a result of third-party action, employee, customer or user errors, technological limitations, defects or vulnerabilities, malfeasance, fraud or malice on the part of employees or third parties, including state-sponsored organizations with significant financial and technological resources, or from failures in technological resources, failures to comply with policies or otherwise. We have been, and may in the future be, impacted by these threats and our internal controls and operations regarding security may not be effective in eliminating the risk of compromise of our information technology systems or networks or our products or services.
 
For example, we have been impacted by security incidents of widely trusted third-party software and technology infrastructure, such as the SolarWinds Orion incident in December 2020. We received an inquiry from the SEC relating to our use of SolarWinds Orion software and our public disclosures relating to such software in light of access obtained to a limited testing environment of ours as a result of one or more vulnerabilities in such software, which we believed was immaterial. We have cooperated with the inquiry and are engaged in settlement discussions with the SEC relating to these matters. We believe that any payment to the SEC in connection with such settlement would not have a material impact on our results, operations or financial condition. Further, the matter does not implicate any historical financial statements we have filed with the SEC. There is no assurance that the matter will eventually be settled under the terms currently being discussed or at all, and any settlement would be subject to approval by the SEC Commissioners. 
 
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While we seek to prevent, detect and investigate unauthorized attempts, attacks and other threats against our information technology systems, network and products and services, we remain at risk to additional known or unknown threats. Any actual or perceived security breach or incident impacting us, our third-party service providers, or our customers or users, whether successful or unsuccessful, could result in reputational harm, governmental inquiries, investigations or other proceedings, penalties and significant costs, including those related to, for example, rebuilding internal systems, reduced inventory value, providing modifications to our products and services, defending against litigation, responding to regulatory inquiries or actions, paying damages, or taking other remedial steps, all of which could damage our reputation and reduce demand for our products and services. Further, we may be required or otherwise find it appropriate to expend significant resources, adapt our business activities and practices, or modify our operations or information technology in an effort to protect against security incidents and to mitigate, detect and remediate vulnerabilities, whether in connection with an actual or perceived security breach or incident or otherwise.
 
We cannot be certain that our insurance coverage will be adequate for data security liabilities incurred and, that it will cover any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.
 
We depend on our executive officers and other key employees, and the loss of one or more of these employees or an inability to attract and retain other highly skilled employees could adversely affect our business.

Our success depends largely upon the continued services of our executive officers and other key employees. There have been changes in the past, and there may be changes in the future, to our executive management team resulting from the hiring or departure of executives, which could disrupt our business. For example, we recently announced that our Founder and Chief Executive Officer, Gil Shwed, intends to transition into the role of Executive Chairman. This change will allow Gil Shwed to focus on company strategy in his new capacity as Executive Chairman, and will allow more capacity and business focus for the new Chief Executive Officer to come. We have initiated a search process to identify the next Chief Executive Officer. Mr. Shwed will assume the role of Executive Chairman once the new Chief Executive Officer is appointed.
 
The loss of one or more of our executive officers or other key employees could adversely affect our business. Changes in our executive management team may also cause disruptions in, and adverse impacts to, our business. We are currently conducting a Chief Executive Officer search and may not be successful in identifying an appropriate candidate in a reasonable amount of time. We also may not be able to successfully navigate the leadership changes while maintaining key aspects of our culture, which could have a significant negative effect on our existing business and our ability to pursue future plans.

 
Risks Related to Our Operations in Israel
 
The ongoing war and other potential political, economic and military instability in Israel, where our principal executive offices and our principal research and development facilities are located, may adversely affect our results of operations
 
We are incorporated under the laws of the State of Israel, and our principal executive offices and principal research and development facilities are located in Israel. Accordingly, political, economic and military conditions in and surrounding Israel may directly affect our business. Since the State of Israel was established in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors. Terrorist attacks and hostilities within Israel; the hostilities between Israel and Hezbollah and between Israel and Hamas; as well as tensions between Israel and Iran, have also heightened these risks.
 
In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel. These attacks resulted in extensive deaths, injuries and kidnapping of civilians and soldiers. Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and terror attacks. Following the attack by Hamas on Israel’s southern border, Hezbollah in Lebanon has also launched missile, rocket, and shooting attacks against Israeli military sites, troops, and Israeli towns in northern Israel. In response to these attacks, the Israeli army has carried out a number of targeted strikes on sites belonging to Hezbollah in southern Lebanon.
 
The intensity and duration of Israel’s current war against Hamas is difficult to predict, as are such war’s economic implications on our business and operations and on Israel's economy in general. Our principal place of business is located in Tel Aviv, Israel, which is approximately 40 miles from the nearest point of the border with the Gaza Strip. There can be no assurance that attacks launched from the Gaza Strip will not reach our facilities, which could result in a significant disruption of our business. Further, these events may be intertwined with wider macroeconomic indications of a deterioration of Israel’s economic standing, that may involve an additional downgrade in Israel's credit rating by rating agencies (such as the recent downgrade by Moody’s of its credit rating of Israel from A1 to A2, as well as the downgrade of its outlook rating from “stable” to “negative”), which may have an adverse effect on the Company and our ability to effectively conduct our operations.
 
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In addition, Israel faces threats from more distant neighbors, in particular, Iran which has threatened to attack Israel, may be developing nuclear weapons and has targeted cyber-attacks against Israeli entities, and terrorist groups in Yemen, which are threatening to limit the movement of marine shipments to Israel through the Red Sea.  Any hostilities involving Israel, a significant increase in terrorism or the interruption or curtailment of trade between Israel and its present trading partners, a potential boycott of any Israeli products, or a significant downturn in the economic or financial condition of Israel, could materially adversely affect our operations. Ongoing and revived hostilities or other Israeli political or economic factors could materially adversely affect our business, results of operations and financial condition. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government policies. Such actions, particularly if they become more widespread, may adversely impact our ability to sell our products.
 
Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot be certain that such government coverage will be maintained or that it will sufficiently cover our potential damages.
 
Uprisings and armed conflicts in various countries in the Middle East and North Africa are affecting the political stability of those countries. This instability may lead to deterioration of the political and trade relationships that exist between Israel and these countries. In addition, this instability may affect the global economy and marketplace, including as a result of changes in oil and gas prices.
 
As of beginning of 2023, there has been political tension in Israel due to the government’s intent to pursue a reform in Israel’s judicial system. This has prompted protests in Israel and triggered a considerable political debate. The proposed legislation has not become effective and its scope has not been fully determined. At this stage we cannot assess the potential business impact of these developments and their likely effect on our business, results of operation, and financial condition.
 
Our operations may be disrupted by the obligations of our personnel to perform military service
 
Many of our employees in Israel are obligated to perform annual military reserve duty in the Israel Defense Forces, in the event of a military conflict, could be called to active duty. Our operations could be disrupted by the absence of a significant number of our employees related to military service or the absence for extended periods of military service of one or more of our key employees. Military service requirements for our employees could materially adversely affect our business, results of operations and financial condition.
 
Since the war with the Hamas began on October 7, 2023, the Israel Defense Force (IDF) has called up more than 350,000 of its reserve forces to serve. Our employees who are potentially subject to military service in the IDF constitute up to 7% of our total workforce.
 
The tax benefits available to us require us to meet several conditions, and may be terminated or reduced in the future, which would increase our taxes
 
For the year ended December 31, 2023, our effective tax rate was 14%. We have benefited or currently benefit from a variety of government programs and tax benefits that generally carry conditions that we must meet in order to be eligible to obtain any benefit. Our tax expenses and the resulting effective tax rate reflected in our financial statements may increase over time as a result of changes in corporate income tax rates, other changes in the tax laws of the countries in which we operate or changes in the mix of countries where we generate profit.
 
If we fail to meet the conditions upon which certain favorable tax treatment is based, we would not be able to claim future tax benefits and could be required to refund tax benefits already received.
 
Any of the following could have a material effect on our overall effective tax rate:
 

Some programs may be discontinued,
 

We may be unable to meet the requirements for continuing to qualify for some programs,
 

These programs and tax benefits may be unavailable at their current levels, or
 
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We may be required to refund previously recognized tax benefits if we are found to be in violation of the stipulated conditions.
 
Additional details are provided in “Item 5 – Operating and Financial Review and Products” under the caption “Taxes on income”, in “Item 10 – Additional Information” under the caption “Israeli taxation, foreign exchange regulation and investment programs” and in Note 11 to our Consolidated Financial Statements.
 

Your rights and responsibilities as a shareholder are, and will continue to be, governed by Israeli law which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies
 
The rights and responsibilities of the holders of our ordinary shares are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S.- based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in the company, including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval. In addition, a shareholder who is aware that it possesses 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 limited case law available to assist in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.
 
Provisions of Israeli law and our articles of association may delay, prevent or make difficult an acquisition of us, prevent a change of control, and negatively impact our share price
 
Israeli corporate law regulates acquisitions of shares through tender offers and mergers, requires special approvals for transactions involving directors, officers or significant shareholders, and regulates other matters that may be relevant to these types of transactions. Furthermore, Israeli tax considerations may make potential acquisition transactions unappealing to us or to some of our shareholders. For example, Israeli tax law may subject a shareholder who exchanges his or her ordinary shares for shares in a foreign corporation, to taxation before disposition of the investment in the foreign corporation. These provisions of Israeli law may delay, prevent or make difficult an acquisition of our company, which could prevent a change of control and, therefore, depress the price of our shares.
 
In addition, our articles of association contain certain provisions that may make it more difficult to acquire us, such as the provision which provides that our board of directors may issue preferred shares. These provisions may have the effect of delaying or deterring a change in control of us, thereby limiting the opportunity for shareholders to receive a premium for their shares and possibly affecting the price that some investors are willing to pay for our securities.
 
Additional details are provided in “Item 10 – Additional Information” under the caption “Articles of Association and Israeli Companies Law – Anti-takeover measures”.
 
As a foreign private issuer we are not subject to the provisions of Regulation FD or U.S. proxy rules and are exempt from filing certain Exchange Act reports
 
As a foreign private issuer, we are exempt from a number of requirements under U.S. securities laws that apply to public companies that are not foreign private issuers. In particular, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the 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 annual and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act and we are generally exempt from filing quarterly reports with the SEC under the Exchange Act. We are also exempt from the provisions of Regulation FD, which prohibits issuers from making selective disclosure of material nonpublic information to, among others, broker-dealers and holders of a company’s securities under circumstances in which it is reasonably foreseeable that the holder will trade in the company’s securities on the basis of the information. For so long as we qualify as a foreign private issuer, we are not required to comply with the proxy rules applicable to U.S. domestic companies, although pursuant to the Companies Law, we disclose the annual compensation of our five most highly compensated office holders (as defined under the Israeli Companies Law) on an individual basis, including in this Annual Report.
 
As a foreign private issuer whose shares are listed on the Nasdaq Global Select Market, we may follow certain home country corporate governance practices instead of certain Nasdaq requirements
 
As a foreign private issuer whose shares are listed on the Nasdaq Global Select Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the Nasdaq Stock Market Rules. For example, we follow our home country law, instead of the Nasdaq Stock Market Rules, which require that we obtain shareholder approval for the establishment or amendment of certain equity based compensation plans and arrangements. Under Israeli law and practice, in general, the approval of the board of directors is required for the establishment or amendment of equity based compensation plans and arrangements, unless the arrangement is for the benefit of a director or a controlling shareholder, in which case compensation committee or audit committee and shareholder approval are also required. A foreign private issuer that elects to follow a home country practice instead of Nasdaq requirements must submit to Nasdaq in advance a written statement from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws. In addition, a foreign private issuer must disclose in its annual reports filed with the Securities and Exchange Commission each such requirement that it does not follow and describe the home country practice followed by the issuer instead of any such requirement. Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq’s corporate governance rules.
 
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ITEM 4. INFORMATION ON CHECK POINT

Check Point History and Development
 
Founded over 30 years ago by Gil Shwed, Check Point has continued its mission to secure the digital world for everyone, everywhere. From Firewall-1, the first stateful firewall to dynamic security innovations and to the emergence of the AI-powered, Cloud-driven Check Point Infinity Platform, Check Point has demonstrated its ability to defend and prevent what is coming. Check Point delivers collaborative security across an organization’s security architecture of the Network, Cloud, and the Workspace. Add to this Infinity Core Services that provides the comprehensive technical services to fulfill the cyber security needs of its global customers.
 
The 3 Cs to Provide the Effective Threat Prevention and Security
 
The Check Point Infinity Platform provides a comprehensive, consolidated, and collaborative security platform. Each of the three Cs plays a significant role in providing threat prevention and security across all attack vectors.
 

Comprehensive Real-time Threat Prevention: Real-time AI-powered comprehensive threat prevention across all attack vectors from code to cloud, networks, users, email and IoT. AI engines deliver industry leading threat prevention to stop the most sophisticated attacks including Zero Day Malware, Phishing and DNS.
 

Consolidated Security Operations and Unified Management: Leverage a unified security management platform for efficient security operations to deliver threat prevention to seal security gaps and enable automatic, immediate threat intelligence sharing across all security environments.
 

Collaborative True collaboration across the security platform is essential to gain advantage over attackers. Security that Automatically Responds to Every Threat: AI-powered security engines applied to any attack vector, shared real-time threat intelligence, and anomaly detection with ThreatCloud AI, automated threat response and orchestration with XDR and Playblocks, and API-based third-party integration.
 
Further, with the Infinity Platform, customers obtain these advanced core competencies:
 
AI-powered
Check Point utilizes real-time AI-powered comprehensive threat prevention across all attack vectors from code to cloud, networks, users, Email and IoT. Leveraging over 50+ AI engines to deliver industry-leading threat prevention to stop the most sophisticated attacks including Zero Day Malware, Phishing and DNS.

Cloud-driven
Infinity leverages the cloud to achieve speed, agility, and scalability. Prevention-first cloud native security across applications, workloads, and network gives customers the confidence to automate security, prevent threats, and manage posture-at cloud speed and scale.

Centralized management
Customers gain the ability to leverage a unified security management platform for efficient security operations to deliver threat prevention to seal security gaps and enable automatic, immediate threat intelligence sharing across all security environments.

Prevention-first
In years past, customers relied on threat detection capabilities. But, as sophisticated 5th generation zero-day cyberattacks appeared, conventional detection security began to lag. Detecting a breach after the fact, is too late. The rise of new attack vectors also necessitated that Check Point adopt its prevention-first security solutions approach.

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Largest partner and expert ecosystem
Our integrated approach ties innovation together with 3,500 security experts of our world-acclaimed research and intelligence unit, and a broad ecosystem of business and technology partners. In this way, Check Point’s extended family protects organizations of all sizes across all industry verticals in 88 countries, realizing a safer internet experience.
 
Check Point’s Key Platform Components
Yesterday’s security is no match for today’s advanced threats. Managing complex and disparate security tools from various vendors is becoming an artifact of the past. To defend against rapidly evolving cyber threats in an AI-driven world, organizations need a new strategy to recalibrate their cyber defenses.
 
Realizing this, Check Point developed the Infinity Platform that provides customers with key benefits, including:
 
 
Comprehensive enterprise-grade security across the data center, network, cloud, branch office, and remote users with unified management.
 

A simplified and consolidated approach to securing their entire IT infrastructure with organizations of all sizes.
 
The Infinity Platform includes the following:


Secure Mesh Networks with Quantum
Hyperscale AI-powered threat prevention for securing mesh networks including the data center, perimeter, branch and remote users. Comprehensive family of on-premise security gateways, hyperscale orchestrator, SD-WAN networking, DDoS security, automated prevention for IoT, and Cloud Security Management.
 

Secure the Cloud with CloudGuard
Unified, prevention-first cloud native security across your applications, workloads, and network-giving the confidence to automate security, prevent threats, and manage posture-at cloud speed and scale.
 

Secure the Workspace with Harmony Prevents sophisticated attacks across the IT workspace including emails, web applications, devices and remote corporate access.
 

Collaborative Security Operations with Infinity Core Services
Collaborative prevention first security operations and unified management including Extended Prevention and Response (XDR), orchestration, automation, ThreatCloud AI and generative AI copilot, supported by Check Point 24/7 managed security services, consulting and training.

In addition, managed and professional services fortify your defense with a comprehensive suite of managed and professional cyber security services including managed detection and response, incident response, security architecture design, consulting and training.

Protecting the World from Sophisticated Cyber Security Attacks
Over the last three decades, the technologies behind cyber attacks and the ensuing preventative measures have advanced rapidly, especially with the rise and availability of Generative AI. 2023 was yet another year for an increasing number of cyber attacks targeting organizations of all sizes and across all industries.
 
Adversaries exploited zero-day vulnerabilities by employing disruptive wipers that utilize emerging RaaS (Ransomware-as-a-Service) tactics and target edge devices, amplifying the complexity of cyber threats. The threat landscape became even more complex as cybercriminals have adopted artificial intelligence (AI) to fuel their cyber exploits. In response, Check Point has evaluated how to best prevent, detect, and respond to elevated cyber attacks. Instead of relying on past security strategies, organizations can thwart advanced cyberthreats with Check Point’s comprehensive cyber security platform solution.

Check Point Infinity Platform Product Solutions
Customer security requirements can change rapidly, such as the explosive growth of AI. While different industry sectors can have unique security needs, they all share one clear desire: To obtain security solutions which are uniformly Comprehensive, Consolidated and Collaborative. These 3 Cs are the core of Check Point offerings and they are clearly achieved through our Infinity Platform and the four strategic solution areas.
 
Quantum: Secure Your Network and Data Center security for perimeter and datacenter
 
Aimed to secure and effectively manage datacenter environments. Check Point Quantum Security Gateways deliver comprehensive security beyond any Next Generation Firewall (NGFW) and manage the most complex security policy requirements. Powered with over 60 security services, these gateways are designed to prevent the most evasive and sophisticated 5th generation cyber-attacks.
 
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Check Point Quantum Network Security provides effective and ultra-scalable protection against the most dangerous cyber-attacks targeting customers' networks, cloud, data center, IoT devices, and employees across the enterprise.
 
The speed and evolution of today's zero-day DNS and phishing attacks requires AI-powered threat prevention to predict and block malicious behavior without human intervention. Check Point's innovative cybersecurity software revolutionizes cyber security and policy management by leveraging AI-powered, cloud-delivered advanced threat prevention, cloud services, integrated IoT security and SD-WAN, and firewall performance auto-scaling to secure mission critical applications.
 
Quantum Security Gateways and firewalls deliver comprehensive security beyond any Next Generation Firewall (NGFW) and are designed to manage the most complex security policy requirements and prevent the 5th generation of cyber-attacks.  Quantum Security gateways are powered by over 60 security services, including the industry’s complete range of security capabilities including firewalling, intrusion prevention, application control, anti-malware, anti-phishing, DNS security, as well as sandboxing and file sanitization of email and web documents. All Check Point security gateways receive immediate threat data from Check Point’s ThreatCloud AI global threat intelligence system.
 
Announcing Quantum Force AI-Powered Security Gateways
In February 2024, Check Point introduced a major addition to its enterprise security gateway product line - the new Quantum Force series.  This innovative lineup of ten high-performance security gateways and firewalls are designed to meet and exceed the stringent security demands of enterprise data centers, network perimeters, campuses, and organizations of all sizes and industries.
 
Powered by the advanced Check Point Infinity Platform, which integrates cloud-based security intelligence, Quantum Force Security Gateways present a sophisticated automated threat response system. In addition, customers can manage their Quantum on-premises firewalls and Check Point CloudGuard Network cloud firewalls through a single consolidated management console, to deliver the same consistent security policy across their entire enterprise.
 
Quantum Maestro: Hyper scalable security platform delivers on-demand scalability for requirements that range from 30 Gbps to over 1 Terabits per second of full threat prevention. Organizations of any size can benefit from Maestro’s intelligent load balancing firewall cluster design.
 
Quantum Lightspeed: Data center firewalls, designed for the most demanding environments in the world.
 
Quantum Titan (R81.20) (security operating system / software): All Quantum Force security gateways and firewalls share the same underlying security operating system.  This latest threat prevention and security management release delivers top rated threat prevention, cloud services, and performance acceleration for Check Point firewalls.  This industry-leading operating system provides security controls and management that are a foundational and integral part of today’s security infrastructure. The Quantum Titan release introduced three new software blades that leverage artificial intelligence (AI) and deep learning, to deliver advanced threat prevention against advanced domain name system exploits (DNS) and phishing, as well as autonomous IoT security. Check Point Quantum Titan platforms can provide both IoT device discovery and automatically apply zero-trust threat prevention profiles to protect IoT devices.
 
Quantum Spark: This family of small/medium businesses (SMB) security gateways and firewalls feature best-in-class threat prevention performance up to 5 Gbps threat prevention. These firewalls are easy to deploy and manage, and they integrate communication and security into an “all in one” solution. Quantum Spark security gateways provide protection for businesses with 1 to 1000 employees, and they can be easily managed from a web portal and from a mobile app. Alternatively, Quantum Spark firewalls can be managed by local Managed Service Providers (MSPs) using Check Point’s specialized MSP management system. Quantum Spark firewalls also offer additional important features including 5G Cellular and Wi-Fi 6 connectivity as well as cloud services like SD-WAN and IoT security.
 
In 2024, Check Point introduced the new high-performance Quantum Spark 1900/2000 series. These new security gateways offer high-performance network security at scale with zero-touch provisioning, advanced cloud management, and automated threat management capabilities, making them ideal for medium-sized businesses.
 
Quantum IoT Protect: Enables Check Point Security Gateways to auto-discover all IoT devices in a customer’s environment. Automatically identifies and maps IoT devices and assesses the risk. Prevents unauthorized access to and from IoT/OT devices with zero-trust profiling and segmentation, and blocks zero-day IoT attacks.
 
Quantum SD-WAN: Quantum SD-WAN is a new software blade in Check Point Quantum Gateways that extends Check Point’s marketing-leading threat prevention to Software Defined Wide Area Networks (SD-WAN) for optimized network performance and internet connectivity optimized connectivity. Quantum SD-WAN enables enterprises to leverage local internet service providers for faster, less expensive internet connectivity without compromising security. Check Point’s Quantum SD-WAN takes a security-first approach to networking by delivering advanced threat prevention along with optimized internet connectivity.
 
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Quantum Rugged (Industrial/OT): Quantum Rugged Security Gateways are specifically engineered to protect against attacks directed at Industrial Control Systems (ICS) and Operational Technology (OT) networks. These firewalls are purpose-built for industrial, manufacturing, and critical infrastructure environments. Check Point Quantum Rugged security gateways deliver proven, integrated AI security, high-speed secure 5G connectivity and more for deployments in harsh environments as part of a complex end-to-end ICS security solution.

CloudGuard: Prevention-First Cloud Security
From code to cloud, Check Point CloudGuard delivers comprehensive cloud native security (CNAPP), across applications, workloads, and network to prevent threats and reduce risks at cloud speed and scale. CloudGuard’s prevention-first approach protects applications and workloads throughout the software development lifecycle, and includes an effective risk management engine, with automated remediation prioritization, to allow users to focus on the security risks that matter, in context. Check Point cloud native security, delivered through CloudGuard, provides automated security and advanced threat prevention to protect cloud assets and workloads from cyber threats including sophisticated cyber-attacks and misconfigurations. CloudGuard secures cloud workloads in multiple environments including Amazon AWS, Microsoft Azure, Google, and others providing relevant capabilities for each cloud environment.
 
 
Cloud Network Security: advanced threat prevention and network security through a virtual security gateway—automated and unified across all multi-cloud and on-premises environments.

 
Cloud Native Application Protection Platform (CNAPP): secure the entire application lifecycle from code-to-cloud. Manage your security posture, detect misconfigurations, enforce best practices, prevent threats, and prioritize risks.

 
Pipeline Security: developer-centric security that seamlessly monitors, classifies, and protects codes, assets, and infrastructure. Protect against exposed API keys, tokens, and credentials, as well as identify and stop misconfigurations.

 
Security and Posture Management: automates governance across multi-cloud assets and services including visualization and assessment of security posture, misconfiguration detection, and enforcement of security best practices and compliance frameworks. prevent threats and achieve high fidelity posture management.

 
Cloud Identity and Entitlement: optimize user and workload access and privilege management to ensure a least privilege state and eliminate overly permissive roles. Gain visibility of effective permissions identify over permissive entitlements and implement suggested roles.

 
Cloud Workload Protection: seamless vulnerability assessment and runtime protection of modern cloud workloads, including serverless functions and containers.

 
Cloud Web Application Protection: powered by contextual-AI, protects web applications and APIs from the most sophisticated types of threats.

 
Cloud Detection and Response: cloud native threat security forensics through rich machine learning visualization, giving real-time context of threats and anomalies across your multi-cloud environment.
 
Harmony: Securing the Workspace
Check Point Harmony protects employees, devices, and internet connectivity from malicious attacks, while ensuring secure, remote zero-trust access at any scale to any corporate application. Check Point Harmony provides endpoint and secure connectivity in various forms for easy and comprehensive remote user access.
 
Harmony unifies security products to deliver complete remote workspace user security.
 

Harmony SaaS discovers all your SaaS services, reduces your attack surface and automatically prevents SaaS-based threats using machine learning engines.
 

Harmony SASE converges network security capabilities into a single solution with unified management, internet security, and comprehensive Zero Trust network access.
 

Harmony Endpoint protects users’ PCs from ransomware, phishing, and malware, and minimizes breach impact with autonomous detection and response capability.
 

Harmony Mobile protects employees’ mobile devices against malicious apps and network or operating systems attacks.
 
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Harmony Email & Collaboration secures users’ email clients and gives protection for Microsoft Office 365, Exchange, Google G, and others. In 2021, we extended Harmony with cloud-email security with the acquisition of Avanan – a leading cloud-email security company.
 

Secure Internet Browsing: Provides secure, fast, and private web browsing by inspecting all SSL traffic directly on the endpoint.
 

Secure remote access to corporate applications: Harmony Connect provides Secure Access Service Edge (SASE) and provides secure and easy access to any corporate application.
 
Infinity Core Services
Combine the power of AI Powered Threat Intelligence with Generative AI for industry leading threat prevention, automated threat response, and efficient security administration.
 
Comprehensive threat intelligence defends against what is coming next
 
ThreatCloud AI: The Brain Behind Check Point’s Best Security
Enhance security with precise prevention against the most sophisticated attacks with the intelligence of ThreatCloud AI, the central nervous system for all our security solutions.
 
Infinity AI Copilot: Your AI-Powered Security Assistant
Transforming cyber security with Intelligent GenAI and automation to improve security effectiveness and make security administrators more efficient.


Accelerate security administration

Increase security effectiveness

Improve incident mitigation and response

Check Point Technology Leadership in 2023

During 2023 we were endorsed by market analysts for our leadership position. Check Point was mentioned in over 170 analyst reports in 2023. Below are some of the highlight reviews:
 
Forrester
 

The Forrester Wave™: Zero Trust Platform Providers, Q3 2023
 

The Forrester Wave™: Enterprise Email Security, Q2 2023
 
Frost & Sullivan
 

Company of The Year Award 2023 “Best In Class Global Next Generation Firewall Industry
 

Radar for Cloud Native Protection Platform 2023
 

Radar for Cloud Workload Protection Platforms 2023
 

Radar for Endpoint Security 2023
 

Radar Extended Detection & Response 2023
 
GigaOm
 

Next Generation Firewall Radar
 

Radar for Cloud Security Posture Management 2023
 

Radar for Cloud Network Security, 2023
 

Radar for Ransomware Prevention 2023
 

Radar for Endpoint Detection & Response (EDR) 2023
 
Omdia
 

Universal Radar for Email Security 2023

Miercom


For the second consecutive year, Check Point attained Secure Certification with its #1 position in Miercom’s 2024 Security Benchmark Report. Miercom lab tests showed 99.8% prevention of unknown attacks and 100% of phishing attacks. The average malware block rate for Check Point competitors was 69.2%.
 
26

Acquisition  and other Corporate Information
 
In September 2023, we acquired 100% of the share capital of Perimeter 81 Ltd., a privately held Israeli company and a leading provider of Zero Trust Network Access (ZTNA) and Secure Service Edge (SSE).
 
In September 2023, we acquired 100% of the share capital of Atmosec Ltd., a privately held Israeli company that specializes in the rapid discovery and disconnection of malicious SaaS applications, preventing risky third party SaaS communications, and rectifying SaaS misconfigurations. 
 
In October 2023, we acquired 100% of the share capital of rmsource Inc., a privately held US-based company and a provider of managed security, cloud and IT services, to expand Infinity Global Services with new managed security services across networks, cloud and security operations.
 
In February 2022, we acquired 100% of the share capital of Spectral Cyber Technologies Ltd., a privately held Israeli company and key innovator in developer-first security tools designed by developers for developers, to extend our cloud solution, Check Point CloudGuard.
 
In September 2021, we acquired 100% of the share capital of Avanan, Inc., a privately-held US-based company providing cloud email security, and the developer of a patented application-programming interface (API) solution to stop email threats before arriving to the inbox (inline), for both internal and external emails using AI based engines.
 
Further details regarding the material events in the development of our business since the beginning of 2020 are provided in “Item 5 – Operating and Financial Review and Prospects” under the caption “Overview”.
 
We incorporated as a company under the laws of the State of Israel in 1993 under the name of “Check Point Software Technologies Ltd.” Our registered office and principal place of business is located at 5 Shlomo Kaplan Street Tel Aviv 6789159, Israel. The telephone number of our registered office is 972-3-753-4555. Our company’s website is www.checkpoint.com. The contents of our website are not incorporated by reference into this Annual Report.
 
This Annual Report is available on our website. If you would like to receive a printed copy via mail, please contact our Investor Relations department at 100 Oracle Parkway, Suite 800, Redwood City, CA 94065, U.S.A., Tel.: +16506282040, email: ir@checkpoint.com.
 
Our agent for service of process in the United States is CT Corporation System, 818 West Seventh Street, Los Angeles, CA 90017 U.S.A.; Tel: 213-627-8252.
 
 
Revenues by Category of Activity
 
The following table presents our revenues for the last three fiscal years by category of activity:
 
 
 
Year Ended December 31,
 
 
 
2023
   
2022
   
2021
 
 
 
(in millions)
 
Category of Activity:
           
Products and licenses
 
$
497.4
   
$
554.9
   
$
513.9
 
Security subscriptions
 
$
981.2
   
$
858.0
   
$
755.2
 
Software updates and maintenance
 
$
936.1
   
$
917.0
   
$
897.7
 
 
                       
Total revenues
 
$
2,414.7
   
$
2,329.9
   
$
2,166.8
 

27

 
Sales and Marketing

We mostly sell our products and services through a two-tier distribution model; distributors that sell to resellers and to service providers and MSSPs, who sell to end-customers. We support our channel partners with a dedicated team of experienced sales professionals including account managers, channel managers and sales engineers.

Our marketing efforts include building our brand through a newly launch thought leadership campaign with the theme “Security in Action.” Check Point marketing includes corporate marketing, as well marketing for products, partners, field promotions, digital promotions, and solutions-oriented thought leadership. In 2023, we continued to invest in sales and marketing resources.
 
In 2022, the Global Commercial Organization (GCO) was formed to further unify sales and marketing.
 
As of December 31, 2023, we had 3,038 employees and subcontractors in our sales and marketing organization, with a majority of them dedicated to pre sales and marketing support located in various jurisdictions.
 
Support and Services
 
We operate a worldwide technical services organization which provides a wide range of services including: (i) technical customer support programs and plans; (ii) professional services in implementing, upgrading and optimizing Check Point products, such as design planning and security implementation; and (iii) certification and educational training on Check Point products.
 
Our technical assistance centers in the United States, Israel, Canada, Japan, India, China and Australia offer support worldwide, 24-hour service, seven days per week. 
 
As of December 31, 2023, we had 1,060 employees and subcontractors in our technical services organization.

Research and Product Development
 
We believe that our future success will depend upon our ability to enhance our existing products, and to develop, acquire and introduce new products to address the increasingly sophisticated needs of our customers.
 
As of December 31, 2023, we had 1,956 employees and subcontractors dedicated to research and development activities and quality assurance.
 
Competition
 
Information concerning competition is provided in “Item 3 – Key Information” under the caption “Risk Factors – Risks Related to Our Business and Our Market – We may not be able to successfully compete, which could adversely affect our business and results of operations”.
 
Environmental, Social and Governance (ESG) Practices
 
Since Check Point’s inception, our sole focus has been on making the world a safer place to live and work. For over 30 years, we have worked to fulfill our vision of making the Internet secure, reliable, and available for corporations and consumers. As a global brand with material social and economic influence, we recognize that our success can only be built alongside the success of our stakeholders – including, our channel partners, customers, suppliers and employees. We aim to achieve high ESG standards while continuing to develop our business and executing on our strategy.
 
Our Commitment. Check Point is committed to making the world a safer and more secure place. In the digital era, this commitment applies to our work both on the internet and the physical world alike.
 
As we aspire to achieve a more sustainable future for all, we have set out the following practices and guidelines which our employees and stakeholders are expected to adhere to:
 
Social Standards:
 

I.
CommunityHow we value each other – We believe in creating a more sustainable future for our stakeholders and for the world. We are extremely involved in the community and we invest greatly in volunteering and donations activities in an attempt to make the world a better place.
 

Corporate Responsibility Policy – Check Point strongly believes that creating a positive economic, social and environmental impact advances its mission of developing security solutions to protect business and consumer transactions, and creating a more sustainable future for its stakeholders and the for the world. As part of Check Point’s corporate responsibility guidelines, Check Point identified ESG issues that are of highest relevance to its business activity and its stakeholders. These essential issues are addressed and managed constantly to ensure that they remain up to date and optimized to address the relevant concerns.
 
28


Social Investment and Volunteer Statement – Check Point invests in its worldwide volunteering and donations activities as it is committed to making the world a safer and a better place in order to achieve a more sustainable future for all, and is committed to the social needs of the communities we live and operate in.
 

Human Resources – How we value ourselves – The most important asset of our company is our human capital. We are committed to creating a diverse, healthy, and supportive work environment where our employees can grow and learn together.
 

Human Rights and Labor Policy – Check Point strives to treat its employees, contractors and suppliers with dignity and respect. Check Point promotes a safe, healthy, and supportive work environment and condemns modern slavery and human trafficking in any form. Check Point’s commitment includes closely monitoring its compliance with international standards and local laws in all of our locations around the world to ensure that the rights of our employees are protected.
 

Workforce Diversity and Equality Statement As a leading cyber security company, we are committed to nurturing diversity and equality while breaking the bias in the workplace when hiring, training, and evaluating our employees. Our teams are committed to creating a conscious culture that promotes open communication with the goal of a more equitable outcome for all. We believe that a diverse workforce encourages a wider variety of skills, talents, and viewpoints, leading to further creativity and innovation.
 

Training and Employee Development Policy –Investing in the training and development of our employees, managers and groups within the company contributes not only to them, but also to Check Point as a whole. By providing our employees and managers with learning and development activities, we enable the company to achieve its business targets, and the people to constantly grow professionally.
 

Anti-Slavery Policy – Check Point has zero tolerance towards modern slavery.
 

II.
Supply ChainHow we value the process – We assure the high standards of our supply chain conduct by ensuring that the working conditions in our operations and supply chain are safe and that business operations are conducted ethically
 

Supply Chain Code of Conduct –We demand our suppliers of products and services to comply with our high standards and values.
 

Supply Chain Policy – Check Point considers honesty, integrity, transparency and open communication core values of our business and operations.
 

Conflicts Minerals Policy – In certain conflict areas around the world, such as the Democratic Republic of the Congo and adjoining countries, the trade of certain minerals and derivative metals can be used to support corruption, money laundering and human rights abuses. In order to eradicate such behavior, Check Point has adopted a Conflicts Minerals Policy.
 
Environmental Standards:
 

III.
Environment How we value our surroundings – We take an active part in helping to ensure the sustainability of the world’s resources and environment.
 

Environmental Policy – Check Point understands that climate change and the global warming have observable effects on the environment. Check Point’s impact on the environment is generally through our products, services and facilities. We comply with the applicable environmental laws and regulations and strive to be a leader in the environmental sustainability field.
 

Board oversight - Our board of directors has a dedicated committee for overseeing environmental, social, and governance (ESG) matters (the Nominating, Sustainability and Corporate Governance Committee), which is responsible for ensuring that our environmental policies and practices are consistent with our overall business strategy. The committee reviews our environmental performance on a periodic basis.
 
Governance Standards:
 

IV.
Corporate GovernanceHow we value our method – We have adopted corporate governance guidelines to assist our Board in carrying out its responsibilities and serving the interests of our company and its shareholders.
 

Corporate Governance Guidelines – Our board of directors has adopted Corporate Governance Guidelines to assist the board of directors in carrying out its responsibilities and serving the interests of the Company and its shareholders in a manner that is consistent with the board of director’s fiduciary duties.
 
29


Committee Charters – We have adopted written charters specifying the duties and responsibilities of each of our Audit Committee, Compensation Committee and Nominating, Sustainability and Corporate Governance Committee to assist the committee members in carrying out their responsibilities.
 

V.
EthicsHow we value what is right – Check Point promotes core values of honest and ethical conduct, integrity, open communication, equal opportunity and diversity.
 

Code of Ethics and Business Conduct – Check Point is a worldwide leader in developing security solutions to protect business and consumer transactions, and communications over the internet. Our goodwill and reputation are affected by what we do every day. By putting our commitment in writing we clearly set out the business practices that we follow and set clear standards of behavior for everyone associated with our organization.
 

Privacy Policy – Our Privacy Policy explains how Check Point treats personal information that Check Point collects or generates both in relation to the Check Point website (www.checkpoint.com) and our products and services.
 

Whistle Blower Procedure – Check Point strives to promote its values and establish uniformity within the company. Check Point’s employees and business partners are expected to adhere to and follow the standards and principles we set. In order to support the adherence to our Code of Ethics and Business Conduct as well as other policies, we provide different channels for reporting, which include the Whistle Blower Procedure. This is crucial for our high standards and values.
 

Insider Trading Policy – This policy provides guidelines to employees, consultants, contractors, officers and directors of Check Point with respect to transactions in Check Point’s securities.
 

Anti-Corruption, Bribery and Money Laundering Policy – Check Point’s goodwill and reputation are affected by what we do every day. Check Point clearly sets out the business practices that we follow and set clear standards of behavior for everyone associated with our organization. Our culture and values help us build trust with our customers, business partners, investors, other organizations and governments, and trust and integrity is the core of our business and operations.
 
On the diversity side, a described in Item 6, four senior executive officers reporting to the CEO are female executives.
 
Oversight of our risks, strategies, policies, programs and practices related to ESG matters is conducted by our nominating, sustainability and corporate governance committee, and our ESG Manager leads the day-to-day management of ESG matters.
 
Our ESG report that detail our philosophy and the various initiatives under each of the standards above is available on our website at https://www.checkpoint.com/about-us/esg/; neither the report nor the contents of our website are incorporated by reference into this Annual Report.
 
 Proprietary Rights
 
Check Point relies on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect its proprietary rights. Check Point relies on trade secrets and copyright laws to protect its software, documentation, and other written materials. Further, Check Point generally enters into confidentiality agreements with employees, consultants, customers and potential customers, and limits access and distribution of materials and information that the company considers proprietary.
 
Check Point and its subsidiaries have 137 issued patents in the U.S. and in other regions and 20 pending patent applications worldwide. Our efforts to protect our patent rights and other proprietary rights may not be adequate and our competitors may independently develop technology that is similar. Additional details are provided in “Item 3 – Key Information” under the caption “Risk Factors – Risks Related to Our Business and Our Market – We may not be able to successfully protect our intellectual property rights”.
 
Effect of Government Regulation on our Business
 
Information concerning regulation is provided in “Item 5 – Operating and Financial Review and Products” under the caption “Taxes on income” and in “Item 10 – Additional Information” under the caption “Israeli taxation, foreign exchange regulation and investment programs”.
 
30

Organizational Structure
 
We are organized under the laws of the State of Israel. We wholly own the subsidiaries listed below, directly or through other subsidiaries, unless otherwise specified in the footnotes below:
 
NAME OF SUBSIDIARY
 
COUNTRY OF INCORPORATION
Check Point Software Technologies, Inc.
 
United States of America (Delaware)
Check Point Software (Canada) Technologies Inc.
 
Canada
Check Point Software Technologies (Japan) Ltd.
 
Japan
Check Point Software Technologies (Netherlands) B.V.
 
Netherlands
Check Point Holding (Singapore) PTE Ltd.
 
Singapore
Check Point Holding (Singapore) PTE Ltd. – Rep office Indonesia (1)
 
Singapore
Check Point Holding (Singapore) PTE Ltd. –US, NY Branch (2)
 
Singapore
Israel Check Point Software Technologies Ltd. China (3)
 
China
Check Point Holding AB (4)
 
Sweden
Check Point Advanced Threat Prevention Ltd. (12)
 
Israel
Check Point Mobile Security Ltd.          (12)
 
Israel
Check Point Software Technologies South Africa PTY. Ltd
 
South Africa
Check Point Software (Kenya) Limited
 
Kenya
Check Point Software Technologies B.V Nigeria Ltd. (5)
 
Nigeria
Check Point Public Cloud Security Ltd.          (12)
 
Israel
Check Point Web Applications and API Protection Ltd.
 
Israel
Protego Labs, Inc.
 
United States of America (Delaware)
Check Point IOT Security Ltd.
 
Israel
Check Point Serverless Security Ltd. (6)
 
Israel
Check Point Secure Remote Access Ltd.          (12)
 
Israel
Check Point Email Security Ltd.  (7)
 
Israel
Avanan, Inc.
 
United States of America (Delaware)
Check Point Developer Security Tools Ltd. (12)
 
Israel
Check Point Software Technologies (Sweden) AB. (8)
 
Sweden
Check Point Software Technologies (Sweden) AB. – Dubai Branch (9)
 
Sweden
Zone Labs, L.L.C. (10)
 
United States of America (California)
R&M Computer Consultants, Inc. (10)
 
United States of America (North Carolina)
RM Source Australia PTY Ltd.  (11) (13)
 
Australia
Check Point SAAS Security Ltd. (12)
 
Israel
Atmosec, Inc. (13)
 
United States of America (Delaware)
Check Point SSE Solutions Ltd.(12)
 
Israel
Perimeter 81 LLC (13)
 
United States of America (Delaware)
 

(1)
Representative office of Check Point Holding (Singapore) PTE Ltd.
(2)
Branch of Check Point Holding (Singapore) PTE Ltd.
(3)
Representative office of Check Point Software Technologies Ltd.
(4)
Subsidiary of Check Point Holding (Singapore) PTE Ltd. (former name: Protect Data AB)
(5)
Subsidiary of Check Point Holding (Singapore) PTE Ltd. and Check Point Yazilim Teknolojileri Pazarlama A.S.
(6)
Subsidiary of Protego Labs, Inc
(7)     Subsidiary of Avanan, Inc.
(8)
Subsidiary of Check Point Holding AB
(9)
Branch of Check Point Software Technologies (Sweden) AB.
(10)
Subsidiary of Check Point Software Technologies Inc.
(11)
Subsidiary of R&M Computer Consultants, Inc.
(12)
Under intercompany merger process into Check Point Software Technologies Ltd.
(13)
Under intercompany transfer and/or merger processes.

31

 
 
Check Point Software Technologies (Netherlands) B.V. acts as a holding company. It wholly owns all or substantially all of the share capital of the principal operating subsidiaries listed below, unless otherwise indicated in the footnotes below:

NAME OF SUBSIDIARY
 
                    COUNTRY OF  INCORPORATION
Check Point Software Technologies S.A.
 
Argentina
Check Point Software Technologies (Australia) PTY Limited
 
Australia
Check Point Software Technologies (Austria) GmbH
 
Austria
Check Point Software Technologies Belarus LLC
 
Belarus
Check Point Software Technologies (Belgium)
 
Belgium
Check Point Software Technologies (Brazil) LTDA
 
Brazil
Check Point Software Technologies (Hong Kong) Ltd. (Guangzhou office) (1)
 
China
Hong Kong SAR Check Point Software Technologies (Hong Kong) Ltd. (Shanghai office) (1)
 
China
Check Point Software Technologies (Czech Republic) s.r.o.
 
Czech Republic
Check Point Software Technologies (Denmark) ApS
 
Denmark
Check Point Software Technologies (Finland) Oy
 
Finland
Check Point Software Technologies Eurl
 
France
Check Point Software Technologies GmbH
 
Germany
Check Point Software Technologies (Greece) SA
 
Greece
Check Point Software Technologies (Hungary) Ltd.
 
Hungary
Check Point Software Technologies (Hong Kong) Limited
 
Hong Kong
Check Point Software Technologies India Private Limited
 
India
Check Point Software Technologies (Italia) S.r.l
 
Italy
Check Point Software Technologies Mexico S.A. de C.V.
 
Mexico
Check Point Software Technologies (Beijing) Co., Ltd.
 
China
Check Point Software Technologies (New Zealand) Limited
 
New Zealand
Check Point Software Technologies Norway A.S.
 
Norway
Check Point Software Technologies (Philippines) Inc.
 
Philippines
Check Point Software Technologies (Poland) Sp.z.o.o.
 
Poland
CPST (Portugal), Sociedade Unipessoal Lda.
 
Portugal
Check Point Software Technologies (RMN) SRL
 
Romania
Check Point Software Technologies (Russia) OOO
 
Russia
Check Point Software Technologies (Korea) Ltd.
 
South Korea
Check Point Software Technologies (Spain), S.A.
 
Spain
Check Point Software Technologies (Switzerland) AG
 
Switzerland
Check Point Software Technologies (Taiwan) Ltd.
 
Taiwan
Check Point Yazilim Teknolojileri Pazarlama A.S.
 
Turkey
Check Point Software Technologies (UK) Ltd.
 
United Kingdom
 

(1)
Representative office of Check Point Software Technologies (Hong Kong) Ltd.
 
32

 

Property and Equipment

As of December 31, 2023, we own our headquarters located in Tel Aviv, Israel and we lease offices in various locations throughout the world. The breakdown in the various geographies is as follows:
 
Location
 
Space (square feet)
 
Israel
   
413,000
*)
Americas
   
135,000
 
Europe, Middle East and Africa
   
61,000
 
Asia Pacific
   
43,000
 



*)
We acquired ownership of our international headquarters located in Tel Aviv, Israel pursuant to a pre-paid 49 year long-term lease on the land with the City of Tel Aviv – Jaffa. No additional payments are due under such long-term lease. Our international headquarters building contains approximately 332,000 square feet of office space. In addition, we lease approximately 80,000 square feet of additional space substantially all in Tel Aviv, Israel.
 
Principal Capital Expenditures and Divestitures
 
For more information regarding our principal capital expenditures currently in progress, see “Item 5 – Operating and Financial Review and Prospects” under the caption “Liquidity and Capital Resources”.
 
ITEM 4A. UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
For discussion related to our financial condition, changes in financial condition, and the results of operations for 2022 compared to 2021, refer to Part I, Item 5. Operating and Financial Review and Prospects, in our Annual Report on Form 20-F for the fiscal year ended December 31, 2022, which was filed with the U.S. Securities and Exchange Commission on April 27, 2023 and which is hereby incorporated by reference.
 
The following discussion and analysis is based on our consolidated financial statements including the related notes, and should be read in conjunction with them. Our consolidated financial statements are provided in “Item 18 – Financial Statements”.
 
Overview
 
We develop, market and support a wide range of products and services for IT security by offering a multilevel security architecture that defends enterprises’ cloud, network, mobile devices, Endpoints information and IOT solutions. Our solutions operate under a unified security architecture, Infinity, that enables end-to-end security with a single line of unified security gateways and allow a single agent for all endpoint security that can be managed from a single unified management console. This unified management allows for ease of deployment and centralized control and is supported by, and reinforced with, real-time threat intelligence and autonomous security updates. Our products and services are sold to enterprises, service providers, small and medium sized businesses and consumers. Our open platform framework allows customers to extend the capabilities of our products and services with third-party hardware and security software applications. Our products are sold, integrated and serviced by a network of channel partners worldwide.

Our business is subject to the effects of general global economic conditions and, in particular, market conditions in the IT, Internet security and data security industries. If general economic and industry conditions deteriorate, demand for our products could be adversely affected.
 
33

 
 
We derive our sales primarily through indirect channels. During each of 2023, 2022 and 2021, we derived approximately 56%, 59%, and 57%, respectively, of our sales from our ten largest channel partners. In 2023, 2022 and 2021, our three largest distributors accounted for approximately 40%, of our sales. The following table presents the percentage of total consolidated revenues that we derive from sales in each of the regions shown:

 
 
Year Ended December 31,
 
 
 
2023
   
2022
   
2021
 
Region:
                 
Americas, principally U.S.
   
43
%
   
43
%
   
43
%
Europe, Middle East and Africa
   
46
%
   
45
%
   
45
%
Asia-Pacific
   
11
%
   
12
%
   
12
%
 
For information on the impact of foreign currency fluctuations, please refer to “Item 11 – Quantitative and Qualitative Disclosures about Market Risk – Foreign Currency Risk”.
 
Critical Accounting Policies and Estimates
 
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we make are reasonable based upon information available to us at the time that these estimates, judgments and assumptions were made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. 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 results, include the following:
 

Revenue recognition;
 

Accounting for income taxes;
 

Impairment of marketable securities;
 

Loss Contingencies; and
 

Manufacturing Partner and Supplier Liabilities.
 
In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed these critical accounting policies and related disclosures with the audit committee of our board of directors. You can see a summary of our significant accounting policies in Note 2 to our consolidated financial statements, as set forth in Item 18.
 
Revenue recognition
 
We derive our revenues mainly from sales of products and licenses, security subscriptions and software updates and maintenance. Our products are generally integrated with software that is essential to the functionality of the product. We sell our products primarily through channel partners including distributors, resellers, Original Equipment Manufacturers (“OEMs”), system integrators and Managed Security Service Providers (“MSPs”), all of whom are considered end users.
 
Security subscriptions provide customers with access to its suite of security solutions and is sold as a service.
 
Software updates and maintenance provide customers with rights to unspecified software product upgrades released during the term of the agreement and include maintenance services to end-user customers, through primarily telephone access to technical support personnel as well as hardware support services.
 
34

We recognize revenues under the core principle that transfer of control to our customers should be depicted in an amount reflecting the consideration we expect to receive in revenue. Therefore, we identify a contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to each performance obligation in the contract and recognize revenues when (or as) we satisfy a performance obligation.
 
We recognize revenues from sales of products and licenses, under Topic 606, upon shipment when control of the promised goods is transferred to the customer, or upon electronic transfer of the Certificate Key to the customer.
 
We recognize revenues from security subscriptions and software updates and maintenance ratably over the term of the agreement due to the continuous transfer of control to the customer over the period.
 
Our arrangements typically contain multiple deliverables, such as products and licenses, security subscriptions and software updates and maintenance, which are generally capable of being distinct and accounted for as separate performance obligations. We evaluated the criteria to be distinct under Topic 606, and concluded that the products and the licenses were distinct and distinct in the context of the contract from the security subscription and the software updates and maintenance, as the customer can benefit from the products and licenses without the services and the services are separately identifiable within the arrangement. We allocate the transaction price to each performance obligation based on relative standalone selling price basis, by using the prices charged for a performance obligation when sold separately.
 
Deferred revenues represent mainly the unrecognized revenue billed for security subscriptions and for software updates and maintenance. Such revenues are recognized ratably over the term of the related agreement.
 
We recognize revenues net of estimated amounts that may be refunded for sales returns, rebates, stock rotations and other rights provided to customers on product and service related sales subject to varying limitations. We estimate and record these reductions based on our historical sales returns experience, analysis of credit memo data, rebate plans, stock rotation and other known factors. In each accounting period, we use judgments and estimates to determine potential future sales credits, returns and stock rotation, related to current period revenue. These estimates affect our “revenue” line item on our consolidated statements of income and affect our “deferred revenues” and “accrued expenses and other liabilities” on our consolidated balance sheets.
 
Accounting for income tax    
 
We are subject to income taxes in Israel, the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our taxes. Although we believe our reserves are reasonable, 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 provisions and accruals. 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, or upon lapse of statute of limitations. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made.
 
Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.
 
Impairment of marketable securities
 
We classify all of our debt securities as available-for-sale (“AFS”). Available-for-sale debt securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in accumulated other comprehensive income (loss) in shareholders’ equity. Realized gains and losses on sale of investments are included in financial income, net and are derived using the specific identification method for determining the cost of securities sold.
 
Measurement of Credit Losses on Financial Instruments, using the modified retrospective transition method. Upon adoption, we modified our impairment model for available-for-sale (“AFS”) debt securities and discontinued using the concept of “other than temporary” impairment on AFS debt securities. Each reporting period, we evaluate whether declines in fair value below amortized cost are due to expected credit losses, as well as our ability and intent to hold the investment until a forecasted recovery occurs. Allowance for credit losses on AFS debt securities are recognized in our consolidated statements of income, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income (loss) in stockholders’ equity.
 
35

We measure our money market funds and marketable securities at fair value. Money market funds and marketable securities are classified within Level 1 or Level 2. This is because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
 
Loss Contingencies
 
We are currently involved in various claims and legal proceedings. We review the status of each matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss.
 
Manufacturing Partner and Supplier Liabilities
 
We purchase manufactured products from its original design manufacture (“ODM”). We generally do not own the manufactured products. ODM’s provide services of design, manufacture, orders fulfillment and support with a full turn-key solution to meet our detailed requirements. If the actual demand is significantly lower than forecast, we record a liability for its commitment in excess of the actual demand. As of December 31, 2023 and 2022, we have not accrued any significant liability in respect to this exposure.  

Results of Operations
 
The following table presents information concerning our results of operations in 2023 and 2022:
 
 
 
Year Ended December 31,
 
 
 
2023
   
2022
 
 
 
(in millions)
 
Revenues:
           
Products and licenses
 
$
497.4
   
$
554.9
 
Security subscriptions
   
981.2
     
858.0
 
Software updates and maintenance
   
936.1
     
917.0
 
 
               
Total revenues
   
2,414.7
     
2,329.9
 
 
               
Operating expenses (*):
               
Cost of products and licenses
   
99.3
     
145.6
 
Cost of security subscriptions
   
57.0
     
41.4
 
Cost of software updates and maintenance
   
112.3
     
105.5
 
Amortization of technology
   
14.0
     
11.9
 
 
               
Total cost of revenues
   
282.6
     
304.4
 
 
               
Research and development
   
368.9
     
349.9
 
Selling and marketing
   
747.1
     
675.2
 
General and administrative
   
117.0
     
116.1
 
 
               
Total operating expenses
   
1,515.6
     
1,445.6
 
 
               
Operating income
   
899.1
     
884.3
 
Financial income, net
   
76.5
     
44.0
 
 
               
Income before taxes on income
   
975.6
     
928.3
 
Taxes on income
   
135.3
     
131.4
 
 
               
Net income
 
$
840.3
   
$
796.9
 
 
36

  (*)
Including pre-tax charges for stock-based compensation, amortization of intangible assets and acquisition related expenses in the following items:
 
 
 
Year Ended December 31,
 
 
 
2023
   
2022
 
 
 
(in millions)
 
Amortization of intangible assets and acquisition related expenses
           
Amortization of technology
 
$
14.0
   
$
11.9
 
Research and development
   
7.0
     
7.1
 
Selling and marketing
   
13.7
     
4.2
 
 
               
Total amortization of intangible assets and acquisition related expenses
 
$
34.7
   
$
23.2
 
 
               
Stock-based compensation
               
Cost of products and licenses
 
$
0.4
   
$
0.4
 
Cost of software updates and maintenance
   
7.3
     
5.0
 
Research and development
   
48.7
     
42.0
 
Selling and marketing
   
56.3
     
43.2
 
General and administrative
   
32.6
     
40.8
 
 
               
Total stock-based compensation
 
$
145.3
   
$
131.4
 
 
The following table presents information concerning our results of operations as a percentage of revenues for the periods indicated:
 
 
 
Year Ended December 31,
 
 
 
2023
   
2022
 
Revenues:
           
Products and licenses
   
20
%
   
24
%
Security subscriptions
   
41
     
37
 
Software updates and maintenance
   
39
     
39
 
 
               
Total revenues
   
100
%
   
100
%
 
               
Operating expenses:
               
Cost of products and licenses
   
4
     
6
 
Cost of security subscriptions
   
2
     
2
 
Cost of software updates and maintenance
   
5
     
5
 
Amortization of technology
   
1
     
*)
 
               
Total cost of revenues
   
12
     
13
 
 
               
Research and development
   
15
     
15
 
Selling and marketing
   
31
     
29
 
General and administrative
   
5
     
5
 
 
               
Total operating expenses
   
63
     
62
 
 
               
Operating income
   
37
     
38
 
Financial income, net
   
3
     
2
 
 
               
Income before taxes on income
   
40
     
40
 
Taxes on income
   
6
     
6
 
 
               
Net income
   
35
%
   
34
%
 
 
*)
Less than 1%.
 
37

Revenues
 
We derive our revenues mainly from the sale of products and licenses, security subscriptions and software updates and maintenance. Our revenues were $2,415 million in 2023 and $2,330 million in 2022.
 
Total revenues in 2023 increased by 4% compared to 2022. Product and license revenues were $497 million in 2023 and $555 million in 2022. We continued to deliver increasingly more of our latest security offerings as subscriptions resulting in increased sales of our security subscription packages, including advance threat protection, Infinity CloudGuard, and Harmony. As a result, security subscription revenues increased by $123 million, or 14%, from $858 million in 2022 to $981 million in 2023. Software updates and maintenance revenues increased by $19 million, or 2%, from $917 million in 2022 to $936 million in 2023, primarily as a result of renewals of existing and sales of new maintenance contracts.
 
Cost of Revenues
 
Total cost of revenues was $283 million in 2023 and $304 million in 2022. Cost of revenues includes cost of product and licenses, cost of security subscriptions and cost of software updates and maintenance and amortization of technology. Our cost of products and licenses includes mainly cost of software and hardware production, packaging and shipping. In 2023 we have seen a significant improvement in the supply chain which had been challenging last year. Our cost of security subscriptions is comprised of costs paid to third parties, hosting and infrastructure costs and cost of customer support related to these services. Our cost of software updates and maintenance include mainly the cost of post-sale customer support.
 
Cost of products and licenses was $99 million in 2023 and $146 million in 2022.
 
Cost of security subscriptions was $57 million in 2023 and $41 million in 2022.
 
Cost of software updates and maintenance was $112 million in 2023 and $106 million in 2022.
 
In 2023, amortization of technology was $14 million compared to $12 million in 2022. The increase in 2023 is attributed to the acquisitions made during 2023 and 2022.
 
 
Research and Development
 
Research and development expenses were $369 million in 2023 and $350 million in 2022, and represented 15% of revenues in each of the years 2023 and 2022. Research and development expenses consist primarily of salaries and other related expenses for personnel as well as the cost of facilities and deprecation of capital equipment.
 
The net increase of $19 million in research and development expenses in 2023 primarily resulted from increases in compensation and related expenses for personnel, along with elevated expenses in our cloud infrastructure. The gross increase was partially offset by a $16 million benefit resulting from the strengthening of the U.S. dollar against the Israeli Shekel, which mitigated the gross increase.
 
The majority of our personnel engaged in research and development are located in Israel, where compensation-related expenses are paid in Israeli Shekels, while our research and development expenses are reported in U.S. dollars. Therefore, changes to the exchange rate between the Israeli Shekel and the U.S. dollar have affected and may in the future affect our research and development expenses. We have forward contracts to hedge against a certain portion of the exposure mentioned above.
 
Selling and Marketing
 
Selling and marketing expenses consist primarily of salaries, commissions, advertising, trade shows, seminars, public relations, co-op activities with partners, travel and other related expenses. Selling and marketing expenses were $747 million in 2023 and $675 million in 2022, which represented 31% of revenues in 2023 and 29% of revenues in 2022.
 
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The net increase of $72 million in selling and marketing costs in 2023 primarily stems from rises in compensation expenses for personnel and marketing activities. This rise was partially offset by a $4 million benefit due to fluctuations of various currencies against the U.S. dollar, which mitigated the gross increase.
 
Our selling and marketing expenses worldwide are paid in local currencies and are reported in U.S. dollars. Therefore, changes to the exchange rates between the local currencies and the U.S. dollar have affected, and may in the future affect, our expense level.
 
General and Administrative
 
General and administrative expenses consist primarily of salaries and other related expenses for personnel, professional fees, insurance costs, legal and other expenses. General and administrative expenses were $117 million in 2023 and $116 million in 2022, which represented 5% of revenues in each of the years 2023 and 2022.
 
Operating Income Margin
 
In 2023, our operating margin was 37% compared to 38% in 2022. The decrease in our operating margin was primarily due to an increase in our workforce related expenses, cloud expenses and amortization of intangibles expenses in related to our acquisitions.
 
We may experience future fluctuations or declines in operating margins from historical levels due to several factors, as described above in “Item 3 – Key Information” under the caption “Risk Factors – Risks Related to Our Business and Our Market”.
 
Financial Income, Net
 
Net financial income consists primarily of interest earned on cash equivalents, short-term deposits and marketable securities. Net financial income was $77 million in 2023 and $44 million in 2022. As we generally hold debt securities until maturity, our current portfolio’s yield is derived primarily from interest rates and the yield on securities at time of purchase. Since most of our investments are U.S. dollars denominated securities, our net financial income is heavily dependent on prevailing U.S. interest rates changes and the market expectations to such changes. The increase in net financial income in 2023 was primarily due to higher interest rates and yield on marketable securities, short-term deposits and cash equivalents. In 2023 and 2022 no impairment in our marketable securities was recorded.
 
For further risk related to our portfolio see also Item 3, “Risk Factors – Risks Related to Our Business and Our Market – Our cash balances and investment portfolio have been, and may continue to be, adversely affected by market conditions and interest rates”.
 
Taxes on Income
 
Total taxes on income were $135 million in 2023 and $131 million in 2022. Our effective tax rate was 14% in each of the years 2023 and 2022. See Note 11 to our consolidated financial statements for further information on our statutory rates.
 
Additional details are provided in “Item 10 – Additional Information” under the caption “Israeli taxation, foreign exchange regulation and investment programs” and “Item 3 – Key Information” under the caption “The tax benefits available to us require us to meet several conditions, and may be terminated or reduced in the future, which would increase our taxes”.
 
Net Income
 
Net income increased by $43 million to $840 million in 2023 compared to $797 million in 2022.
 
 
Liquidity and Capital Resources
 
During 2023 and 2022, we financed our operations through cash generated from operations. Our total cash and cash equivalents, short-term investments and long-term interest bearing investments, were $2,960 million as of December 31, 2023 and $3,503 million as of December 31, 2022. Our cash and cash equivalents and short-term investments were $1,530 million as of December 31, 2023 and $1,638 million as of December 31, 2022. Our long-term interest bearing investments were $1,430 million as of December 31, 2023 and $1,866 million as of December 31, 2022. The majority of our financial assets are held and managed through the parent company in Israel and our subsidiaries in Singapore, Canada and the U.S.
 
We generated net cash from operations of $1,038 million in 2023 and $1,098 million in 2022. Net cash from operations for 2023 and 2022 consisted primarily of net income adjusted for non-cash activity. The decrease in our cash from operations was derived mostly from the lower increase in our deferred revenues compared to last year.
 
We generated net cash from investing activities of $469 million in 2023 compared to net cash used in investing activities of $6 million in 2022. In 2023, net cash provided by investing activities was increased compared to 2022, primarily due to increase in proceeds from sale of marketable securities offset by cash paid in conjunction with acquisitions, net of acquired cash, and lower investment in short term deposit. Our net cash paid for acquisitions amounted to $459 million in 2023 and $48 million in 2022. Our capital expenditures amounted to $19 million in 2023 and $22 million in 2022, and consisted primarily of computer equipment, software and leasehold improvements.
 
39

Net cash used in financing activities was $1,165 million in 2023 and $1,168 million in 2022.  In 2023 and 2022, net cash used in financing activities was attributed primarily to the repurchase of ordinary shares. Under the repurchase programs, we may purchase our ordinary shares from time to time, depending on market conditions, share price, trading volume and other factors. We repurchased ordinary shares in the amount of $1,288 million in 2023 and $1,300 million in 2022. We re-issued the repurchased shares to settle exercises of options and restricted share unit awards to our employees and directors. Proceeds from such activities were $134 million and $141 million in 2023 and 2022, respectively.
 
Our investments in marketable securities are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, recorded in other comprehensive income (loss). Amortization of premium, discount and interest is recorded in our statements of income.
 
Our liquidity could be negatively affected by a decrease in demand for our products and services, or increase in employment costs. Also, if the financial system or the credit markets deteriorate or remain volatile, our investment portfolio may be impacted and the values and liquidity of our investments could be adversely affected.
 
Our principal sources of liquidity consist of our cash and cash equivalents, short-term bank deposits and marketable securities (which aggregated $2,960 million as of December 31, 2023) and our cash flow from operations. We believe that these sources of liquidity will be sufficient to satisfy our present capital expenditure requirements.

Research and Development, Patents and Licenses, etc.
 
Additional details are provided in this Item 5, under the caption “Results of Operations”.
 
Trend Information
 
Additional details are provided in this Item 5, under the caption “Results of Operations”.

40

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
Directors and Senior Management
 
Our directors and executive officers as of March 15, 2024, were as follows:
 
Name
  
            Position               
    
Independent
Director (1)
  
Outside
Director
(2)
  
Member
of Audit
Committee
  
Member of
Compensation
Committee
  
Member of
Nominating,
Sustainability
and
Corporate
Governance
Committee
Gil Shwed
  
Chief Executive Officer
    
 
  
 
  
 
  
 
  
 
 
  
and Director
    
 
  
 
  
 
  
 
  
 
Jerry Ungerman
  
Chairman of the Board
    
  
 
  
 
  
 
  
 
Dorit Dor
  
Chief Technology Officer
    
 
  
 
  
 
  
 
  
 
Nataly Kremer
  
Chief Product Officer and Head of Research and Development
    
 
  
 
  
 
  
 
  
 
Rupal Hollenbeck
  
President
    
 
  
 
  
 
  
 
  
 
Roei Golan
  
Chief Financial Officer
    
 
  
 
  
 
  
 
  
 
Guy Gecht (3)
  
Lead Independent Director
    
  
  
  
  
 
Yoav Chelouche (3)
  
Director
    
  
  
  
  
 
Tzipi Ozer-Armon
  
Director
    
  

  
  

  
 
Ray Rothrock (3)
  
Director
    
  
  
  
  

Tal Shavit Shenhav
  
Director
    
  
 
  
 
  
 
  
Shai Weiss
  
Director
    
  
 
  
 
  
 
  
Jill Smith 
  Director  
             

(1)
“Independent Director” under the Nasdaq Global Select Market regulations and the Israeli Companies Law (see explanation below).
(2)
“Outside Director” as required by the Israeli Companies Law (see explanation below).
(3)
“Financial expert” as required by the Israeli Companies Law and Nasdaq requirements with respect to membership on the audit committee (see “Item 16A – Audit Committee Financial Expert”).

41


 
Gil Shwed is the founder, Chief Executive Officer and Director. Mr. Shwed served as Chairman of our board of directors until September 2015. Mr. Shwed is considered the inventor of the modern firewall and authored several patents, such as the company’s Stateful Inspection technology. Mr. Shwed has received numerous accolades for his individual achievements and industry contributions, including an honorary Doctor of Science from the Technion – Israel Institute of Technology, an honorary Doctor of Science from Tel Aviv University, the World Economic Forum’s Global Leader for Tomorrow for his commitment to public affairs and leadership in areas beyond immediate professional interests, and the Academy of Achievement’s Golden Plate Award for his innovative contribution to business and technology. Mr. Shwed is the Chairman of the Board of Trustees of the Youth University of Tel Aviv University. Mr. Shwed is a Tel Aviv University Governor and founder of the University’s Check Point Institute for Information Security. He is also Chairman of the Board of the board of directors of Yeholot Association Founded by the Rashi Foundation whose charter is, among other things, to reduce the dropout rates in high schools. In 2018, Gil was awarded the prestigious Israel Prize for his contributions to the Israeli technology industry.
 
Jerry Ungerman serves as the chairman of the board of directors since August 2020, after serving as Vice Chairman of our board of directors from 2005 until August 2020. From 2001 to 2005, Mr. Ungerman served as our President and before that, from 1998 until 2000, he served as our Executive Vice President. Prior to joining us, Mr. Ungerman accumulated extensive experience in high-tech sales, marketing and management experience at Hitachi Data Systems (HDS), a data storage company and a member of the Hitachi, Ltd. group. He began his career with International Business Machines Corp. (IBM), a global technology products and services company, after earning a B.A. in Business Administration from the University of Minnesota.
 
Dr. Dorit Dor, Chief Technology Officer at Check Point, spearheads Check Point’s rocket initiatives. Since joining the company in 1995, Dr. Dor has served in several pivotal roles in Check Point’s R&D organization over the years, including Chief Product Officer. She has been instrumental to the organization’s growth and managed many successful product releases. Dr. Dor holds a Ph.D. and M.S degree in computer science from Tel-Aviv University, in addition to graduating cum laude for her B.S. Dr. Dor has been published in several influential scientific journals for her research on graph decomposition, median selection and geometric pattern matching in d-dimensional space. In 1993, she won the Israel National Defense Prize. In 2019 Dr. Dor was named as one of Israel’s most influential women by Forbes Israel, for her leadership role in one of the world’s leading tech industries. Dr. Dor is a board member of Redis Ltd.
 
Nataly Kremer, Chief Product Officer and Head of Research and Development since March 2023, oversees all product and technology units and uses her proficiency in delivering network, security, and cloud technologies for large enterprises to meet customer needs. Ms. Kremer brings extensive R&D and leadership experience to Check Point. She joined the company after 12 years with AT&T, where she led its Software and Delivery organization and AT&T’s center in Israel. She holds an MBA and BSc in Computer Sciences and Management from Tel Aviv University. Ms. Kremer is a board member of IBI Investment Bank and a board member of Israel Advanced Technology Industries (IATI), where she also holds the role of Head of the ITAI Diversity and Inclusion Group.
 
Rupal Hollenbeck President at Check Point since March 2023, after serving as Chief Commercial Officer from March 2022 until March 2023.  Ms. Hollenbeck manages Check Point’s global commercial organization since March 2022. Ms. Hollenbeck served on our board of directors from January 2021 until March 2022. She was most recently CMO of AI hardware start-up Cerebras Systems in Silicon Valley. She also served as Senior Vice President & Chief Marketing Office at Oracle, a post which she held until January 2020. Prior to joining Oracle in 2018, Ms. Hollenbeck was with Intel Corporation for over 23 years, with her most recent role being Corporate Vice President and General Manager of Global Data Center Sales. Prior to that she was Vice President and General Manager of Intel China and throughout her time at Intel has worked in Arizona, California, Singapore, and Beijing. An advocate for professional women around the world, she started several women’s initiatives while at Intel, including serving as co-chair of the Board of Intel’s Network of Executive Women in Asia. She is currently a Founding Circle Member of Neythri, a non-profit organization dedicated to enabling the professional advancement of South Asian women. Ms. Hollenbeck is also an Adjunct Professor at California State University East Bay, teaching a Women in Leadership course in the College of Business & Economics. Ms. Hollenbeck holds a BS in Finance and International Studies from Boston College, and a Master of International Management from the Thunderbird School of Global Management in Arizona. Ms. Hollenbeck is a board member of Blackbaud Inc, a leading cloud software company powering social good, and a board member of The Asian Pacific Fund, a non-profit organization.
 
Roei Golan has been serving as Chief Financial Officer of Check Point since May 2023, as Acting Chief Financial Officer from October 2022 until May 2023, and as VP Finance from 2021 until May 2023. Mr. Golan oversees Check Point's finance operations, including accounting, business analysis, investor relations, legal, tax and treasury. Mr. Golan has over 14 years of financial experience.  Prior to joining Check Point in 2021, Mr. Golan worked at EY for 11 years, where he held the role of Managing Director in the Technology practice. Mr. Golan holds a B.A. in Economics and Accounting and a M.B.A in finance management. Mr. Golan is a certified public accountant.
 
42

Yoav Z. Chelouche has served on our board of directors since 2006. Mr. Chelouche has also served as one of our outside directors under the Israeli Companies Law since 2006. Mr. Chelouche has been Managing Partner of Aviv Venture Capital since August 2000. He serves on boards of directors of certain Aviv companies. Prior to joining Aviv Venture Capital, Mr. Chelouche served as a President and Chief Executive Officer of Scitex Corp., a world leader in digital imaging and printing systems, from December 1994 until July 2000. From August 1979 until December 1994, Mr. Chelouche held various managerial positions with Scitex, including VP Strategy and Business Development, VP Marketing and VP Finance for Europe. Mr. Chelouche is a member of the board of directors of a number of private companies. He was also a board member and until 2015 co-Chairman of IATI-Israel Advanced Technology Industries, an Israeli nonprofit organization that researches, develops and advocates policies that promote Israel’s high tech ecosystem through activities in training, tuition, business development, public relations and public policy advocacy. Mr. Chelouche is a board member of Tower Semiconductor Ltd., Malam Team Ltd., and until February 2024 served as an external director of the Tel Aviv Stock Exchange (TASE). Mr. Chelouche earned B.A. in Economics and Statistics from Tel Aviv University, and an M.B.A. from INSEAD University in Fontainebleau, France.
 
 
Guy Gecht has served on our board of directors since 2006 and as our Lead Independent Director since August 2020. Mr. Gecht has also served as one of our outside directors under the Israeli Companies Law since 2006. Mr. Gecht served as Logitech’s interim CEO from June to December 2023, and has been a member of Logitech’s board of directors since September 2019, chairing the Technology and Innovation Committee. He is the former co-CEO of E.Merge Technology Acquisition Corp., a SPAC focused on Cyber Security, AI, and Enterprise Software, a role he held from 2020 to October 2022. Prior to co-founding E.Merge, Mr. Gecht was CEO of Electronics for Imaging (EFI), specializing in digital printing technologies, from 2000 to 2018. Joining EFI in 1995, he also held roles as president, vice president, general manager of Fiery products, and director of software engineering. Earlier, Mr. Gecht held management positions at Interro Systems and Apple Israel. Additionally, he was an officer in the Israeli Defense Forces, leading an engineering team in one of IDF high-tech divisions. Mr. Gecht holds a B.S. degree in computer science and mathematics from Ben Gurion University in Israel.
 
Tzipi Ozer-Armon has served on our board of directors since January 2023. Ms. Ozer- Armon serves as the Chief Executive Officer of Lumenis Ltd. Since May 2012. Before joining Lumenis, Ms. Ozer- Armon headed the Japanese market activities of Teva Pharmaceutical Industries Ltd. and served as Senior Vice President of Sales and Marketing at SanDisk Corporation. Previously, Ms. Ozer-Armon also served as VP & General Manager of MSystems Ltd. Ms. Ozer-Armon is a director of Strauss Group Ltd., Similarweb Ltd., and ICL Group Ltd. Ms. Ozer-Armon holds a B.A. magna cum laude in Economics and an M.B.A. degree majoring in Finance and Marketing from Tel Aviv University and she is an AMP graduate of the Harvard Business School.
 
 Ray Rothrock has served on our board of directors since 1995. Mr. Rothrock has also served as one of our outside directors under the Israeli Companies Law since 2000 and as a director under Roku, Inc. Mr. Rothrock is a Partner emeritus at Venrock, a venture capital firm, where he was a member since 1988 and a general partner since 1995. He retired from Venrock in 2013. Presently, Mr. Rothrock is the Chairman of RedSeal, Inc., a cybersecurity analytics company. Mr. Rothrock served as the Chief Executive Officer of RedSeal, Inc. from February 2014 until May 2020. Mr. Rothrock is a director of Nasdaq-listed Roku, Inc, and a number of private companies. Mr. Rothrock is a member of the Massachusetts Institute of Technology Corporation, and a Trustee of the University of Texas and Texas A&M Investment Management Company. Mr. Rothrock received a B.S. in Engineering from Texas A&M University, an M.S. from the Massachusetts Institute of Technology and an M.B.A. from the Harvard Business School.
 
Jill D Smith has served on our board of directors since November 2023. Ms. Smith brings more than 25 years of international leadership experience, including 17 years as chief executive officer of private and public companies in the technology and information services markets. Most recently, Ms. Smith served as the President and Chief Executive Officer of Allied Minds, an IP commercialization company, from March 2017 through June 2019, and prior to that she served as Chairman, Chief Executive Officer and President of DigitalGlobe Inc., a global provider of satellite imagery products and services. Ms. Smith started her career as a consultant at Bain & Company, where she rose to become Partner. She subsequently joined Sara Lee as Vice President, and went on to serve as President and Chief Executive Officer of eDial, a VoIP collaboration company, and of SRDS, a business-to-business publishing firm. She also served as Chief Operating Officer of Micron Electronics, and co-founded Treacy & Company, a consulting and boutique investment business. Ms. Smith currently serves as a director of Aspen Technology, Inc., R1 RCM Inc. and MDA Space.
 
Dr. Tal Shavit Shenhav has served on our board of directors since 2000. Dr. Shavit Shenhav is an organizational consultant specializing in international collaboration between Israeli and American companies, consulting in the management of cultural differences in order to forge effective collaboration. Her work with leading management teams includes the definition of organizational culture as the engine of such company’s activities. She consults with companies undergoing structural change with emphasis on organizational growth through effective mergers and acquisitions and a redefining of management roles in order to meet market changes.
 
 
Shai Weiss has served on our board of directors since 2018. Mr. Weiss is the Chief Executive Officer of Virgin Atlantic, one of the most innovative airlines in the world. Mr. Weiss joined Virgin Atlantic as Executive Vice President and Chief Financial Officer in July 2014 from Virgin Management Ltd, where he had been an Investment Partner since 2012 and was a Founding Partner of Virgin Green Fund. Prior to joining Virgin Group, he held several senior management positions at ntl:Telewest (now Virgin Media), the UK and Europe’s largest cable operator. Mr. Weiss was part of the turn-around of ntl with roles including Managing Director of Consumer Products, Director of Operations, and Director of Financial Planning for the Consumer division. Mr. Weiss was also behind the merger between Virgin Mobile UK and ntl:Telewest and the re-brand to Virgin Media. Prior to ntl, Mr. Weiss established the European office of early-stage technology venture fund JVP and was a senior associate with Morgan Stanley. He holds an M.B.A. degree from Columbia University and a BBA degree from City University of New York, Baruch College.
 
43

Of the individuals mentioned above, only Gil Shwed owned more than one percent of our outstanding shares as of December 31, 2023. Additional details are provided in this Item 6, under the caption “Share ownership” and in “Item 7 – Major Shareholders and Related Party Transactions”.
 
Some of our directors are board members of multiple companies, some of which may be technology companies. The board of directors has determined that there are no current conflicts of interest with respect to any of our directors.
 
The terms of Gil Shwed, Jerry Ungerman, Dr. Tal Shavit Shenhav, Tzipi Ozer-Armon, Jill Smith and Shai Weiss will expire at our 2024 annual meeting of shareholders. The term of Ray Rothrock will expire at our 2026 annual meeting of shareholders and the terms of Yoav Chelouche and Guy Gecht will expire at our 2024 annual meeting of shareholders.
 
There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any of the directors or members of senior management are elected.
 
Compensation of Directors and Officers
 
The total direct cash compensation that we accrued for our directors and executive officers as a group, including those who left the company during 2023, was approximately $3.7 million for the year ended December 31, 2023. These amounts include $0.3 million that were set aside or accrued to provide for severance and retirement insurance policies in 2023. These amounts do not include amounts accrued for expenses related to business travel, professional and business association dues and other business expenses reimbursed to officers. We do not have any agreements with our director who is also an officer that provide for benefits upon termination of employment, except for severance payments mandated by Israeli law for all employees employed in Israel.
 
Following is a summary of the salary and benefits paid in 2023 (i) to our five most highly compensated executive officers (referred to as the “Covered Executives”) and (ii) to our non-executive directors.
 
Cash Compensation
 
Mr. Gil Shwed, Chief Executive Officer and Director. Cash compensation expenses recorded in 2023 consisted of $19.4  thousands in salary expenses, and $5.8 thousands in benefit costs. Mr. Shwed requested to forego his salary and bonus for 2023, as he has done in the past. Following consideration of Mr. Shwed’s request, our compensation committee and board of directors have determined that Mr. Shwed will not receive a bonus for 2023, and did not receive any cash compensation for 2023 except for an amount equal to the minimum wage required under Israeli law.
 
Dr. Dorit Dor, Chief Technology Officer. Compensation expenses recorded in 2023 included $374.9 thousands in salary expenses and $87.4 thousands in benefit costs.
 
Mr. Itai Greenberg, Chief Strategy Officer and Head of Cloud Security Business. Compensation expenses recorded in 2023 included $232.7 thousands in salary expenses and $63.3 thousands in benefit costs.
 
Mr. Sharon Schusheim, Chief Services Officer, Compensation expenses recorded in 2023 included $265.9 thousands in salary expenses and $66.7 thousands in benefit costs.
 
Ms. Rupal Hollenbeck, President. Compensation expenses recorded in 2023 included $688.0 thousands in salary expenses and $85.0 thousands in benefit costs.
 
 
The salary expenses summarized above include the gross salary paid to the Covered Executives, and the benefit costs include the social benefits paid by us on behalf of the Covered Executives, including convalescence pay, contributions made by the company to an insurance policy or a pension fund, work disability insurance, severance, educational fund and payments for social security. We do not lease vehicles for our Covered Executives.
 
In accordance with the company’s executive compensation policy, we also paid cash bonuses upon compliance with predetermined 2023 performance parameters set by the Compensation Committee and the Board of Directors. The 2023 cash bonus expenses for Dr. Dor, Mr. Greenberg, Mr. Schusheim and Ms. Hollenbeck were $322.8 thousands, $119.7 thousands, $140.4 thousands, and $467.3 thousands, respectively. As noted above, Mr. Shwed did not receive a cash bonus for 2023. For the non-U.S. executives, the cash compensation amounts paid were denominated in Israeli Shekels and converted into U.S. Dollars at the exchange rate as of year-end and were paid in 2024 with respect to compliance with pre-determined 2023 performance metrics.
 
44

We currently pay each of our non-executive directors an annual cash retainer of $40.0 thousands for the services provided to our board of directors and an annual cash retainer of $7.5 thousands for each committee membership. In addition, we pay the chairman of our board of directors and the lead independent director an annual cash retainer of $20.0 thousands, the chair of our audit committee an annual cash retainer of $7.5 thousands and the chair of each of our nominating, sustainability and corporate governance committee and compensation committee an annual cash retainer of $2.5 thousands. Only directors who are not officers receive compensation for serving as directors.
 
Equity-based Compensation
 
From time to time, we grant options and other awards under our equity incentive plans (described below) to our executive officers and directors. See Item 10 “Additional Information – Compensation of Executive Officers and Directors; Executive Compensation Policy” for a detailed description of the approval procedures we follow in compensating our directors and executive officers.
 
Our non-employee directors receive an automatic option grant and are also eligible for discretionary awards under the plans. Each non-employee director who is first elected or appointed to the board of directors is granted an option to purchase 25,000 ordinary shares and restricted share units (RSUs) with a value of $200.0 thousands on the date of the initial election or appointment, vesting in equal annual installments over a four-year period. On the date of each annual general meeting of shareholders, each non-employee director who is to continue to serve as a non-employee director after the annual meeting is granted an option to purchase an additional 5,000 ordinary shares and RSUs with a value of $150.0 thousands, of which 50% vest six months after the grant date, 25% vest nine months after the grant date, and another 25% vest a year after the grant date, provided that the director has served as a non-employee director for at least six months prior to the date of the annual meeting. The directors in office immediately prior to the date of initial appointment or election, or of the annual meeting, as applicable, may determine to reduce the initial or annual grant to all non-employee directors or specific non-employee directors.
 
On August 3, 2023, following the approval of our Compensation Committee, Board of Directors and the company’s shareholders at the 2023 Annual General Meeting, we granted Mr. Gil Shwed, our Chief Executive Officer and Director, options to purchase 0.5 million ordinary shares at an exercise price equal to 100% of the closing price of the ordinary shares on the Nasdaq Global Select Market on the date of the grant, vesting gradually over a period of four years with the vesting of options to purchase 0.2 million ordinary shares (40% of the grant) also subject to long-term company performance goals.
 
During 2023, we granted our executive officers and directors options to purchase an aggregate of approximately 0.6 million shares and approximately 0.07 million RSUs and PSUs under our equity incentive plans. The exercise price of these options range between $126.16-$136.26, and their expiration dates range between December 2029 and October 2030.
 
All options granted to directors and executive officers in 2023 were granted with an exercise price equal to 100% of the closing price of the ordinary shares on the Nasdaq Global Select Market on the applicable date of grant.
 
We recorded equity-based compensation expenses in our financial statements for the year ended December 31, 2023 for Mr. Shwed, Dr. Dor, Mr. Greenberg, Mr. Schusheim and Ms. Hollenbeck of $17.9 million, $5.4 million, $1.4 million, $1.3 million and $1.7 million, respectively. Assumptions and key variables used in the calculation of such amounts are described in Note 2y to our audited consolidated financial statements included in Item 18 of this Annual Report. All equity-based compensation grants to our Covered Executives were made in accordance with the parameters of our company’s executive compensation policy and were approved by the company’s Compensation Committee and Board of Directors, and, in the case of the equity-based compensation granted to the Chief Executive Officer, also by the company’s shareholders in accordance with the Israeli Companies Law.
 
As of December 31, 2023, our executive officers and directors held options to purchase an aggregate of approximately 7.0 million shares and held 0.18 million RSUs and PSUs under our equity incentive plans. The exercise prices of these options range between $91.78 and $136.26, and their expiration dates range between June 2024 and October 2030.
 
Other than as specified in the share ownership table under the caption “Share ownership” below, none of our directors and executive officers holds more than 1% of our outstanding shares.
 
45

 
Composition of Board of Directors
 
Our board of directors currently consists of eight members, including three outside directors in accordance with the requirements of the Israeli Companies Law. See “Outside and Independent Directors”. Under our articles of association, the number of directors on our board is to be no less than six and no more than twelve. Each director (other than an outside director as described below) is elected to serve until the next annual general meeting of shareholders and until his or her successor has been elected. Each executive officer is elected by the board of directors and serves at the discretion of the board. All of our executive officers and directors, other than non-employee directors, devote substantially all of their working time to our business. There are no family relationships among any of our directors, officers or key employees.
 
As permitted under the Israeli Companies Law, our articles of association provide that any director may, by written notice to us, appoint another person to serve as an alternate director or may cancel the appointment of an alternate director. Any person eligible to serve as a director, other than a person who is already a director or an alternate director, may act as an alternate director. The term of appointment of an alternate director may be for one meeting of the board, for a specified period of time, a specified meeting or action of the board or until notice is given of the cancellation of the appointment. No director has appointed, and, to our knowledge, no director currently intends to appoint, any other person as an alternate director. We do not have any service contracts with our directors providing for benefits upon termination of service.
 
Outside and Independent Directors
 
Outside directors. In accordance with the Israeli Companies Law and the relevant regulations, we must have at least two outside directors who meet the Israeli statutory requirements of independence. At least one of the outside directors is required to have “financial and accounting expertise” and the other outside director or directors are required to have “professional expertise,” all as defined under the Israeli Companies Law. Our board of directors has determined that each of Yoav Chelouche, Guy Gecht and Ray Rothrock has “financial and accounting expertise,” and each of Guy Gecht and Ray Rothrock has “professional expertise”.
 
An outside director serves for a term of three years, which may be extended for additional three-year terms. An outside director can be removed from office only under very limited circumstances. All of the outside directors must serve on the company’s audit committee and compensation committee (including one outside director serving as the chair of the audit committee and the compensation committee), and at least one outside director must serve on each committee of the board of directors. As of December 31, 2023, Yoav Chelouche, Guy Gecht and Ray Rothrock are our outside directors under the Israeli Companies Law. Yoav Chelouche’s and Guy Gecht’s term of office will expire in 2024, and Ray Rothrock’s term of office will expire in 2026.
 
Pursuant to the Israeli Companies Law Regulations , an Israeli company traded on Nasdaq that does not have a “controlling shareholder” (as defined in the Israeli Companies Law) may elect not to appoint Outside Directors to its Board of Directors and not to comply with the Audit Committee and Compensation Committee composition and chairman requirements of the Israeli Companies Law (as described above); provided, that the company complies with the applicable Nasdaq independent director requirements and the Nasdaq Audit Committee and Compensation Committee composition requirements. Accordingly, Check Point is eligible to adopt the relief provided by the amended Israeli regulations. To date, Check Point has not elected to adopt such relief.
 
Independent directors. The Sarbanes-Oxley Act of 2002, as well as related rules subsequently implemented by the Securities and Exchange Commission and the Nasdaq Global Select Market, requires issuers to comply with various corporate governance practices. Under the rules applicable to us as a foreign private issuer, we are required to have a majority of independent directors within the meaning of the applicable Nasdaq regulations. Our board of directors complies with these requirements by including a majority of members who are independent directors within the meaning of the applicable Nasdaq regulations.
 
Pursuant to the Israeli Companies Law, an Israeli company whose shares are publicly traded may elect to adopt a provision in its articles of association pursuant to which a majority of its board of directors (or a third of its board of directors in case the company has a controlling shareholder) will consist of individuals complying with certain independence criteria prescribed by the Israeli Companies Law, as well as certain other recommended corporate governance provisions. Although we have not included these provisions in our articles of association because our board of directors already complies with the independence requirements and the corporate governance rules of the Nasdaq Global Select Market, as described below, a majority of our board of directors and all the members of our audit committee, compensation committee and nominating, sustainability and corporate governance committee are directors who comply with the independence criteria prescribed by the Israeli Companies Law.
 
 
Our board of directors has determined that each of Yoav Chelouche, Guy Gecht, Tzipi Ozer-Armon, Ray Rothrock, Tal Shavit Shenhav, Jill Smith, Jerry Ungerman, and Shai Weiss is an independent director under the applicable Nasdaq regulations and the Israeli Companies Law. Our independent directors have regularly held meetings at which only independent directors are present.
 
46

Committees of the Board of Directors
 
Our articles of association provide that the board of directors may delegate all of its powers to committees of the board as it deems appropriate, subject to the provisions of Israeli law. Our board of directors has established an audit committee, a compensation committee and a nominating, sustainability and corporate governance committee.
 
Audit Committee. Under the Israeli Companies Law, the board of directors of any public company must establish an audit committee. The audit committee must consist of at least three directors, must include all of the outside directors (including one outside director serving as the chair of the audit committee), and a majority of the committee members must comply with the director independence requirements prescribed by the Israeli Companies Law.
 
The audit committee may not include the chairman of the board, or any director employed by us, by a controlling shareholder or by any entity controlled by a controlling shareholder, or any director providing services to us, to a controlling shareholder or to any entity controlled by a controlling shareholder on a regular basis, or any director whose income is primarily dependent on a controlling shareholder, and may not include a controlling shareholder or any relatives of a controlling shareholder. Individuals who are not permitted to be audit committee members may not participate in the committee’s meetings other than to present a particular issue at the request of the chair of the committee. However, an employee who is not a controlling shareholder or relative may participate in the committee’s discussions but not in any vote, and the company’s legal counsel and corporate secretary (if they are not a controlling shareholder or relative) may participate in the committee’s discussions and votes if requested by the committee.
 
In addition, the Nasdaq regulations also require us to maintain an audit committee consisting of at least three directors, all of whom must be independent under the Nasdaq regulations applicable to audit committee members and each of whom is financially literate and one of whom has accounting or related financial management expertise. Yoav Chelouche is the chairman of the audit committee. Guy Gecht, Tzipi Ozer-Armon and Ray Rothrock serve as the other members of our audit committee. The audit committee has adopted a written audit committee charter as required by the Nasdaq regulations.
 
The audit committee’s duties include providing assistance to the board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions. In this respect the audit committee approves the services performed by our independent accountants and reviews their reports regarding our accounting practices and systems of internal accounting controls. The audit committee also oversees the audits conducted by our independent accountants and takes those actions, as it deems necessary, to satisfy itself that the accountants are independent of management. Under the Israeli Companies Law, the audit committee is also required to monitor whether there are any deficiencies in the administration of our company, including by consulting with the internal auditor and independent accountant, to review, classify and approve related party transactions and extraordinary transactions, to review the internal auditor’s audit plan and to establish and monitor whistleblower procedures.
 
Under the Israeli Companies Law, a meeting of the audit committee is properly convened if a majority of the committee members attend the meeting and, in addition, a majority of the attending committee members are independent directors within the meaning of the Israeli Companies Law, and include at least one outside director.
 
Compensation Committee. Under the Israeli Companies Law, the board of directors of any public company must establish a compensation committee. The compensation committee must consist of at least three directors, include all of the outside directors (including one outside director serving as the chair of the compensation committee), and a majority of the committee members must comply with the director independence requirements prescribed by the Israeli Companies Law.
 
Similar to the rules that apply to the audit committee, the compensation committee may not include the chairman of the board, or any director employed by us, by a controlling shareholder or by any entity controlled by a controlling shareholder, or any director providing services to us, to a controlling shareholder or to any entity controlled by a controlling shareholder on a regular basis, or any director whose primary income is dependent on a controlling shareholder, and may not include a controlling shareholder or any of its relatives. Individuals who are not permitted to be compensation committee’s members may not participate in the committee’s meetings other than to present a particular issue; provided, however, that an employee that is not a controlling shareholder or its relative may participate in the committee’s discussions but not in any vote. The company’s legal counsel and corporate secretary may participate in the committee’s discussions and votes if requested by the committee.
 
In addition, the Nasdaq rules also require us to maintain a compensation committee consisting of at least two independent directors. Each of the members of the compensation committee is required to be independent under Nasdaq rules relating to compensation committee members, which are different from the general test for independence of board and committee members. Each of the members of our compensation committee satisfies those requirements. Ray Rothrock is the chairman of the compensation committee. Yoav Chelouche and Guy Gecht serve as the other members of our compensation committee. The compensation committee has adopted a written compensation committee charter.
 
47

 
The compensation committee’s duties include recommending to the board of directors a compensation policy for executives and monitor its implementation, approve compensation terms of executive officers, directors and employees affiliated with controlling shareholders, make recommendations to the board of directors regarding the issuance of equity incentive awards under our equity incentive plans, and exempt certain compensation arrangements from the requirement to obtain shareholder approval under the Israeli Companies Law.
 
Nominating, Sustainability and Corporate Governance Committee. The nominating, sustainability and corporate governance committee identifies prospective board candidates, recommends nominees for election to our board of directors, develops and recommends board member selection criteria, considers committee member qualification, supervises the selection and composition of committees of our board of directors, provides oversight in the evaluation of our board of directors and each committee, oversees our policies, programs and strategies related to environmental, social and governance (ESG) matters and develops and recommends to the board a set of corporate governance guidelines. Shai Weiss is the chairman of the nominating, sustainability and corporate governance committee. Tal Shavit Shenhav and Jill Smith serve as the other members of our nominating, sustainability and corporate governance committee. The nominating, sustainability and corporate governance committee has adopted a written nominating committee charter.
 
Employees
 
As of December 31, 2023, we had 6,450 employees as well as 277 subcontractors (194 subcontractors in 2022, 163 subcontractors in 2021) Over the past three years, the number of our employees by function was as follows:
 
 
 
As of December 31,
 
 
 
2023
   
2022
   
2021
 
Function:
                 
Research, development and quality assurance
   
1,889
     
1,807
     
1,677
 
     Marketing, pre sale, sales and business development
   
2,869
     
2,678
     
2,509
 
     Customer support
   
1,027
     
926
     
905
 
Information systems, administration, finance and operation
   
665
     
615
     
551
 
 
                       
Total
   
6,450
     
6,026
     
5,642
 
 
Over the past three years, the number of our employees by geographic area was as follows:
 
 
 
As of December 31,
 
 
 
2023
   
2022
   
2021
 
Function:
                 
Israel
   
2,672
     
2,525
     
2,416
 
     Americas
   
1,973
     
1,813
     
1,660
 
Rest of the World
   
1,805
     
1,688
     
1,566
 
 
                       
Total
   
6,450
     
6,026
     
5,642
 
 
We are subject to Israeli labor laws and regulations with respect to our Israeli employees. The Israeli labor laws differ materially from U.S. labor laws and, in some cases, impose material obligations on us (such as severance pay and mandatory cost of living increases). We are also subject to the labor laws and regulations of other jurisdictions in the world where we have employees.
 

48

Share Ownership
 
The following table shows information regarding beneficial ownership by our directors and executive officers as of February 29, 2024. Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission.
 
All information with respect to the beneficial ownership of any principal shareholder has been furnished by such shareholder and, unless otherwise indicated below, we believe that persons named in the table have sole voting and sole investment power with respect to all of the shares shown as beneficially owned, subject to community property laws, where applicable. All shares shown as beneficially owned have identical rights in all respects. The shares beneficially owned by the directors include the shares owned by their family members to which such directors disclaim beneficial ownership.
 
The share numbers and percentages listed below are based on shares outstanding as of February 29, 2024.
 
Name
 
Number of
shares
beneficially
owned (1)(5)
   
% of
class of
shares
(2)
 
Title of securities
covered by the
options, RSUs and PSUs
 
Number of
options, RSUs, and PSUs (3)
   
Exercise price of
options
 
Date of expiration of
options
Gil Shwed
   
29,804,551
     
25.6
%(4)
Ordinary shares
   
4,920,000
   
$
114.23-$131.96
 
06/06/2024-08/02/2030
All directors and officers as a group (13 persons including Mr. Shwed)(5)
   
30,851,436
     
26.2
%
Ordinary shares
   
5,854,148
   
$
91.78-$131.96
 
06/06/2024- 10/31/2030

 

(1)
The number of ordinary shares shown includes shares that each shareholder has the right to acquire pursuant to stock options that are exercisable and RSUs and PSUs that vest within 60 days after February 29, 2024.
(2)
If a shareholder has the right to acquire shares by exercising stock options or has RSUs and PSUs (as determined in accordance with footnote (1)), these shares are deemed outstanding for the purpose of computing the percentage owned by the specific shareholder (that is, they are included in both the numerator and the denominator), but they are disregarded for the purpose of computing the percentage owned by any other shareholder.
(3)
Number of options immediately exercisable or exercisable and RSUs and PSU that vest within 60 days from February 29, 2024.
(4)
The share amount and holding percentage includes unexercised stock options. Without such unexercised stock options, the 24,884,551 issued ordinary shares held by Gil Shwed represented 22.0% of the outstanding ordinary shares and voting rights as of February 29, 2024.
(5)
Other than Mr. Shwed, none of our executive officers and directors beneficially own more than 1% of our outstanding ordinary shares.

 
Equity Incentive Plans
 
The following table summarizes our equity incentive plans, which have outstanding awards as of December 31, 2023:
 
Plan
 
Outstanding
options,
RSUs & PSUs
   
Options
outstanding
exercise price
 
Date of expiration of options
 
Options
exercisable
 
2005 United States Equity Incentive Plan
   
1,219,079
   

$97.61-$136.26
 
 06/06/2024-10/31/2030
   
370,436
 
2005 Israel Equity Incentive Plan
   
8,781,708
   
$91.78-$131.96
 
 06/06/2024-08/02/2030
   
5,532,046
 
Dome9 Equity Incentive Plan
   
226
   
$12.99
 
12/21/2027
   
226
 
 
In 2005, we adopted our 2005 United States Equity Incentive Plan and our 2005 Israel Equity Incentive Plan, which were subsequently amended in January 2014, July 2018, August 2020 and August 2023. We refer to the plans, as amended, as the U.S. Equity Plan and the Israel Equity Plan, and, together, as the Equity Plans.
 
49

Number of Ordinary Shares Reserved for Future Grants under the Equity Plans
 
Following the amendments to the Equity Plans in July 2018, commencing December 31, 2018, on 31, December of each year, the number of Reserved and Authorized Shares (as defined below) under both Equity Plans together shall be automatically reset on such date to equal 10% of the sum of (i) the number of ordinary shares issued and outstanding on such date and (ii) the number of ordinary shares reserved and authorized under the Equity Plans for outstanding awards granted under the Equity Plans as of such date (provided, however, that in no event shall the number of Reserved and Authorized Shares be less than the number of ordinary shares reserved and authorized under the Equity Incentive Plans for outstanding awards granted under the Equity Incentive Plans as of such date). The number of “Reserved and Authorized Shares” under the Equity Plans shall equal the sum of (i) the number of ordinary shares reserved and authorized under the Equity Plans for outstanding awards granted under the Equity Plans as of such date, and (ii) the number of ordinary shares reserved, authorized and available for issuance under the Equity Plans on such date.
 
Accordingly, as of December 31, 2023, the number of Reserved and Authorized Shares under both Equity Plans together was reset to equal 12,290,744.
 
As of December 31, 2023, options to purchase 7,233,044 ordinary shares were outstanding under the Equity Plans and the Dome9 Equity Incentive Plan combined. The option exercise prices of the outstanding options as of December 31, 2023 range between $12.99 and $136.26 per share. As of December 31, 2023, 2,767,969 RSUs and PSUs were outstanding under the Equity Plans combined.
 
Administration
 
Both Equity Plans are administered by our board of directors or a committee of our board. The compensation committee of our board of directors currently operates as the administrator of the Equity Plans. The administrator has full power to determine the persons to whom awards shall be granted and the other terms of the awards granted, including (a) the number of shares subject to each award, (b) the duration of the related award agreement, (c) the time, manner and form of payment upon the exercise of an award, and (d) other terms and provisions governing the awards. The administrator also establishes the vesting schedule of awards that are granted.

2005 United States Equity Incentive Plan, as Amended
 
Awards. The U.S. Equity Plan provides for the following kinds of awards, which we refer to generically as awards: (i) Incentive Stock Options (ISOs), (ii) Non-statutory Stock Options (NSOs), (iii) Restricted Stock, (iv) Restricted Stock Units (RSUs), (v) Performance Shares, (vi) Performance RSUs (“PSUs”) and (vii) Deferred Stock Units. All of these awards can vest based on time or performance milestones.
 
 
Granting of options, price and duration. Our U.S. Equity Plan provides that each option will expire on the date stated in the notice of grant, which will not be more than seven years from its date of grant (or five years, in the case of an ISO granted to a person who on the date of grant owns 10% or more of our voting power). The exercise price of an option cannot be less than 100% of the fair market value per share on the date of grant (or 110% of the fair market value, in the case of an ISO granted to a person who on the date of grant owns 10% or more of our voting power). The administrator will fix the period within which the award can be exercised and the exercise price. No option award can vest until at least six months after the grant date.
 
Granting of awards, other than options, and price. The administrator can determine the conditions that must be satisfied, which typically will be based principally or solely on the recipient’s continuing to provide services to us, but conditions may also include a performance-based component. We can issue ordinary shares under grants of Restricted Stock, RSUs, Performance Shares and PSUs upon payment of their nominal value. No such award can vest until at least one year after the grant date. Deferred Stock Units consist of Restricted Stock, RSUs, Performance Shares, or PSUs that the administrator permits to be paid out in installments or on a deferred basis.
 
2005 Israel Equity Incentive Plan, as Amended
 
Awards. The Israel Equity Plan provides for the following kinds of awards, which we refer to generically as awards: (i) “Approved 102 Options/Shares,” which are grants to directors, employees and officers that are eligible for favorable tax treatment in Israel and which must be held by a trustee for a minimum period as prescribed by Israeli law; (ii) “Non-approved 102 Options/Shares,” which are grants of options or shares that are not eligible for favorable tax treatment in Israel and which may be held directly by the participants; (iii) Restricted Stock; (iv) RSUs; (v) Performance Shares; (vi) PSUs; and (vii) Deferred Stock Units. All of these awards can vest based on time or performance milestones.
 
50

Trustee. A trustee designated by our board of directors and approved by the Israel Tax Authority must hold any shares allocated or issued upon exercise of Approved 102 Options or other shares subsequently received following any realization of rights, including bonus shares (stock dividends), for at least the period of time specified by Section 102 of Israel’s Income Tax Ordinance.
 
Granting of options, price and duration. Our Israel Equity Plan provides that each option will expire on the date stated in the option agreement, which will not be more than seven years from its date of grant. The exercise price of an option cannot be less than 100% of the fair market value per share on the date of grant. The administrator will fix the period within which the award can be exercised and the exercise price. No option award can vest until at least six months after the grant date.
 
Granting of awards, other than options, and price. The administrator can determine the conditions that must be satisfied, which typically will be based principally or solely on the recipient’s continuing to provide services to us, but conditions may also include a performance-based component. We can issue ordinary shares under grants of Restricted Stock, RSUs, Performance Shares and PSUs upon payment of their nominal value. No such award can vest until at least one year after the grant date. Deferred Stock Units consist of Restricted Stock, RSUs, Performance Shares, or PSUs that the administrator permits to be paid out in installments or on a deferred basis.
 
Change of control arrangements. Upon a change of control of us, if the acquirer refuses to assume or provide substitute awards, then the administrator of the equity plans, which is currently the compensation committee of our board of directors, can either terminate all unvested awards or accelerate the vesting period of any award under our Equity Plans. The administrator also has the authority to accelerate the vesting of the ordinary shares subject to outstanding awards held by our directors, officers and employees in connection with the subsequent termination of some officers’ employment following a change of control event
 
Dome9 Security Ltd. 2011 Share Option Plan and the 2016 Equity Incentive Subplan
 
In connection with our acquisition of Dome9 Security Ltd. in October 2018, we assumed certain outstanding Dome9 share options under the Dome9 Security Ltd. 2011 Share Option Plan and the 2016 Equity Incentive Subplan, or the Dome9 Equity Plan, which were converted into options to purchase 47,816 of our ordinary shares.
 
As of December 31, 2023, options to purchase 226 ordinary shares were outstanding under the Dome9 Equity Plan on that date. The single outstanding grant under this plan has a term of ten years, expiring in December 2027, and an option exercise price of $12.99 per share. No further options can be granted under the Dome9 Equity Plan.
 
 
Employee Stock Purchase Plans
 
In 1996, we adopted an Employee Stock Purchase Plan, which was subsequently amended and restated in 2015, and further amended in June 2019, July 2020 and January 2024. We refer to the Employee Stock Purchase Plan, as amended and restated, as the US ESPP, and the Employee Stock Purchase Plan (Non-U.S. Employees), as the Non-US ESPP, and together with the US ESPP, as the “ESPPs”. The ESPPs permit employees to purchase ordinary shares through payroll deductions.
 
As of February 29, 2024, 246,703 ordinary shares were available under the US ESPP and 669,590 ordinary shares were available under the Non-US ESPP.
 
Each ESPP has six-month offering periods, with purchases occurring in January and July. Each of the ESPPs will terminate on the earliest of (i) the last business day in January 2036, (ii) when no more shares are available for issuance under the applicable ESPP, or (iii) when all purchase rights under the applicable ESPP are granted or exercised in connection with a “Corporate Transaction” as defined in the applicable ESPP.
 
An eligible employee can purchase ordinary shares at a price of 85% of the fair market value of the ordinary shares at the beginning of the six-month offering period (or 85% of the fair market value of the ordinary shares on the semi-annual purchase date, if that is lower). Each eligible employee can elect to purchase ordinary shares under the ESPP in an amount of up to 15% of the employee’s compensation, but not more than 1,250 shares per participant on any purchase date. Employees may terminate their participation in the ESPP at any time during the offering period, and participation ends automatically on termination of employment with us. Each outstanding purchase right will be exercised immediately prior to our merger or consolidation with another company. Our board of directors may amend or terminate each of the ESPPs immediately after the close of any purchase date.

Disclosure of a Registrant’s Action to Recover Erroneous Awarded Compensation

None.

51

 
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 
The following table shows information as of December 31, 2023, 2022 and 2021, for each person who, to the best of our knowledge, beneficially owned more than 5% of our outstanding ordinary shares as December 31, 2023:

Name of Five Percent Shareholders
 
No. of shares
beneficially
held (1)(3)
   
% of
class of
shares
(2)
   
No. of shares
beneficially
held (1)
   
% of
class of
shares
(2)
   
No. of shares
beneficially
held (1)
   
% of
class of
shares
(2)
 
 
 
December 31, 2023
   
December 31, 2022
   
December 31, 2021
 
Gil Shwed
   
29,744,539
     
25.3
%(3)
   
29,149,766
     
23.3
%
   
28,369,738
     
21.4
%


(1)
The amount includes ordinary shares owned by each of the individuals, directly or indirectly, and options immediately exercisable or that are exercisable within 60 days from December 31st, of each of the years shown in this table.
(2)
If a shareholder has the right to acquire ordinary shares by exercising stock options exercisable within 60 days from December 31st, of each of the years shown in this table, these Ordinary shares are deemed outstanding for the purpose of computing the percentage owned by the specific shareholder (that is, they are included in both the numerator and the denominator), but they are disregarded for the purpose of computing the percentage owned by any other shareholder.
(3)
The share amount and holding percentage includes the unexercised stock options. Without such unexercised stock options, the 24,884,539 issued ordinary shares held by Gil Shwed represented 22.0% of the outstanding ordinary shares and voting rights as of December 31, 2023.

Our major shareholders do not have different voting rights from other shareholders with respect to our ordinary shares.
 
According to our transfer agent, as of December 31, 2023, there were 106 holders of record of our ordinary shares in the United States, representing approximately 80.77% of our outstanding shares. The number of record holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since many of these ordinary shares were held by brokers or other nominees.

 
We are not controlled by another corporation or by any foreign government, directly or through any other entity. Each of our outstanding ordinary shares has identical rights in all respects.
 
ITEM 8. FINANCIAL INFORMATION
 
Consolidated Financial Statements
 
You can find our financial statements in “Item 18 – Financial Statements”.
 
Dividend policy
 
We currently do not intend to distribute any amounts as dividend in the near-term. During 2013, we entered into a settlement agreement with the Israel Tax Authority, resulting in the full release of the profits we generated under the Israeli Law for the Encouragement of Capital Investments (the “Investment Law”) through the year ended December 31, 2011 (known in Israel as “trapped profits”), provided that in accordance with the Investment Law and the regulations thereunder, during the five years commencing 2013, we were obligated to meet certain conditions which included investment in (i) production assets (as defined therein), (ii) research and development activities in Israel and (iii) employment payments for certain new employees (other than office holders) added after 2011. We believe we met those conditions. For amounts that will be distributed as dividends from the non-trapped earnings, we will be exempt from additional taxes.
 
Legal Proceedings
 
We operate our business in various countries, and accordingly attempt to utilize an efficient operating model to structure our tax payments based on the laws in the countries in which we operate. This can cause disputes between us and various tax authorities in different parts of the world. In particular, following audits of the Company’s 2016 through 2020 corporate tax returns, the Israeli Tax Authority (the “ITA”) issued in January 2023 orders for the years 2016 through 2019 challenging our positions on several issues, including matters such as our position to claim a tax credit made for foreign taxes withheld on income payments that was due to us outside of Israel, taxation of interest earned outside of Israel by a wholly-owned Singapore subsidiary which the ITA is seeking to tax in Israel and deductibility of expenses attributed to employee stock options. The ITA orders also contest our positions on various other issues. The ITA therefore demanded the payment of additional taxes in the aggregate amount of NIS 479 million (approximately $132 million), not including an amount of NIS 421 million (approximately $116 million) related to expenses that will be deductible in future years, with respect of these four tax years (these amounts include interest and indexation through December 31, 2023). We believe we have good arguments against these orders and on November 29, 2023, filed an appeal to the District Court of Tel Aviv against these orders.
 
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In addition, the ITA has issued tax assessment for the 2020 tax year, presenting similar arguments as those in the orders for the tax years 2016-2019, in which it demanded the payment of additional taxes in the aggregate amount of NIS 84 million (approximately $23 million), not including an amount of NIS 95 million (approximately $26 million) related to expenses that will be deductible in future years, with respect to this year (these amounts include interest and indexation through December 31, 2023). On December 31, 2023 we submitted an initial stage tax appeal against the 2020 tax assessment to the ITA (the Company may appeal such order to the district court). There is no assurance that the ITA will accept our positions on the matters raised and, if it does not, the ITA may also issue an order with respect to the 2020 tax year.
 
We are the defendant in various other lawsuits, including employment-related litigation claims, lease termination claims and other legal proceedings in the normal course of our business. Litigation and governmental proceedings can be expensive, lengthy and disruptive to normal business operations, and can require extensive management attention and resources, regardless of their merit. While we currently intend to defend the aforementioned matters vigorously, we cannot predict the results of complex legal proceedings, and an unfavorable resolution of a lawsuit or proceeding could materially adversely affect our business, results of operations and financial condition.
 
ITEM 9. THE OFFER AND LISTING
 
Our ordinary shares are traded publicly on the Nasdaq Global Select Market under the symbol “CHKP” and on the Frankfurt Stock Exchange under the symbol “CPW”.
 
ITEM 10. ADDITIONAL INFORMATION
 
We were incorporated in Israel in July 1993, and we are registered with the Israeli Registrar of Companies as public company number 52-004282-1.
 
The objectives and purposes stated in our memorandum of association are to engage in any lawful activity. We develop, market and support a wide range of products and services for IT security, and offer our customers an extensive portfolio of network security, endpoint security, data security and management solutions. A broad range of our network security solutions operate under a unified security architecture, with central management and enforcement of security policy, and with centralized real-time security updates. Our products and services are sold to enterprises, service providers, small and medium-sized businesses and consumers.
 
Articles of Association and Israeli Companies Law
 
The following is a summary of the material provisions of our articles of association and related provisions of the Israeli Companies Law. For the complete text of our articles of association, see “Item 19 – Exhibits”.

Description of shares
 
Our authorized share capital consists of the following: (i) 500,000,000 ordinary shares, NIS 0.01 nominal value; (ii) 5,000,000 preferred shares, NIS 0.01 nominal value; and (iii) 10 deferred shares, NIS 1.00 nominal value.
 
Please refer to Exhibit 2.1 for Items 10.B.3, B.4, B.6, B.7, B.8, B.9 and B.10.
 
Approval of certain transactions; obligations of directors, officers and shareholders
 
Officers and directors. The Israeli Companies Law codifies the fiduciary duties that office holders, which under the law, includes our directors and executive officers, owe to a company.
 
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Fiduciary duties. An office holder’s fiduciary duties consist of a duty of loyalty and a duty of care.
 
The duty of loyalty requires an office holder to act in good faith and for the benefit of the company, including to avoid any conflict of interest between the office holder’s position in the company and personal affairs, and proscribes any competition with the company or the exploitation of any business opportunity of the company in order to receive personal advantage for himself or herself or for others. This duty also requires an office holder to reveal to the company any information or documents relating to the company’s affairs that the office holder has received due to his or her position as an office holder. A company may approve any of the acts mentioned above; provided, however, that all the following conditions apply: the office holder acted in good faith; neither the act nor the approval of the act prejudices the good of the company; and the office holder disclosed the essence of his or her personal interest in the act, including any substantial fact or document, in a reasonable time before the date for discussion of the approval. A director is required to exercise independent discretion in fulfilling his or her duties and may not be party to a voting agreement with respect to his or her vote as a director. A violation of these requirements is deemed a breach of the director’s duty of loyalty.
 
The duty of care requires an office holder to act with a level of care that a reasonable office holder in the same position would employ under the same circumstances. This includes the duty to use reasonable means to obtain information regarding the advisability of a given action submitted for his or her approval or performed by virtue of his or her position and all other relevant information material to these actions.
 
Disclosure of personal interest. The Israeli Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may have and all related material information or documents known to him or her, in connection with any existing or proposed transaction by the company. “Personal interest,” as defined by the Israeli Companies Law, includes a personal interest of any person in an act or transaction of the company, including a personal interest of his relative or of a corporation: (i) in which that person or a relative of that person holds 5% or more of the shares, a holder of 5% or more of the voting rights, or a director or general manager, or (ii) in which he or she has the right to appoint at least one director or the general manager, and includes shares for which the person has the right to vote pursuant to a power-of-attorney. “Personal interest” does not apply to a personal interest stemming merely from holding shares of the company.
 
The office holder must immediately make the disclosure of his or her personal interest and no later than the first meeting of the company’s board of directors that discusses the particular transaction. This duty does not apply to the personal interest of a relative of the office holder in a transaction unless it is an “extraordinary transaction”. The Israeli Companies Law defines an “extraordinary transaction” as a transaction that is not in the ordinary course of business of a company, or that is not on market terms, or which is likely to have a material impact on the company’s profitability, assets or liabilities. The Israeli Companies Law defines a “relative” as a spouse, sibling, parent, grandparent, descendant and the descendant, sibling or parent of a spouse, as well as the spouse of any of the foregoing.
 
Approvals. The Israeli Companies Law provides that a transaction with an office holder or a transaction in which an office holder has a personal interest requires the board approval, unless the transaction is an extraordinary transaction or the articles of association provide otherwise. The transaction shall not be approved if it is adverse to the company’s interest. If the transaction is an extraordinary transaction, or if it concerns exculpation, indemnification, insurance or compensation of an office holder, then the approval of the company’s compensation committee and the board of directors is required, except if the compensation arrangement is an immaterial amendment to an existing compensation arrangement of an officer who is not a director (in which case the approval of the compensation committee is sufficient). Exculpation, indemnification, insurance or compensation of a director or the Chief Executive Officer also requires shareholder approval.
 
A person who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee generally may not attend that meeting or vote on that matter, unless a majority of the board of directors or the audit committee also has a personal interest in the matter or if such person is invited by the chairman of the board of directors or audit committee, as applicable, to present the matter being considered. If a majority of the board of directors has a personal interest in the transaction, all directors may attend that meeting and vote, and a shareholder approval would be required as well.
 
Shareholders. The Israeli Companies Law imposes the same disclosure requirements described above on a controlling shareholder of a public company that it imposes on an office holder. For this purpose, a “controlling shareholder” is defined as any shareholder who has the ability to direct the company’s actions, including any shareholder holding 25% or more of the voting rights, if no other shareholder owns more than 50% of the voting rights in the company. Two or more shareholders with a personal interest in the approval of the same transaction are deemed to be one shareholder.
 
Under the Israeli Companies Law, a shareholder has a duty to act in good faith toward the company and the other shareholders, and to refrain from abusing his or her power in the company, which includes, among other things, voting in the general meeting of shareholders on the following matters:
 

any amendment to the articles of association,
 
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an increase of the company’s authorized share capital,
 

a merger, or
 

approval of interested party transactions that require shareholder approval.
 
In addition, any controlling shareholder, any shareholder who can determine the outcome of a shareholder vote, and any shareholder who can appoint or prevent the appointment of an office holder under the company’s articles of association, is under a duty to act with fairness towards the company. The Israeli Companies Law provides that a breach of the duty of fairness will be governed by the laws governing breach of contract. The Israeli Companies Law does not describe the substance of this duty.
 
Compensation of Executive Officers and Directors; Executive Compensation Policy
 
In accordance with the Israeli Companies Law, we have adopted a compensation policy for our executive officers and directors. The purpose of the policy is to describe our overall compensation strategy for our executive officers and directors and to provide guidelines for setting their compensation, as prescribed by the Israeli Companies Law. In addition, according to the Israeli Companies Law, the policy must be reviewed and readopted at least once every three years.
 
The adoption of the compensation policy requires the approval of the compensation committee, the board of directors and our shareholders, in that order. The shareholder’s approval must include the majority of shares voted at the meeting. In addition to the majority vote, the shareholder approval must satisfy either of two additional tests:
 

the majority includes at least a majority of the shares voted by shareholders other than our controlling shareholders or shareholders who have a personal interest in the adoption of the compensation policies; or
 

the total number of shares held by non-controlling shareholders and disinterested shareholders that voted against the adoption of the compensation policies, does not exceed 2% of the aggregate voting rights of our company.
 
In accordance with the Israeli Companies Law, our policy was last readopted in August 2022 by the compensation committee, the board of directors and our shareholders.
 
Under the Israeli Companies Law, the compensation arrangements for officers (other than the Chief Executive Officer) who are not directors require the approval of the compensation committee and the board of directors; provided, however, that if the compensation arrangement is not in compliance with our executive compensation policy, the arrangement may only be approved by the compensation committee and the board of directors for special reasons to be noted, and the compensation arrangement shall also require a special shareholder approval. If the compensation arrangement is an immaterial amendment to an existing compensation arrangement of an officer who is not a director and is in compliance with our executive compensation policy, the approval of the compensation committee is sufficient.
 
Arrangements regarding the compensation of the Chief Executive Officer and directors require the approval of the compensation committee, the board and the shareholders, in that order. In certain limited cases, the compensation of a new Chief Executive Officer who is not a director may be approved without approval of the shareholders.
 
Clawback Policy
 
In 2023, we adopted a Clawback Policy in compliance with the SEC rules and Nasdaq listing standards to recover any excess incentive-based compensation from current and former executive officers after an accounting restatement.
 
A copy of the Clawback Policy is filed an exhibit to this Annual Report.
 
Indemnification and insurance of directors and officers; limitations on liability
 
Our articles of association allow us to indemnify, exculpate and insure our office holders to the fullest extent permitted under the Israeli Companies Law.
 
Under the Israeli Companies Law, we may indemnify an office holder for any of the following liabilities or expenses that they may incur due to an act performed or failure to act in his or her capacity as our office holder:
 

Monetary liability imposed on the office holder in favor of a third party in a judgment, including a settlement or an arbitral award confirmed by a court.
 
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Reasonable legal costs, including attorneys’ fees, expended by an office holder as a result of an investigation or proceeding instituted against the office holder by a competent authority, provided that such investigation or proceeding concludes without the filing of an indictment against the office holder, and either:
 

no financial liability was imposed on the office holder in lieu of criminal proceedings, or
 

financial liability was imposed on the office holder in lieu of criminal proceedings, but the alleged criminal offense does not require proof of criminal intent.
 

Reasonable legal costs, including attorneys’ fees, expended by the office holder or for which the office holder is charged by a court:
 

in an action brought against the office holder by us, on our behalf or on behalf of a third party,
 

in a criminal action in which the office holder is found innocent, or
 

in a criminal action in which the office holder is convicted, but in which proof of criminal intent is not required.
 
A company may indemnify an office holder in respect of these liabilities either in advance of an event or following an event. If a company undertakes to indemnify an office holder in advance of an event, the indemnification, excluding litigation expenses, must be limited to foreseeable events in light of the company’s actual activities when the company undertook such indemnification, and reasonable amounts or standards, as determined by the board of directors.
 
A company may obtain insurance for an office holder against liabilities incurred in his or her capacity as an office holder. These liabilities include: a breach of duty of care to the company or a third party including a breach arising out of negligence of the office holder; and a breach of duty of loyalty and any monetary liability imposed on the office holder in favor of a third party. A company may also exculpate an office holder from a breach of duty of care in advance of that breach. Our articles of association provide that the exculpation can be made, either in advance or retroactively, to the extent permitted under Israeli law. A company may not exculpate an office holder from a breach of duty of loyalty towards the company or from a breach of duty of care concerning dividend distribution or a purchase of the company’s shares by the company or other entities controlled by the company.
 
Under the Israeli Companies Law, a company may indemnify or insure an office holder against a breach of duty of loyalty only to the extent that the office holder acted in good faith and had reasonable grounds to assume that the action would not prejudice the company. In addition, a company may not indemnify, insure or exculpate an office holder against a breach of duty of care if the act or omission were committed intentionally or recklessly (excluding mere negligence), or with the intent to derive an unlawful personal gain, or for a fine or forfeit levied against the office holder in connection with a criminal offense.
 
We have resolved to indemnify our directors and officers, to the extent permitted by law and by our articles of association, for liabilities not covered by insurance, that are of certain enumerated types of events, and subject to limitations as to amount.
 
We have also entered into indemnification, insurance and exculpation agreements with our directors and officers undertaking to indemnify, insure and exculpate them to the full extent permitted by the Israeli Companies Law.
 
 Charitable Contributions
 
Our articles of association authorize the company to contribute reasonable amounts to worthy causes. In accordance with our charitable contribution policy, we contribute from time to time to various worthy causes.
 
During 2023, the list of entities to which we contributed included, among others, the Tel Aviv University and the Yeholot Association. Gil Shwed, our founder and Chief Executive Officer, is a Governor of the Board of Governors of Tel Aviv University, the Chairman of the Board of Trustees of the Youth University of Tel Aviv University, the founder of Tel-Aviv University’s Check Point Institute for Information Technology and the Chairman of the Board of Directors of Yeholot Association Founded by the Rashi Foundation whose charter is, among other things, to reduce the dropout rates in high schools.
 
Borrowing power
 
Our articles of association grant broad powers to the board of directors to have us borrow, repay borrowings, make guarantees and grant security interests in borrowings.
 
Availability of Annual Report on Form 20-F
 
In accordance with our articles of association and Nasdaq rules, we post our Annual Report on Form 20-F on our website (www.checkpoint.com), rather than mail it to shareholders.
 
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Material Contracts
 
None.
 
Israeli Taxation, Foreign Exchange Regulation and Investment Programs
 
The following is a summary of the principal Israeli tax laws applicable to us, the Israeli Government programs from which we benefit, and Israeli foreign exchange regulations. This section also contains a discussion of material Israeli tax consequences to our shareholders who are not residents or citizens of Israel. This summary does not discuss all aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances, or to some types of investors subject to special treatment under Israeli law. Examples of investors subject to special treatment under Israeli law include residents of Israel, traders in securities, or persons who own, directly or indirectly, 10% or more of our outstanding voting capital, all of whom are subject to special tax regimes that are not covered in this discussion. Some parts of this discussion are based on new tax legislation that has not been subject to judicial or administrative interpretation. The discussion should not be construed as legal or professional tax advice and does not cover all possible tax consequences.
 
You are urged to consult your own tax advisor as to the Israeli and other tax consequences of the purchase, ownership and disposition of our shares, including, in particular, the effect of any non-Israeli, state or local taxes.
 
General corporate tax structure in Israel
 
Taxable income of Israeli companies is subject to tax at the rate of 23% since 2018.
 
However, as discussed below, the rate is effectively reduced for income derived from our Technological preferred enterprise.
 
Law for the Encouragement of Capital Investments, 1959 (“Investment Law”)
 
Among other changes, the new Law includes, Amendment 73 to the Investment Law (“Amendment 73”). Amendment 73 prescribes special tax tracks for technological enterprises. One of the tracks is for Technological preferred enterprise—an enterprise for which total consolidated revenues of its parent company and all subsidiaries are less than NIS 10 billion. A technological preferred enterprise, as defined in the Law, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property. The special tax tracks under Amendment 73 are subject to rules issued by the Minister of Finance. On May 1, 2017, the Israeli Finance Minister signed tax regulations implementing the Organization for Economic Co-operation and Development’s (OECD’s) “nexus approach,” a base erosion and profit shifting (BEPS) requirement for intellectual property (IP) preferential tax regimes. The proposed regulations are subject to approval by the Parliament’s Finance Committee. On May 16, 2017 the Knesset Finance Committee approved the regulations effective as of January 1, 2017.
 
The benefits available to a Preferred Enterprise are conditioned upon terms stipulated in the Investment Law and the related regulations. If we do not fulfill these conditions, in whole or in part, the benefits can be cancelled, and we may be required to refund the benefits in an amount linked to the Israeli consumer price index plus interest. We believe that our Preferred Enterprise program currently operates, in compliance with all applicable conditions and criteria, but we cannot assure you that it will continue to do so.
 
We have derived, and expect to continue to derive, a substantial portion of our operating income from our Technological preferred enterprise. We are, therefore, eligible for reduced tax rates for an unlimited period.
 
To prepare our consolidated financial statements, we estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our potential tax exposure together with assessing temporary differences resulting from the differing treatment of certain items for tax and accounting purposes.
 
These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet.
 
Reduced income under the Investment Law including the Preferred Enterprise/Technological preferred enterprise Regime will be freely distributable as dividends, subject to a 15% or 20% withholding tax (or at lower rate, under an applicable tax treaty). However, upon the distribution of a dividend from Preferred/ Technological preferred Income to an Israeli company, no withholding tax will be remitted.
 
Our tax assessments through the 2015 tax year are considered final.
 
See also Item 3 “Key Information – Risk factors” – Risks Related to Our Business and Our Market – We are the defendants in various lawsuits and have been subject to tax disputes and governmental proceedings, which could adversely affect our business, results of operations and financial condition”.
 
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The Inflation Reduction Act of 2022

On August 16, 2022, Congress passed the Inflation Reduction Act of 2022. The tax provisions impose the newly introduced 15% corporate alternative minimum tax on large corporations with average annual financial statement income exceeding $1 billion USD and 1% excise tax on stock repurchases, which are both effective January 1, 2023. While we do not anticipate that these changes should impact our consolidated financial position, we will continue to monitor as new information and guidance becomes available.
 

Foreign Exchange Regulations
 
Under the Foreign Exchange Regulations, an Israeli company calculates its tax liability in U.S. dollars according to certain orders. The tax liability, as calculated in U.S. dollars is translated into NIS according to the exchange rate as of December 31 of each year.
 
Dividends, if any, paid to the holders of our shares, and any amounts payable upon our dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of our shares to an Israeli resident, may be paid in non-Israeli currency. If these amounts are paid in Israeli currency, they may be converted into freely repatriable U.S. dollars at the rate of exchange prevailing at the time of conversion. In addition, the statutory framework for the potential imposition of exchange controls has not been eliminated, and may be restored at any time by administrative action.

Equity Based Compensation
 
The Israeli tax legislation enables a company to grant options/shares through one of three tax tracks:
 
(a) the income tax track through a trustee pursuant to which the employee pays income tax rate (according to the marginal tax rate of the employee), up to 47% tax in 2021, 2022 and in 2023, plus payments to the National Insurance Institute and health tax on the profit gained upon the earlier to occur of the transfer of the options/shares or the underlying shares from the trustee to the employee or the sale of the options/shares or the underlying shares by the trustee, and the company may deduct expenses pertaining to the options/shares for tax purposes. The shares/options (or upon their exercise, the underlying shares), must be held by a trustee for a period of 12 months commencing from the date of which the options/shares were issued and deposited with the trustee. As of January 1, 2013, an additional tax was imposed in a rate of 3% (“the surtax”). Accordingly, and as of December 31, 2023 the marginal tax rate of an individual can reach 50% if the employee’s taxable income for the year exceeded NIS 698,280.
 
(b) the capital gains tax track through a trustee pursuant to which the employee pays capital gains tax at a rate of 25% on the capital profit portion and marginal tax rate (including payments to the National Insurance Institute and health tax) on the income portion (in general, the income portion is the profit derived from the difference between the average market value of the share 30 days before the allotment date and the exercise price of the option/share) upon the earlier to occur of the transfer of the options/shares or the underlying shares from the trustee to the employee or the sale of the options/shares or the underlying shares by the trustee. (On the capital profit, the employee is not required to make payments to the National Insurance Institute and health tax). In this track, on the capital profit, we may not deduct expenses pertaining to the options/shares for tax purposes but may do so on the income portion. The shares/options (or upon their exercise, the underlying shares), must be held by a trustee for a period of 24 months commencing from the date of which the options/shares were issued and deposited with the trustee (with respect to options/shares granted before January 1, 2006, a period of 30 months commencing from the date of which the options/shares were granted or a period of 24 months commencing from the date of which the options/shares were issued and deposited with the trustee, whichever route is selected). As of January 1, 2013, an additional tax was imposed in a rate of 3% (“the surtax”). Accordingly, and as of December 31, 2023 the marginal tax rate of an individual can reach 50% if the employee’s taxable income for the year exceeded NIS 698,280.
 
(c) the income tax track without a trustee pursuant to which the employee pays income tax rate (according to the marginal tax rate of the employee up to 47% in 2021, 2022 and in 2023, plus payments to the National Insurance Institute and health tax on the profit at the allotment date, and pays capital gains tax at a rate of 25% or 30% on the capital profit upon the sale of the underlying shares/shares, and we may not deduct expenses pertaining to the capital gain for tax purposes but may deduct expenses pertaining to the profit at the allotment date. As of January 1, 2013, an additional tax was imposed in a rate of 3% (“the surtax”). Accordingly, and as of December 31, 2023 the marginal tax rate of an individual can reach 50% if the employee’s taxable income for the year exceeded NIS 698,280.
 
In accordance with the provisions of the Israeli Tax Ordinance, if a company has selected the capital gains track, the company must continue granting options/shares under the selected capital gains track until the end of the year following the year in which the first grant of options/shares under that trustee track will be made.
 
We implement the capital gain track on RSUs, PSUs and stock options granted to our employees and directors and the income tax track without a trustee on our ESPP.
 
Notwithstanding the above, the company may at any time also grant options/shares under the provisions of the income tax track without a trustee.
 
The above rules apply only to employees, including officeholders but excluding controlling shareholders.
 
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Controlling shareholders will be taxable under section 3(i) to the tax ordinance, according to which, the individual pays income tax rate (according to the marginal tax rate of the individual, up to 47% in 2021, 2022 and in 2023) on the profit upon the sale of the underlying shares/shares. As of January 1, 2013, the surtax is imposed. Accordingly, the marginal tax rate of an individual increased by 3% if the employee’s taxable income in 2023 exceeded NIS 698,280 (as updated from time to time). Hence, the employee’s marginal tax rate can reach 50%.

Taxation of Non-Israeli Subsidiaries
 
Non-Israeli subsidiaries are generally taxed based upon tax laws applicable in their countries of residence. In accordance with the provisions of Israeli-controlled foreign corporation rules, certain income of a non-Israeli subsidiary, if the subsidiary’s primary source of income is passive income (such as interest, dividends, royalties, rental income or income from capital gains), which are subject to tax at a rate which does not exceed 15% in the foreign corporation’s jurisdictions may be deemed distributed as a dividend to the Israeli parent company and consequently is subject to Israeli taxation. This tax regime will not apply where the subsidiary’s dividend income is derived from taxable profits that were subject to tax exceeding 15%. An Israeli company that is subject to Israeli taxes on such deemed dividend income of its non-Israeli subsidiaries may generally receive a credit for non-Israeli income taxes paid by the subsidiary in its country of residence.
 
Taxation of Non-Israeli Shareholders on Receipt of Dividends
 
Under Israeli tax law, a distribution of dividends from income attributable to an Approved Enterprise, Privileged Enterprise, Preferred Enterprise or Technological preferred enterprise will be subject to tax in Israel at the rate of 15%/20%, which is withheld and paid by the company paying the dividend (,(apply on Approved Enterprise or Privileged Enterprise which are not considered Foreign Investors Company only if the dividend is distributed during the benefits period or within the following 12 years). However, if the dividend is attributable partly to income derived from an Approved and Privileged Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the two types of income. Any distribution of dividends from income that is not attributable to an Approved Enterprise, Privileged Enterprise Preferred Enterprise or Technological preferred enterprise will be subject to tax in Israel at the rate of 25% (or to a reduced tax rate if is distributing to a foreign shareholder based on an applicable tax treaty), except that dividends distributed to an individual who is deemed “a substantial shareholder” will be subject to tax at the rate of 30% ( or at a lower rate based on an applicable tax treaty).
 
Under the United States-Israel tax treaty, the maximum tax on dividends paid to a holder of shares of our capital stock who is a United States resident is 25%.
 
Dividends received by a United States company that holds at least 10% of our voting rights, will be subject to withholding tax at the rate of 12.5% or 15%, depends on the nature of the taxable income, provided that certain other conditions in the tax treaty are met. Dividends distributed to other foreign shareholders may be subject to different withholding tax rates based on the applicable tax treaty.
 
A non-resident of Israel who has interest or dividend income derived from or accrued in Israel, from which tax was withheld at the source, is generally exempt from the duty to file tax returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by the taxpayer.
 
Capital Gains Taxes Applicable to Non-Israeli Shareholders
 
According to Israeli domestic tax law, capital gains from the sale of our shares by non-Israeli shareholders (including United States residents) are exempt from Israeli taxation under the Israeli domestic tax law, provided that the capital gain is not derived from a permanent establishment in Israel.
 
A non-resident of Israel who has interest or dividend income derived from or accrued in Israel, from which tax was withheld at the source, is generally exempt from the duty to file tax returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by the taxpayer.
 
United States Federal Income Tax Considerations
 
The following discussion describes certain material U.S. federal income tax considerations relating to the direct or indirect ownership or disposition of our shares by a shareholder who is:
 

An individual citizen or resident (as defined for U.S. federal income tax purposes) of the United States;
 

A domestic partnership;
 
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A corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any of its states;
 

An estate, if the estates income is subject to U.S. federal income taxation; or
 
 
A trust, if a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons (e.g., a U.S. citizen, resident, or corporation) have the authority to control all of its substantial decisions or the trust has a valid election in effect under U.S. Treasury Regulations to be treated as a “United States person”. We refer to any of the above as a “U.S. Shareholder”.
 
This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended, referred to as the “Code”, U.S. Treasury Regulations promulgated under the Code and administrative and judicial interpretations of the Code, all as in effect as of the date of this Annual Report. This discussion generally considers only U.S. Shareholders who will hold our shares as capital assets.
 
This summary discussion does not address tax considerations applicable to a U.S. Shareholder that may be subject to special tax rules including, without limitation, the following:
 

Aspects of U.S. federal income taxation relevant to U.S. Shareholders by reason of their particular circumstances (including potential application of the alternative minimum tax);
 

U.S. Shareholders subject to special treatment under the U.S. federal income tax laws, such as banks, financial institutions, insurance companies, broker-dealers or traders in securities;
 

U.S. Shareholders that are tax-exempt organizations and pension funds;
 

U.S. Shareholders that are former citizens or long-term residents of the United States;
 

U.S. Shareholders that are partnerships or entities treated as partnerships or other pass-through entities and persons who own our shares through such entities, and non-U.S. individuals or entities;
 

U.S. Shareholders that are real estate investment trusts or regulated investment companies;
 

U.S. Shareholders who own 10% or more of our outstanding voting shares, either directly or by attribution;
 

U.S. Shareholders who hold our shares as part of a hedging, straddle, integrated, or conversion transaction;
 

U.S. Shareholders who acquire their shares of our capital stock in a “compensatory transaction”;
 

U.S. Shareholders whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar; and
 

Any aspect of U.S. estate, gift, state, or local tax law, or any non-U.S. tax law.
 
The following summary does not address all of the tax consequences of owning or disposing of our shares to you based on your individual tax circumstances. Accordingly, you should consult your own tax advisor as to the particular tax consequences to you of owning or disposing of our shares, including the effects of applicable state, local, or non-U.S. tax laws and possible changes in the tax laws.
 
Dividends Paid on the Company’s Shares
 
Subject to the discussion below under “Passive Foreign Investment Company Status,” a U.S. Shareholder, as defined above, may be required to include in gross income the amount of any distributions made with respect of our shares (and any Israeli taxes withheld on such distributions) to the extent that the distributions are paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. We do not calculate earnings and profits under United States federal income tax principles.
 
Certain non-corporate U.S. Shareholders may qualify for preferential rates of taxation with respect to dividends on our capital stock if the dividends are “qualified dividend income”. Qualified dividend income generally includes dividends paid by a U.S. corporation or a “qualified foreign corporation”. A non-U.S. corporation, such as ours, generally will be considered to be a qualified foreign corporation if (i) our shares are readily tradable on an established securities market in the United States, or (ii) we are eligible for the benefits of a comprehensive U.S. income tax treaty determined to be satisfactory to the U.S. Department of the Treasury for purposes of this provision and which includes an exchange of information provision. The U.S. Department of the Treasury and the Internal Revenue Service have determined that the United States-Israel tax treaty is satisfactory for this purpose. In addition, the U.S. Department of the Treasury and the Internal Revenue Service have determined that our shares are considered readily tradable on an established securities market if they are listed on an established securities market in the United States, such as the Nasdaq Global Select Market. The information returns, reporting the dividends paid to U.S. Shareholders, will identify the amount of dividends eligible for the reduced rates.
 
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U.S. Income Tax Treatment of Dividends
 
Any distributions in excess of earnings and profits will be treated first as non-taxable return of capital, reducing a U.S. Shareholder’s tax basis in our shares to the extent of the distributions, and then as capital gain from a sale or exchange of our shares. Any capital gain so realized will generally be taxable to the U.S. Shareholder as either long-term or short-term capital gain depending upon whether the U.S. Shareholder has held our shares for more than one year as of the time such distribution is received. Our dividends will generally not qualify for the dividends received deduction available to corporations. Any cash distribution paid in Israeli Shekels will equal the U.S. dollar value of the distribution, calculated based on the spot exchange rate in effect on the date of the distribution, regardless of whether the foreign currency is converted into U.S. dollars at that time. Any foreign currency gain or loss a U.S. Shareholder realizes on a subsequent conversion of foreign currency into U.S. dollars will be U.S. source ordinary income or loss. A 10% or more U.S. shareholder may have additional concerns not noted here.
 
Credit for Israeli Taxes
 
Subject to certain conditions and limitations, a U.S. Shareholder of an Israeli corporation may be eligible for a foreign tax credit to offset a portion of the U.S. tax liability assessed on Israeli sourced income when repatriated to the U.S. The U.S. Internal Revenue Code provides a foreign tax credit limitation on the amount of foreign tax credits that may be used during each taxable year. This limitation requires detailed knowledge of the mechanics of the rules proscribed in the code and support regulations. Under no circumstances, can foreign tax credits be used to offset a U.S. tax assessment on U.S. source income, and the credit may not exceed the U.S. tax assessment on foreign income.
 
A U.S. Shareholder may elect to claim a foreign tax credit on its U.S. federal income tax return for foreign taxes paid or accrued, alternatively, the U.S. Shareholder may elect to claim a deduction for Israeli income tax withheld or paid, but only if the shareholder elects to do so for all foreign income taxes of the same year. Special rules for determining a U.S. Shareholder ’s foreign tax credit limitation apply in the case of qualified dividend income. Rules similar to those concerning adjustments to the foreign tax credit limitation to reflect any capital gain rate differential also apply to any qualified dividend income. The rules relating to foreign tax credits are complex and each U.S. Shareholder should consult his, her, or its own tax advisor to determine whether and if the specific shareholder would be entitled to this credit.
 
Sale, Exchange, or Other Disposition of Our Shares
 
The sale or exchange of our shares may result in the recognition of capital gain or loss for the U.S. Shareholder. The amount of gain or loss is the difference between the U.S. dollar value of the amount realized on the sale or exchange and the tax basis in our shares. If a U.S. Shareholder’s holding period for our shares exceeds one year at the time of the disposition, the amount of the shareholder’s gain or loss generally will be long-term capital gain or loss. Long-term capital gains of non-corporate U.S. Shareholders realized upon a sale or exchange of shares generally will be eligible for a preferential rate of taxation. The deductibility of capital losses may be subject to limitation. Gain or loss recognized by a U.S. Shareholder on a sale or exchange of shares generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes.
 
Additional Tax on Investment Income
 
U.S. Shareholders that are individuals, estates or trusts and whose income exceeds certain thresholds may be subject to a 3.8% tax on all or a portion of their “net investment income”, including, among other things, dividends on and capital gains from the sale or other disposition of our shares, subject to certain limitations and exceptions.
 
 
Passive Foreign Investment Company Status
 
Based upon our income, assets and activities, we believe that we are not currently, and have not been in prior years, a passive foreign investment company (PFIC) for U.S. federal income tax purposes. We do not currently anticipate that we will be a PFIC for any subsequent year. We would be classified as a PFIC if, for any taxable year, either:
 

75% or more of our gross income in the taxable year is passive income, or
 

50% or more of the average percentage of our assets held during the taxable year produce or are held for the production of passive income.
 
For this purpose, passive income includes dividends, interest, royalties, rents, annuities and the excess of gain over losses from the disposition of assets that produce passive income.
 
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If we were a PFIC for any taxable year during which you held shares as a U.S. Shareholder and you did not timely elect to treat us as a “qualified electing fund” under Section 1295 of the Code or elect to mark our shares to market, you would be subject to special tax rules that have a penalizing effect on the receipt of an “excess distribution” on our shares. Generally, a distribution is considered an excess distribution to the extent it exceeds 125% of the average annual distributions in the prior three years (or, if shorter, your holding period of our shares before the taxable year). You would also be subject to special tax rules that have a penalizing effect on the gain from the disposition of our shares, including the treatment if any such gain as ordinary income, not capital gain.
 
A U.S. Shareholder may be able to mitigate certain adverse tax consequences of holding shares in a PFIC by making a “qualified electing fund,” “deemed sale” or “mark-to-market” election. However, these elections require specific conditions to be met, for example, as a U.S. Shareholder you may make a qualified electing fund election only if we agree to furnish certain tax information annually. We do not presently prepare or provide this information, and this information may not be available to you if we are subsequently determined to be a PFIC. A number of specific rules and requirements apply to a U.S. Shareholder under any of the elections available to owners of a PFIC. You are advised to consult your tax advisor concerning these elections.
 
Information Reporting and Back up Withholding
 
Dividend payments and proceeds from the sale or disposal of shares may be subject to information reporting to the Internal Revenue Service and possible U.S. federal withholding tax. However, withholding taxes may not apply to a holder, in the event they furnish a valid taxpayer identification number or certificate of foreign status and makes any other required certification, or who is otherwise exempt from withholding (for example, a corporation). Amounts withheld as withholding taxes may be credited against a U.S. Shareholder’s federal income tax liability.
 
Other Reporting Requirements
 
Certain U.S. Shareholders who are individuals are required to report information relating to an interest in our shares, subject to certain exceptions (including an exception for shares held in accounts maintained by U.S. financial institutions) by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. U.S. Shareholders are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and disposition of our shares.
 
Documents on Display
 
This report and other information filed or to be filed by us with the Securities and Exchange may be accessed at the Securities and Exchange Commission’s website, www.sec.gov. We intend to post our Annual Report on our website (www.checkpoint.com) promptly following the filing of our Annual Report with the Securities and Exchange Commission.
 
Additionally, documents referred to in this Annual Report may be inspected at our principal executive offices located at 5 Shlomo Kaplan Street, Tel Aviv 6789159, Israel.
 
Item 10J. Annual Report to Security Holders
 
Not applicable.
 
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are exposed to market risks that result primarily from weak economic conditions in the markets in which we sell our products, and from changes in exchange rates or in interest rates.
 
Interest Rate Risk
 
Our exposure to market risk for changes in interest rates relates primarily to our investment in fixed maturity marketable securities, and short-term bank deposits. Our marketable securities portfolio includes mainly government and government agencies debt instruments (U.S., European and other) and corporate debt instruments, which are exposed to changes in short-term interest rates. By policy, we limit the amount of credit exposure to any single issuer.
 
Investments in both fixed rate and floating rate interest bearing securities carry a degree of interest rate risk. Fixed rate securities may have their fair market value impacted due to a rise or fall in interest rates, while floating rate securities may produce less income than predicted if interest rates fall. Due in part to these factors, our income from investments may change in the future in the event that interest rates fluctuate.
 
During 2022 and 2023 global interest rates have risen which affected positively the yield on new investments in our investment portfolio and our interest income.
 
As of December 31, 2023 securities representing 15% of our investments portfolios are rated as AAA; securities representing 39% of the portfolio are rated between AA- and AA+; securities representing 45% of the portfolio are rated between A- and A+; securities representing 1% of the portfolio are rated as BBB+ or below.
 
The table below provides information regarding our investments in cash, cash equivalents, short-term bank deposits and marketable securities, as of December 31, 2023:

 
 
Maturity
   
Total
Par Value
   
Fair
Value at
Dec. 31, 2023
 
 
 
2024
   
2025
   
2026
   
2027
   
2028
 
 
 
(in millions)
 
Marketable securities:
                                         
Debt securities issued by the U.S. Treasury and other U.S. government agencies
 
$
308.3
   
$
198.4
   
$
114.1
   
$
11.4
   
$
43.5
   
$
675.7
   
$
661.2
 
Debt securities issued by other governments
   
41.3
     
20.3
     
-
     
-
     
-
     
61.6
     
60.3
 
Corporate debt securities
   
605.4
     
416.9
     
398.9
     
201.0
     
72.3
     
1,694.5
     
1,648.0
 
Cash
   
79.8
                                     
79.8
     
79.8
 
Short-term bank deposits
   
52.5
                                     
52.5
     
52.5
 
Cash equivalents:
                                                       
Money market funds
   
175.4
     
-
     
-
     
-