Non-residents of Israel are subject to Israeli income tax on income accrued or derived from sources in Israel, including passive income such as dividends, royalties and interest. On distributions of dividends, other than bonus shares and stock dividends, income tax at the rate of 25% is withheld at the source, unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence. If the dividends are distributed out of Approved Enterprise earnings, the applicable tax rate would be 15%. Under the United States- Israel Tax Treaty, the maximum tax on dividends paid to a holder of ordinary shares who is a Treaty United States Resident will be 25%, however the tax rate is reduced to12.5% for dividends not generated by an Approved Enterprise to a corporation which holds 10% or more of the Company’s voting power during a certain period preceding the distribution of the dividend. Dividends derived from an Approved Enterprise will still be subject to 15% tax withholding.

                Dividends, if any, paid to the holders of the ordinary shares, and any amounts payable upon dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of the ordinary shares to an Israeli resident, may be paid in non-Israeli currency or, if paid in Israeli currency, may be converted into freely repatriable U.S. dollars at the rate of exchange prevailing at the time of conversion, however, Israeli income tax is required to have been paid or withheld on these amounts. 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.

United States Federal Income Taxes  

                The following summary sets forth the material United States federal income tax consequences applicable to the following persons who purchase, hold or dispose of the ordinary shares (“U.S. Shareholders”); (i) citizens or residents (as defined for U.S. federal income tax purposes) of the United States; (ii) corporations or other entities taxable as corporations created or organized in or under the laws of the United States or any state thereof;  (iii) estates, the income of which is subject to United States federal income taxation regardless of its source; and (iv) trusts, if (a) a U.S. court is able to exercise primary supervision over its administration and (b) one or more U.S. persons have the authority to control all of its substantial decisions. This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), United States Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, all as in effect as of the date of this Annual Report on Form 20-F. This discussion generally considers only U.S. Shareholders that will hold the ordinary shares as capital assets and does not consider (a) all aspects of U.S. federal income taxation that may be relevant to particular U.S. Shareholders by reason of their particular circumstances (including potential application of the alternative minimum tax), (b) U.S. Shareholders subject to special treatment under the U.S. federal income tax laws, such as financial institutions, insurance companies, broker-dealers, tax-exempt organizations and foreign individuals or entities, (c) U.S. Shareholders owning directly or by attribution 10% or more of the Company’s outstanding voting shares, (d) U.S. Shareholders who hold the ordinary shares as part of a hedging, straddle or conversion transaction, (e) U.S. Shareholders who acquire their ordinary shares in a compensatory transaction, (f) U.S. Shareholders whose functional currency is not the U.S. dollar, or (g) any aspect of state, local or non-United States tax law.

                The following summary does not address the impact of an investor’s individual tax circumstances. Accordingly, each investor should consult his or her own tax advisor as to the particular tax consequences to him or her of an investment in the ordinary shares, including the effects of applicable state, local or non-United States tax laws and possible changes in the tax laws.

                A U.S. Shareholder generally will be required to include in gross income the amount of any distributions paid in respect of the ordinary shares (including the amount of any Israeli taxes withheld therefrom) to the extent that such distributions are paid out of the Company’s current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Under U.S. legislation enacted in 2003, which is generally effective for tax years beginning after December 31, 2002 and before January 1, 2009, a maximum U.S. federal income tax rate of 15% (rather than the higher rates of tax generally applicable to items of ordinary income) will apply to “qualified dividend income” received by an individual (as well as certain trusts and estates) provided certain holding period requirements are met. Qualified dividend income generally includes dividends paid by a U.S. corporation or a “qualified foreign corporation.”  A non-U.S. corporation (other than a foreign personal holding corporation, foreign investment company, or passive foreign investment company) generally will be considered to be a qualified foreign corporation if (i) the shares of the non-U.S. corporation are readily tradable on an established securities market in the United States, or (ii) the non-U.S. corporation is eligible for the benefits of a comprehensive U.S. income tax treaty determined to be satisfactory to the United States Department of the Treasury. The United States 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 United States Department of the Treasury and the Internal Revenue Service have determined that ordinary shares are considered readily tradable on an established securities market if such shares are listed on an established securities market in the United States such as the NASDAQ National Market. Information returns reporting dividends paid to U.S. Shareholders will identify the amount of dividends eligible for the reduced rates. Distributions in excess of such earnings and profits will be treated first as non-taxable return of capital reducing the U.S. Shareholder’s tax basis in the ordinary shares to the extent of the distributions, and then as capital gain from a sale or exchange of such ordinary shares. Such dividends will generally not qualify for the dividends received deduction available to corporations. The amount of any cash distribution paid in Israeli shekels will equal the U.S. dollar value of the distribution, calculated by reference to the spot exchange rate in effect on the date of the distribution.

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Credit for Israeli Taxes Withheld

                Subject to certain conditions and limitations, any Israeli tax withheld or paid with respect to dividends on the ordinary shares will generally be eligible for credit against a U.S. Shareholder’s United States federal income tax liability at such U.S. Shareholder’s election. The Code provides limitations on the amount of foreign tax credits that a U.S. Shareholder may claim, including extensive separate computation rules under which foreign tax credits allowable with respect to specific categories of income cannot exceed the United States federal income taxes otherwise payable with respect to each such category of income. U.S. Shareholders that do not elect to claim a foreign tax credit may instead claim a deduction for Israeli income tax withheld or paid, but only for a year in which these U.S. Shareholders elect to do so for all foreign income taxes. Special rules for determining a U.S. Shareholder’s foreign tax credit limitation shall 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 shall also apply to any qualified dividend income. The rules relating to foreign tax credits are complex, and each investor should consult his of her tax advisor to determine whether and if he or her would be entitled to this credit.

Disposition of the Ordinary Shares

                The sale or exchange of ordinary shares will generally result in the recognition of capital gain or loss in an amount equal to the difference between the amount realized on the sale or exchange and the U.S. Shareholder’s tax basis in the ordinary shares. Such gain or loss generally will be long-term capital gain or loss if the U.S. Shareholder’s holding period of the ordinary shares exceeds one year at the time of the disposition. Under recently enacted U.S. legislation, long-term capital gains realized upon a sale or exchange of ordinary shares after May 5, 2003 and before the end of a taxable year which begins before January 1, 2009 generally will be subject to a maximum U.S. federal income tax rate of 15%. Gain or loss recognized by a U.S. Shareholder on a sale or exchange of ordinary shares generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. Under the United States-Israel Tax Treaty gain derived from the sale, exchange or other disposition of ordinary shares by a holder who is a resident of the United States for purposes of the treaty and who sells the ordinary shares within Israel may be treated as foreign source income for U.S. foreign tax credit purposes.

Passive Foreign Investment Company Status

                Based upon its current income, assets and activities, the Company believes that it is currently not a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes and currently does not anticipate that it will be a PFIC for any subsequent year. The Company would be classified as a PFIC if, for any taxable year, either (i) 75% or more of its gross income in the taxable year is passive income, or (ii) 50% or more of the average value of its gross assets in the taxable year, calculated quarterly by value, 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, which produce passive income. If the Company were a PFIC for any taxable year during a U.S. Shareholder’s holding period and the U.S. Shareholder does not timely elect to treat the Company as a “qualified electing fund” under Section 1295 of the Code or elect to mark the ordinary shares to market, a U.S. Shareholder would be subject to special tax rules on the receipt of an “excess distribution” on the ordinary shares (generally, a distribution to the extent it exceeds 125% of the average annual distributions in the prior three years) and on gain from the disposition of the ordinary shares. Under these rules, the excess distribution and any gain would be allocated ratably over the U.S. Shareholder’s holding period for the ordinary shares, the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which the Company is a PFIC would be taxed as ordinary income, the amount allocated to each of the other taxable years would be subject to tax at the highest marginal rate in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed on the resulting tax allocated to such other  taxable years. The tax liability with respect to amounts allocated to years prior to the year of the disposition or “excess distribution” cannot be offset by any net operating losses. Additionally, if the Company is deemed to be a PFIC, a U.S. Shareholder who acquires ordinary shares in the Company from a decedent will be denied the normally available step-up in tax basis to fair market value for the ordinary shares at the date of the death, and instead will have a tax basis equal to the decedent’s tax basis if lower than fair market value.

                U.S. Shareholders may avoid taxation under the rules described above by making (i) a “qualified electing fund” election for the first taxable year in which the Company is a PFIC to include such holder’s share of the Company’s ordinary earnings and net capital gain on a current basis or (ii) a “deemed sale” election in a subsequent year, along with a qualified electing fund election, if the Company is still classified as a PFIC. However, a U.S. Shareholder may make a qualified electing fund election only if the Company agrees to furnish the U.S. Shareholder annually with certain tax information. The Company does not presently prepare or provide such information, and such information may not be available to U.S. Shareholders if the Company is subsequently determined to be a PFIC.

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                U.S. Shareholders holding “marketable shares” (which the Company considers the ordinary shares to be) in a PFIC may make an election to “mark-to-market” the ordinary shares annually, rather than be subject to the above-described rules. Under such election, the U.S. Shareholder will include in income each year any excess of the fair market value of the PFIC stock at the close of each taxable year over the U.S. Shareholder’s adjusted basis in such stock. The U.S. Shareholder will generally be allowed an ordinary deduction for the excess, if any, of the adjusted basis of the PFIC stock over its fair market value as of the close of the taxable year, or the amount of any net mark-to-market gains recognized for prior taxable years, whichever is less. A U.S. Shareholder’s adjusted tax basis in the ordinary shares will generally be adjusted to reflect the amounts included or deducted under the mark-to-market election. Additionally, any amounts included in income pursuant to a mark-to-market election, as well as gain on the actual sale or other disposition of the PFIC stock, are treated as ordinary income. Ordinary loss treatment also applies to any loss recognized on the actual sale or disposition of PFIC stock to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included with respect to such stock. An election to mark-to-market generally will apply to the taxable year in which the election is made and all subsequent taxable years.

                If a U.S. Shareholder makes one of these two elections, distributions and gain will not be recognized ratably over the U.S. Shareholder’s holding period or be subject to an interest charge as described above. Further, the denial of basis step-up at death described above will not apply. A U.S. Shareholder making one of these two elections may experience current income recognition, even if no cash is distributed by the Company.

                A U.S. Shareholder who beneficially owns shares in a PFIC must file an annual return with the IRS on IRS Form 8621 that describes any distributions received with respect to such shares and any gain realized on the disposition of such shares.

                A number of specific rules and requirements apply to both of these elections available to owners of a PFIC and a U.S. Shareholder is urged to consult his or her tax advisor concerning these elections.

Information Reporting and Back up Withholding

                Dividend payments and proceeds from the sale or disposal of ordinary shares may be subject to information reporting to the Internal Revenue Service and possible U.S. federal backup withholding at the current rate of 28% (increased to 31% for taxable years 2011 and thereafter). Backup withholding will not apply, however, to a holder who furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification or who is otherwise exempt from backup withholding (for example, a corporation). Any U.S. Shareholder who is required to establish exempt status generally must file IRS Form W-9 (“Request for Taxpayer Identification Number and Certification”). Finalized Treasury Regulations which are applicable to payments made after December 31, 2000 have generally expanded the circumstances under which information reporting and backup withholding may apply. Amounts withheld as backup withholding may be credited against a U.S. Shareholder’s federal income tax liability. A U.S. Shareholder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service and furnishing any required information.

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                Market risks relating to the Company’s operations result primarily from weak economic conditions in the markets in which the Company sells its products and from changes in exchange rates or in interest rates. Other than forward exchange currency contracts and forward rate agreements described below which are used for hedging cash flow in transactions not denominated in U.S. dollars, the Company does not use derivative financial instruments in its investment portfolio.

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                The table below presents principal amounts and related weighted average rates by date of maturity for the Company’s investments in cash and cash equivalents, deposits and marketable securities held as of December 31, 2003.

		Maturity					Total Book Value	Fair Value at Dec. 31, 2003
		2004	2005	2006	2007	2008 onwards
(In thousands, except percentages)
Government and Corporate Securities - Fixed interest rates
	Book Value	$ 414,558	$ 262,479	$ 61,473	$ 10,918	$ 1,010	$ 750,438	$ 758,527
	WAIR*	3.14%	3.66%	3.45%	3.00%	-	3.34%
Structured Products***	Book Value	$ 202,646	-	-	-	-	$202,646	$ 204,887
	WAIR*	5.15%	-	-	-	-	5.15%
Mortgage and Asset Backed Securities	Book Value	$ 49,871	$ 53,982	$ 29,695	$ 10,623	$ 8,945	$ 153,116	$ 151,075
	WAIR*	2.40%	1.89%	2.29%	2.25%	1.29%	2.12%
Auction Rate Securities	Book Value	$ 92,550	-	-	-	-	$ 92,550	$ 92,881
	WAIR*	1.61%	-	-	-	-	1.61%
Government and Corporate Securities - Floating interest rates**	Book Value	$ 24,049	$ 12,653	$ 14,600	-	-	$ 51,302	$ 51,226
	WAIR*	2.61%	1.32%	1.30%	-	-	1.92%
Money Market instruments	Book Value	$ 8,596	-	-	-	-	$ 8,596	$8,595
	WAIR*	1.03%	-	-	-	-	1.03%
Money market Fund	Book Value	$ 327,188	-	-	-	-	$ 327,188	$ 327,188
	WAIR*	1.10%	-	-	-	-	1.10%
Deposits	Book Value	$ 16,888	-	-	-	-	$ 16,888	$ 16,888
	WAIR*	3.61%	-	-	-	-	3.61%
Total	Book Value	$ 1,136,346	$ 329,114	$ 105,768	$ 21,541	$ 9,955	$ 1,602,724	$ 1,611,267
	WAIR*	2.73%	3.28%	2.83%	2.63%	1.16%	2.84%

_______________
*	WAIR – Weighted Average Interest Rate
**	Based upon LIBOR as of December 31, 2003
***	Composed of callable range accrual notes and inverse floaters (see also Note 3 of the financial statements) and bears an interest rate related to the LIBOR. There is no assurance that this WAIR could be maintained in the future due to the nature of these products

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Foreign Currency Risk

                Most of the Company’s sales are denominated in U.S. dollars. In addition, a substantial portion of the Company’s expenses is incurred in U.S. dollars. The Company’s management believes that the U.S. dollar is the primary currency of the economic environment in which the Company and its subsidiaries operate, and thus the U.S. dollar is their functional and reporting currency. Accordingly, monetary accounts maintained in currencies other than the U.S. dollar (principally cash and cash equivalents, short-term deposits and liabilities) are remeasured into U.S. dollars using the foreign exchange rate at the balance sheet date. Operational accounts and non-monetary balance sheet accounts are measured and recorded at the rate in effect at the date of the transaction. All transaction gains and losses of the remeasurement of monetary balance sheet items are reflected in the statement of income as financial income or expenses, as appropriate.

                The Company hedges the exposure of assets and anticipated revenues denominated in the Japanese Yen as well as anticipated expenses denominated in Euros with forward and option contracts. The Company monitors its foreign currency exposures periodically to maximize the overall effectiveness of its foreign currency hedge positions. If these derivatives meet the definition of a hedge and are so designated, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is recognized in earnings.

                As of December 31, 2003, the Company’s management believes that because the above transactions are carried out with well-established institutions, liabilities owing to the Company will be fulfilled. Total outstanding zero cost collar contracts and forward contracts to hedge customers’ balances to sell/purchase U.S. dollars in exchange for Japanese Yen were in the amount of $ 9.3 million. Total outstanding transactions to sell/purchase Euro in exchange for U.S. dollars were in the amount of $4.0 million. The above transactions were for a period of up to three months. As of December 31 2003, the Company expects to reclassify during the following three months an insignificant amount of unrealized losses from accumulated other comprehensive loss to expenses.

Interest Rate Risk

                The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment in marketable securities. The Company’s marketable securities are comprised of U.S. and European government and corporate debt instruments. The fair value of the Company’s long and short-term securities is based upon their market values as of December 31, 2003.

                 In 2001, the Company has entered into forward rate agreements (“FRA”,) in the amount of $125 million that effectively convert a portion of its floating rate investments to a fixed rate basis for a 12 month period beginning one year after the date of the agreements, thus reducing the impact of the interest rate changes on future interest income. The agreements were executed in November 2002, resulting in a total gain of approximately $3.4 million presented in the statement of income as financial income. In August 2003, the company has entered into an additional FRA agreement in the amount of $25 million for a 12 month period beginning one year after the date of the agreement. As of December 31, 2003, the unrealized gain in respect of this agreement amounted to $0.2 million.

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

                Not applicable.

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PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

                There are no defaults, dividend arrearages or delinquencies that are required to be disclosed.

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

                There are no material modifications to, or qualifications of, the rights of security holders that are required to be disclosed.

ITEM 15.

CONTROLS AND PROCEDURES

                (a) The Company performed an evaluation of the effectiveness of its disclosure controls and procedures that are designed to ensure that the material financial and non-financial information required to be disclosed on Form 20-F and filed with the Securities and Exchange Commission is recorded, processed, summarized and reported timely. Based on the Company’s evaluation, the Company’s management, including the CEO and CFO, has concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report are effective. Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within Check Point to disclose material information otherwise required to be set forth in the Company’s reports.

                (b) There have been no significant changes in Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation thereof. Therefore, no corrective actions with regard to significant deficiencies and material weaknesses were taken.

ITEM 16.	Reserved.
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT

                The Company’s board of directors has determined that Mr. Irwin Federman is an “audit committee financial expert.”

ITEM 16B.

CODE OF ETHICS

                    In March 2004, the Company’s board of directors adopted a Code of Ethics that applies to all employees, directors and officers of the Company, including the chief executive officer, chief financial officer, principal accounting officer and other individuals performing similar functions. A copy of the Company’s Code of Ethics may be obtained, without charge, upon a written request addressed to the Company’s investor relations department, 800 Bridge Parkway, Redwood City, California 94065 (telephone no. 650-628-2000).

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ITEM 16C.

PRINCIPAL ACCOUNTING FEES AND SERVICES

Fees and Services 

                    The table below summarizes the audit fees paid by the Company and its consolidated subsidiaries during each of 2002 and 2003.

	Year Ended December 31, 2002				Year Ended December 31, 2003
	Amount		Percentage		Amount		Percentage
	(in thousands, except percentage)
Audit Fees	$    380		36	%	$  343		36	%
Audit-Related Fees (1)	77		7		75		8
Tax Fees (2)	602		57		544		56
Total	1,059		100		962		100

	______________
	(1)	“Audit-related fees” are fees related to due diligence investigations and to other assignments relating to internal accounting functions and procedures.
	(2)	“Tax fees” are fees for professional services rendered by the Company’s auditors for tax compliance, tax advice on actual or contemplated transactions, tax consulting associated with international transfer prices and employee tax services.

Audit Committee’s pre-approval policies and procedures

                    The audit committee of the Company’s board of directors chooses and engages the Company’s independent auditors to audit the Company’s financial statements. In March 2004, the Company’s audit committee adopted a policy requiring management to obtain the audit committee’s approval before engaging the Company’s independent auditors to provide any audit or permitted non-audit services to the Company or its subsidiaries. This policy, which is designed to assure that such engagements do not impair the independence or the Company’s auditors, requires the audit committee to pre-approve annually various audit and non-audit services that may be performed by the Company’s auditors. In addition, the audit committee limited the aggregate amount of fees the Company’s auditors may receive during 2004 for non-audit services in certain categories.

                    The Company’s Controller reviews all management requests to engage the Company’s auditors to provide services and approves the request if the requested services are of the type pre-approved by the audit committee. The Company informs the audit committee of these approvals at least quarterly. Services of the type not pre-approved by the audit committee require pre-approval by the audit committee on a case-by-case basis. The audit committee is not permitted to approve the engagement of the Company’s auditors for any services that fall into a category of services that is not permitted by applicable law or if the services would be inconsistent with maintaining the auditor’s independence.

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PART III

ITEM 17.

FINANCIAL STATEMENTS

                The Company has responded to Item 18.

ITEM 18.

FINANCIAL STATEMENTS

                See pages F-1 to F-28 incorporated herein.

ITEM 19.

EXHIBITS

1	Articles of Association (incorporated by reference to Exhibit 2.5 of the Company’s annual report on Form 20-F for the year ended December 31, 2000)
4.1	Form of Indemnification Agreement between the Company and its officers and directors (Incorporated by reference to exhibit 4.1 of the Company’s annual report on Form 20-F for the year ended December 31, 2001)
4.2	Agreement and Plan of Merger by and among Check Point Software Technologies Ltd., Check Point Software Technologies, Inc., Zanzibar Acquisition, L.L.C., and Zone Labs, Inc., dated as of December 15, 2003
8	List of subsidiaries (incorporated by reference to “Item 4 – Information on the Company – Organizational Structure” in this Annual Report on Form 20-F)
10	Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global
12.1	Certification of the Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002
12.2	Certification of the Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002
13	Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002

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CHECK POINT SOFTWARE TECHNOLOGIES LTD.

AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2003

IN U.S. DOLLARS

INDEX

	Page
Report of Independent Auditors	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Income	F-4
Statements of Changes in Shareholders’ Equity	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7 - F-28

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ERNST &YOUNG

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of

CHECK POINT SOFTWARE TECHNOLOGIES LTD.

             We have audited the accompanying consolidated balance sheets of Check Point Software Technologies Ltd. and its subsidiaries as of December 31, 2002 and 2003, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of Check Point Software Technologies Ltd.’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

             We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

             In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Check Point Software Technologies Ltd. and its subsidiaries as of December 31, 2002 and 2003, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States.

Tel-Aviv, Israel	KOST FORER GABBAY & KASIERER
January 20, 2004	A Member of Ernst & Young Global

F- 2

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands (except share data)

	December 31,
	2002			2003
ASSETS
Current assets:
Cash and cash equivalents	$	444,449		$	327,188
Short-term bank deposits		24,279			16,888
Marketable securities		317,169			792,270
Trade receivables (net of allowances for doubtful accounts and product
returns of  $ 8,722 and $ 7,400 for the years 2002 and 2003, respectively)		73,165			72,754
Other accounts receivable		17,045			19,667
Total current assets		876,107			1,228,767
Long-term assets:
Long-term investments		529,407			466,847
Other long-term assets		757			417
Property and equipment, net		10,453			7,394
Severance pay fund		3,924			4,721
Deferred tax asset		4,963			5,519
		549,504			484,898
Total assets	$	1,425,611		$	1,713,665
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade payables	$	4,921		$	4,556
Employees and payroll accruals		29,750			31,049
Deferred revenues		99,227			105,889
Accrued expenses and other liabilities		98,891			103,740
Total current liabilities		232,789			245,234
Accrued severance pay		5,780			6,886
Shareholders’ equity:
Share capital -
Authorized: 500,000,000 Ordinary shares of NIS 0.01 par value; 10 Deferred
shares of NIS 1 par value; 5,000,000 Preferred shares of NIS 0.01 par value as
of December 31, 2002 and 2003;
Issued and outstanding: 245,908,827 and 249,276,058 Ordinary shares as of
December 31, 2002 and 2003, respectively; 1 Deferred share and no Preferred
shares as of December 31, 2002 and 2003		740			747
Additional paid-in capital		163,235			193,504
Accumulated other comprehensive income (loss)		(190	)		158
Retained earnings		1,023,257			1,267,136
Total shareholders’ equity		1,187,042			1,461,545
Total liabilities and shareholders’ equity	$	1,425,611		$	1,713,665

The accompanying notes are an integral part of the consolidated financial statements.

F- 3

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME U.S. dollars in thousands (except per share data)

	Year ended December 31,
	2001			2002			2003
Revenues:
Product and licenses	$	374,026		$	256,113		$	230,096
Software subscriptions		110,236			130,879			161,690
Support, training and consulting		43,381			39,997			40,786
Total revenues		527,643			426,989			432,572
Operating expenses:
Cost of revenues		26,571			20,693			18,923
Research and development		33,221			28,709			29,314
Selling and marketing		109,086			104,606			111,007
General and administrative		22,002			17,969			17,644
Total operating expenses		190,880			171,977			176,888
Operating income		336,763			255,012			255,684
Financial income, net		44,760			49,314			43,506
Income before taxes on income		381,523			304,326			299,190
Taxes on income		59,603			49,246			55,311
Net income	$	321,920		$	255,080		$	243,879
Net earnings per share:
Basic net earnings per Ordinary share	$	1.34		$	1.04		$	0.98
Diluted net earnings per Ordinary share	$	1.25		$	1.00		$	0.96

The accompanying notes are an integral part of the consolidated financial statements.

F- 4

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY U.S. dollars in thousands (except share data)

	Share capital			Additional paid-in capital			Accumulated other comprehensive income (loss)			Retained earnings			Total comprehensive Income			Total shareholders’ equity
Balance as of January 1, 2001	$	723		$	102,303		$	-		$	446,257					$	549,283
Tax benefit related to exercise of stock options		-			5,345			-			-						5,345
Issuance of shares upon exercise of options and stock
purchase plan (7,395,667 Ordinary shares), net		12			37,724			-			-						37,736
Purchase of stock dividend fractional shares		-			(1,465	)		-			-						(1,465	)
Comprehensive income -
Unrealized gains on hedging derivative instruments		-			-			2,909			-		$	2,909			2,909
Net income		-			-			-			321,920			321,920			321,920
Total comprehensive income													$	324,829
Balance as of December 31, 2001		735			143,907			2,909			768,177						915,728
Tax benefit related to exercise of stock options		-			4,597			-			-						4,597
Issuance of shares upon exercise of options and stock
purchase plan  (3,084,806 Ordinary shares), net		5			14,731			-			-						14,736
Comprehensive income (loss) -
Realized loss on hedging derivative instruments		-			-			(2,909	)		-		$	(2,909	)		(2,909	)
Unrealized loss on hedging derivative instruments		-			-			(190	)		-			(190	)		(190	)
Net income		-			-			-			255,080			255,080			255,080
Total comprehensive income													$	251,981
Balance as of December 31, 2002		740			163,235			(190	)		1,023,257						1,187,042
											-
Tax benefit related to exercise of stock options		-			12,566			-			-						12,566
Issuance of shares upon exercise of options and stock
purchase plan  (3,367,231 Ordinary shares), net		7			17,703			-			-						17,710
Comprehensive income -
Realized gain on hedging derivative instruments		-			-			190			-		$	190			190
Unrealized gain on hedging derivative instruments		-			-			158			-			158			158
Net income		-			-			-			243,879			243,879			243,879
Total comprehensive income													$	244,227
Balance as of December 31, 2003	$	747		$	193,504		$	158		$	1,267,136					$	1,461,545

The accompanying notes are an integral part of the consolidated financial statements.

F- 5

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands

	Year ended December 31,
	2001			2002			2003
Cash flows from operating activities:
Net income	$	321,920		$	255,080		$	243,879
Adjustments required to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		8,949			7,390			6,030
Amortization of marketable securities premium and accretion of
discount, net		1,405			7,565			17,652
Deferred income taxes, net		(240	)		796			(556	)
Decrease in trade receivables, net		10,087			1,129			411
Decrease (increase) in other accounts receivable and long-term
assets		939			(527	)		(1,935	)
Increase (decrease) in trade payables		1,301			(24	)		(365	)
Increase (decrease) in employees and payroll accruals		(7,090	)		3,597			1,299
Increase in accrued expenses and other liabilities		29,482			635			4,849
Increase (decrease) in deferred revenues		(25,499	)		3,524			6,662
Tax benefit related to exercise of stock options		5,345			4,597			12,566
Increase in accrued severance pay, net		630			60			309
Others		(54	)		105			84
Net cash provided by operating activities		347,175			283,927			290,885
Cash flows from investing activities:
Proceeds from short-term bank deposits		216,980			125,884			24,279
Investment in short-term bank deposits		(103,749	)		(20,841	)		-
Proceeds from held-to maturity marketable securities		186,620			803,903			736,159
Investment in held-to-maturity marketable securities		(603,119	)		(955,244	)		(1,183,323	)
Investment in long-term bank deposits		(8,635	)		(22,388	)		-
Purchase of property and equipment		(9,678	)		(4,596	)		(2,971	)
Net cash used in investing activities		(321,581	)		(73,282	)		(425,856	)
Cash flows from financing activities:
Proceeds from issuance of shares upon exercise of options and stock
purchase plan, net of expenses		37,736			14,736			17,710
Purchase of stock dividend fractional shares		(1,465	)		-			-
Net cash provided by financing activities		36,271			14,736			17,710
Increase (decrease) in cash and cash equivalents		61,865			225,381			(117,261	)
Cash and cash equivalents at the beginning of the year		157,203			219,068			444,449
Cash and cash equivalents at the end of the year	$	219,068		$	444,449		$	327,188
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes	$	20,770		$	25,570		$	31,913

The accompanying notes are an integral part of the consolidated financial statements.

F- 6

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In U.S. dollars

NOTE 1:-	GENERAL

	Check Point Software Technologies Ltd. (“Check Point Ltd.”), an Israeli corporation, and its subsidiaries (collectively “the Company” or “Check Point”), are engaged in developing, marketing and supporting Internet security solutions for enterprise networks and service providers.
	In December 2002, a wholly owned subsidiary was established in Singapore in order to manage the Company’s financial assets.
	The Company operates in one reportable segment and its revenues are mainly derived from the sales of its network security products, packaged and marketed mostly under the VPN-1 product family and related software subscription, support technical services and training program. The Company sells its software products worldwide through multiple distribution channels (“channel partners”) including distributors, resellers, system integrators, Original Equipment Manufacturers (“OEMs”) and Managed Security service Providers (“MSPs”).
	During 2002 and 2003, approximately 13% of revenues in each year were derived from a single channel partner, the Company’s largest distributor. No channel partner exceeded 10% of the Company’s revenues in 2001.
	In October 2003, the Company announced its plan to buy back its shares for a total amount of up to $ 200 million. As of December 31, 2003, the plan has not yet been executed.

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES

	The consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”).

	a.	Use of estimates:

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. These accounting principles require management to make certain estimates, judgments and assumptions. Management believes that the estimates, judgments and assumptions upon which it relies, are reasonable based upon information available at the time that these estimates, judgments and assumptions were made. To the extent that there are material differences between these estimates and actual results, the financial statements may be affected.

F- 7

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	b.	Financial statements in United States dollars:

Most of the Company’s revenues are denominated in United States dollars (“dollars”). In addition, a substantial portion of the Company’s costs is incurred in dollars. The Company’s management believes that the dollar is the primary currency of the economic environment in which Check Point Ltd. and each of its subsidiaries operate. Thus, the dollar is their functional and reporting currency. Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into dollars in accordance with Statement of Financial Accounting Standard No. 52 “Foreign Currency Translation (“SFAS No. 52”). All transaction gains and losses of the remeasurement of monetary balance sheet items are reflected in the statements of income as financial income or expenses, as appropriate.

	c.	Principles of consolidation:

	The consolidated financial statements include the accounts of Check Point Ltd. and its subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation.

	d.	Cash equivalents:

	Cash equivalents are short-term highly liquid investments that are readily convertible to cash with maturities of three months or less, at the date acquired.

	e.	Short and long-term bank deposits:

	Bank deposits with maturities of more than three months but less than one year are included in short-term bank deposits. Bank deposits with maturities of more than one year are included in long-term investments. Deposits are presented at cost, while related accrued interest is included in other receivables. The deposits are in U.S. dollars and bear annual interest at rates ranging from 3%-3.6%.

	f.	Investments in marketable securities:

The Company accounts for investments in marketable securities in accordance with Statement of Financial Accounting Standard No. 115, “Accounting for Certain Investments in Debt and Equity Securities (“SFAS No. 115”).

F- 8

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Management determines the appropriate classification of its investments in government and corporate marketable debt securities at the time of purchase and reevaluates such determinations at each balance sheet date. Debt securities are classified as held-to-maturity as the Company has the positive intent and ability to hold the securities to maturity and are stated at amortized cost. The amortized cost of held-to-maturity securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, interest and declines in value determined to be other than temporary are included in financial income, net. Interest income resulting from investments in structured notes that are classified as held to maturity is accounted for under the provision of Emerging Issue Task Force No. 96-12, “Recognition of Interest Income and Balance Sheet Classification of Structured Notes” (“EITF No. 96-12”). Under EITF No. 96-12, the retrospective interest method should be used for recognizing interest income.

	g.	Property and equipment, net:

	Property and equipment are stated at cost less accumulated depreciation using the straight-line method over the estimated useful lives of the assets, ranging from two to ten years. Leasehold improvements are amortized by the straight-line method over the term of the lease.
	The Company’s long-lived assets are reviewed for impairment in accordance with Statement of Financial Accounting Standard No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. During 2003, impairment in the amount of $ 440 with respect to the relocation of the U.S. subsidiary’s offices, was noted.

	h.	Research and development costs:

	Research and development costs, are charged to the statement of income as incurred. Statement of Financial Accounting Standard No. 86 “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed” (“SFAS No. 86”), requires capitalization of certain software development costs subsequent to the establishment of technological feasibility.
	Based on the Company’s product development process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working models and the point at which the products are ready for general release have been insignificant. Therefore, all research and development costs have been expensed.

F- 9

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	i.	Revenue recognition:

	The Company derives its revenues from license fees for its products, software subscriptions, support, consulting and training programs. The Company sells its products primarily through distributors, resellers, OEMs, system integrators and MSPs, all of whom are considered end-users.
	The Company accounts for software sales in accordance with Statement of Position No. 97-2, “Software Revenue Recognition (“SOP No. 97-2”), as amended. In addition, the Company has adopted Statement of Position No. 98-9, “Modification of SOP No. 97-2, Software Revenue Recognition with Respect to Certain Transactions, “(“SOP No. 98-9”). SOP No. 98-9 requires that revenue be recognized under the “residual method” when Vendor Specific Objective Evidence (“VSOE”) of Fair Value exists for all undelivered elements and VSOE does not exist for all of the delivered elements.
	Revenue from license fees is recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectability is probable.
	Software subscription, support, consulting and training program revenues included in multiple-element arrangements are deferred and either recognized on a straight-line basis over the term of the software subscription and support agreement or when services are performed. Revenues earned on software arrangements involving multiple-elements are allocated to each element based on the its VSOE of fair value. The VSOE of fair value of the undelivered elements (software subscription, support, consulting services and training) is generally determined based on the price charged for the undelivered element when sold separately or renewed.
	The Company maintains certain provisions for product returns, in accordance with Statement of Financial Accounting Standard No. 48, “Revenue Recognition When Right of Return Exists”, based on its experience with historical sales returns, analysis of credit memo data and other known factors. Such provisions amounted to $ 3,598 and $ 2,098 as of December 31, 2002 and 2003, respectively.
	The Company considers arrangements regarding certain channel partners with payment terms extending beyond customary payment terms not to be fixed or determinable. If the fee is considered to be not fixed or determinable, revenue is deferred and recognized when payments become due from the customer or are actually collected, providing that all other revenue recognition criteria have been met.
	Deferred revenue includes unearned amounts received under software subscription and support contracts, and amounts received from customers but not yet recognized as revenues.

F- 10

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	j.	Severance pay:

	The Company’s liability for severance pay is calculated pursuant to Israeli severance pay law based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date. The Company records as expenses the net increase in its funded or unfunded severance liability. Employees are entitled to one month’s salary for each year of employment, or a portion thereof. The Company’s liability is fully provided by monthly payments deposited with insurers and by a reserve established by the Company to cover the portion of this liability not covered by the Company’s deposits.
	The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli severance pay law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies, and includes immaterial profits.
	Severance expenses for the years ended December 31, 2001, 2002 and 2003, were $ 1,997,  $ 1,741 and $ 1,437, respectively.

	k.	Employee benefit plan:
		The Company has a 401(K) defined contribution plan covering certain employees in the U.S. All eligible employees may elect to contribute up to 50%, but no greater than $ 12 per year, of their annual compensation to the plan through salary deferrals, subject to IRS limits. From January 1, 1996 (inception) to December 31, 2003, the Company made no matching contributions to the plan.
	l.	Income taxes:

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standard No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). SFAS No. 109 prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

	m.	Advertising expenses:

Advertising costs are expensed as incurred. Advertising expenses for the years ended 2001, 2002 and 2003, were $ 15,516, $ 11,502 and $ 8,371, respectively.

F- 11

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	n.	Concentrations of credit risk:

	Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term bank deposits, marketable securities, trade receivables and long-term bank deposits. The majority of the Company’s cash and cash equivalents, short-term bank deposits and the long-term bank deposits are invested in dollar and dollar-linked investments, and are deposited in major banks in the U.S. and Europe. Such deposits in the U.S may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.
	The Company’s marketable securities include investments in government and corporate debentures and structured notes of issuers that are considered by management to be financially sound. The Company’s investments in debt securities are diversified among high-quality credit securities.
	The Company’s trade receivables are geographically diversified and derived from sales to channel partners mainly in the United States, Europe and Asia. The Company performs ongoing credit evaluations of its partners. The allowance for doubtful accounts is mainly composed of specific debts that are doubtful of collection amounting to $ 5,124 and $ 5,302 as of December 31, 2002 and 2003, respectively.

	o.	Derivatives and hedging:

The Company accounts for derivatives and hedging based on Statement of Financial Accounting Standard No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). SFAS No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value. If the derivatives meet the definition of a hedge and is so designated, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is recognized in earnings. During 2001, 2002 and 2003 there were no gains or losses recognized in earning for hedge ineffectiveness.

F- 12

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	The Company hedges the exposure of assets and anticipated revenues denominated in the Japanese Yen as well as anticipated expenses denominated in Euros with forward and option contracts. To protect against the risk of overall changes in cash flows resulting from export sales over the next year, the Company has instituted a foreign currency cash flow hedging program with zero-cost collar contracts. The net gains (losses) recognized in revenues during 2001, 2002 and 2003 were $ 1,484, $ 1,369 and $ (173), respectively. As of December 31, 2003, the Company expects to reclassify during the first quarter of 2004 an amount of $10 of unrealized losses on hedging derivative instruments from accumulated other comprehensive loss to revenues. During 2003, the Company entered into a foreign currency cash flow hedging program with option contracts designated to hedge expenses in Euro. The net gain which offset expenses during 2003 amounted to $ 655. Also, the Company entered into forward exchange contracts designated to hedge the fair value of certain foreign currency denominated partner balances and accrued liabilities. The net gains (losses) recognized in earnings during 2001, 2002 and 2003, representing the foreign exchange forward contract gains (losses), were $ 1,403, $ (451) and $ 166, respectively. Those gains (losses) were presented within financial income (expenses).
	In 2001, the Company has entered into forward rate agreements (“FRA”,) in the amount of $125 million that effectively convert a portion of its floating rate investments to a fixed rate basis for a 12 month period beginning one year after the date of the agreements, thus reducing the impact of the interest rate changes on future interest income. The agreements were executed in November 2002, resulting in a total gain of approximately $3.4 million presented in the statement of income as financial income. In August 2003, the company has entered into a similar FRA agreement in the amount of $25 million. As of December 31, 2003, the Company expects to reclassify during the following year an amount of $168 of unrealized gain on this agreement from accumulated other comprehensive loss to financial income.
	As of December 31, 2003, the Company’s management believed that since the abovementioned activities were transacted with well-established institutions, the liabilities owed to the Company will be fulfilled.

	p.	Basic and diluted net earnings per share:

	Basic net earnings per share is computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net earnings per share is computed based on the weighted average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year, in accordance with Statement of Financial Accounting Standard No. 128, “Earnings Per Share” (“SFAS No. 128”).
	The total weighted average number of shares related to the outstanding options excluded from the calculations of diluted net earnings per share, since they would have an anti-dilutive effect, were 2,658,141, 7,448,419 and 8,859,208 for 2001, 2002 and 2003, respectively.

F- 13

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	q.	Accounting for stock-based compensation:

	The Company has elected to follow Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB No. 25”) and FASB. Interpretation No. 44 “Accounting for Certain Transactions Involving Stock Compensation” (“FIN No. 44”) in accounting for its employee stock option plans. Under APB No. 25, when the exercise price of the Company’s stock options is less than the market price of the underlying shares on the date of grant, compensation expense is recognized.
	The Company adopted the disclosure provisions of Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation - transition and disclosure” (“SFAS No. 148”), which amended certain provision of Statement of Accounting Standards No. 123, “Accounting for Stock-Based Compensation“ (SFAS No. 123”) to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation, effective as of the beginning of 2003. The Company continues to apply the provisions of APB No. 25, in accounting for stock-based compensation.
	Pro forma information regarding the Company’s net income and net earnings per share is required by SFAS No 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method prescribed by SFAS No. 123.
	The fair value for options granted in 2001, 2002 and 2003 is amortized over their vesting period and is estimated at the date of grant using a Black-Scholes options pricing model with the following weighted average assumptions:

	Employee Stock Options	2001			2002			2003
	Expected volatility		100.0	%		76.0	%		44.0	%
	Risk-free interest		3.7	%		3.7	%		2.5	%
	Dividend yield		0.0	%		0.0	%		0.0	%
	Expected life after the option is vested
	(years)		0.5			0.5			0.7

	Employee Stock Purchase Plan
	Expected volatility		100.0	%		76.0	%		44.0	%
	Risk-free interest		1.8	%		1.2	%		1.0	%
	Dividend yield		0.0	%		0.0	%		0.0	%
	Expected life from vesting date (years)		0.5			0.5			0.5

F- 14

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except per share data)

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	The following table illustrates the effect on net income and net earnings per share, assuming that the Company had applied the fair value recognition provision of SFAS No. 123 on its stock-based employee compensation:

		December 31,
		2001			2002			2003
	Net income as reported	$	321,920		$	255,080		$	243,879
	Deduct: Stock-based compensation expense    determined under fair value method for all     awards, net of related tax effects	$	71,848		$	61,490		$	37,262
	Pro forma net income	$	250,072		$	193,590		$	206,617
	Net earnings per share:
	Basic net earnings per Ordinary shares, as     reported	$	1.34		$	1.04		$	0.98
	Diluted net earnings per Ordinary shares, as      reported	$	1.25		$	1.00		$	0.96
	Basic pro forma net earning per Ordinary shares	$	1.04		$	0.79		$	0.83
	Diluted pro forma net earning per Ordinary      shares	$	0.97		$	0.76		$	0.82

	r.	Fair value of financial instruments:

	The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

	1.	The carrying amount of cash and cash equivalents, short-term bank deposits, trade receivables and trade payables approximates their fair values due to the short-term maturities of these instruments.
	2.	The fair value of short and long term marketable securities structured notes and bank deposits with quoted market prices is based on quoted market prices (see Notes 3 and 4).
	3.	The carrying amount of the Company’s long-term bank deposits is estimated by discounting the future cash flows using the interest rates for deposits of similar terms and maturities (see Note 4).
	4.	The fair value of derivative instruments is estimated by obtaining quotes from brokers.

F- 15

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	s.	Reclassification:

	The Company has reclassified certain amounts from 2002 to conform to the 2003 presentation. The reclassification had no effect on previously reported net loss, shareholders’ equity or cash flows.

	t.	Impact of recently issued accounting standards:

	In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). The objective of FIN 46 is to improve financial reporting by companies involved with variable interest entities. A variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities.
	FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. FIN 46 also requires disclosures about variable interest entities that the company is not required to consolidate, but in which it has a significant variable interest. The consolidation requirements of FIN 46 apply in the first fiscal year or interim period ending after March 15, 2004. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. As of December 31, 2003, the Company does not expect the adoption of FIN 46 to have a material impact on its consolidated financial statements.

F- 16

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 3:-	MARKETABLE SECURITIES

		December 31,
		2002												2003
		Amortized cost			Gross unrealized gains			Gross unrealized losses			Market value			Amortized cost			Gross unrealized gains			Gross unrealized losses			Market value
	Government and corporate
	debentures - Fixed
	interest rate	$	225,617		$	2,750		$	(152	)	$	228,215		$	414,558		$	2,813		$	(1,017	)	$	416,354
	Government and corporate
	debentures - Floating
	interest rate (**)		58,700			1,863			(6	)		60,557			226,695			4,351			(2,192	)		228,854
	Mortgage and Asset
	Backed Securities (*)		12,855			6			(72	)		12,789			49,871			304			(2,108	)		48,067
	Auction rate securities		19,997			3			-			20,000			92,550			342			(11	)		92,881
	Money Market
	Instruments		-			-			-			-			8,596			-			(1	)		8,595
		$	317,169		$	4,622		$	(230	)	$	321,561		$	792,270		$	7,810		$	(5,329	)	$	794,751

	(*)	The expected maturities dates may differ from the contractual maturities because debtors may have the right to call or prepay obligations without penalties.
	(**)	As of December 31, 2003, the Company holds investments in structured notes in the amount of $202,646. The structured notes include mainly inverse floaters and range accruals.

	Ranges accruals are bonds where the coupon is paid only if a specified interest rate stays within a pre-established range, otherwise the bond pays 0%. Inverse floaters are bonds where the coupon varies in accordance with changes in specified interest rates or indices (for example, LIBOR).

	The unrealized gains on structured notes amounted to $ 2,241.

NOTE 4:-	LONG-TERM INVESTMENTS

	Long-term investments due within one to five years, are as follows:

		December 31,
		2002			2003
	Government and corporate debentures (a)	$	511,967		$	466,378
	Bank deposits (a)		16,888			-
	Investments in a privately - held company (b)		552			469
		$	529,407		$	466,847

F- 17

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 4:-	LONG-TERM INVESTMENTS (Cont.)

	(a)	Composed as follows:

		December 31,
		2002												2003
		Amortized cost			Gross unrealized gains			Gross unrealized losses			Market value			Amortized cost			Gross unrealized gains			Gross unrealized losses			Market value
	Government and corporate
	debentures – Fixed
	interest rate	$	427,051		$	19,077		$	(2,747	)	$	443,381		$	335,880		$	7,917		$	(1,624	)	$	342,173
	Government and corporate
	debentures – Floating
	interest rate		47,786			142			(13	)		47,915			27,253			23			(17	)		27,259
	Mortgage and Asset
	Backed Securities (*)		37,130			174			-			37,304			103,245			207			(444	)		103,008
	Deposits		16,888			334			-			17,222			-			-			-			-
		$	528,855		$	19,727		$	(2,760	)	$	545,822		$	466,378		$	8,147		$	(2,085	)	$	472,440

	(*)	The expected maturities may differ from the contractual maturities because debtors may have the right to call or prepay obligations without penalties.
	(b)	The investment in a privately held company is stated at cost since the Company does not have a significant influence over that private company.

	NOTE 5:-	PROPERTY AND EQUIPMENT, NET

		December 31,
		2002			2003
	Cost:
	Computers and peripheral equipment	$	28,852		$	28,581
	Office furniture and equipment		5,555			4,896
	Leasehold improvement and other		3,275			3,139
			37,682			36,616
	Accumulated depreciation		27,229			29,222
	Depreciated cost	$	10,453		$	7,394

	Depreciation and amortization expenses amounted to approximately $ 8,949, $ 7,390 and $ 6,030 for 2001, 2002 and 2003, respectively.
	During 2003, the US subsidiary of the Company recorded a reduction of approximately $ 4,000 to the cost and accumulated depreciation of fully depreciated equipment no longer in use, primarily due to the relocation of facilities.

F- 18

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 6:-	ACCRUED EXPENSES AND OTHER LIABILITIES

		December 31,
		2002			2003
	Income taxes payable	$	72,898		$	83,783
	Marketing expenses payable		11,672			8,195
	Others		14,321			11,762
		$	98,891		$	103,740

NOTE 7:-	COMMITMENTS AND CONTINGENT LIABILITIES

	a.	Lease commitments:

	The facilities of the Company are rented under operating lease agreements that expire on various dates.
	Aggregate minimum lease commitments under non-cancelable operating leases as of December 31, are as follows:

	2004	$	5,258
	2005		3,733
	2006		2,020
	2007		317
	2008		168
		$	11,496

	Rent expenses for the years ended December 31, 2001, 2002 and 2003, were $ 6,842, $ 7,289 and $ 5,587, respectively.

	b.	Litigation:

In 1996, Checkpoint Systems, Inc. (“CSI”) a manufacturer of theft prevention devices for retail stores has taken legal actions in respect of trademark infringement and unfair competition against the Company. In 2002 a trademark opposition was filed by CSI with the Patent and Trademark Office. In February 2003 the respective parties entered into an agreement that settled all of the disputes by definitively setting forth each company’s trademark description. The agreement permits both parties to use the mark “Check Point” and to seek registration consistent with the descriptive aspects of their respective businesses. As a result, the Company reversed the related provision.

F- 19

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 7:-	COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

Beginning on August 29, 2003, the Company received a number of class action complaints filed in the United States District Court for the Southern District of New York by holders of the Company Ordinary shares, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. On November 20, 2003, the court consolidated all of the complaints into one action and appointed lead plaintiff. On January 14, 2004, lead plaintiff filed a Consolidated Amended Complaint, purporting to represent a putative class of all purchasers of the Company Ordinary shares between July 10, 2001 and April 4, 2002. The complaint generally alleges that Check Point and certain of its senior officers made misrepresentations and omissions regarding, among other things, the Company’s sales, revenue, and future prospects. The Company has retained experienced counsel and is currently moving to dismiss the complaint pursuant to Rule 12(b)(6) and Rule 9(b) of the Federal Rules of Civil Procedure and Section 21D(b)(3) of the Exchange Act. The Company disputes the allegations of wrongdoing and intends to defend the matter vigorously. Accordingly, the Company’s management believes that applicable insurance as well as a provision in the financial statements as of December 31, 2003, are adequate to cover probable costs arising from this matter.

NOTE 8:-	TAXES ON INCOME

	a.	Israeli taxation:

	1.	Measurement of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985 (“the Israeli law”):
		Under the Israeli law, results for tax purposes are measured in real terms, in accordance with the changes in the Israeli Consumer Price Index (“Israeli CPI”), or in the exchange rate of the dollar for a “foreign investors’ company”. Until 2001, results for tax purposes were measured in terms of earnings in NIS after certain adjustments for increases in the Israeli CPI. Beginning January 1, 2002, the basis for remeasurment is the changes in the exchange rate of the U.S. dollar.
	2.	Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the “Law”):
		Practically all of Check Point Ltd.’s production facilities have been granted the status of “Approved Enterprise”, under the Law, in five investment programs (the “Programs”).
		In accordance with the Law, Check Point Ltd. has chosen to enjoy “Alternative plan benefits”. Accordingly, Check Point Ltd.’s income attributed to the “Approved Enterprise” is tax exempt for a period of two years and is subject to a reduced corporate tax rate of 10% - 25% for an additional period of eight years, based on the percentage of foreign investment in Check Point Ltd. The abovementioned tax benefits are scheduled to gradually expire from 2005 through 2013.

F- 20

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 8:-	TAXES ON INCOME (Cont.)

		The duration of tax benefits, for each of the Programs is subject to limitations of the earlier of 12 years from commencement of investment, or 14 years from receipt of approval, as an “Approved Enterprise” under the Law.
		Tax-exempt income attributable to the “Approved Enterprise” cannot be distributed to shareholders without subjecting the Company to taxes except upon complete liquidation of the Company. Out of the Company’s retained earnings as of December 31, 2003 approximately $ 461,000 are tax-exempt. If such retained tax-exempt income is distributed in a manner other than upon the complete liquidation of the Company, it would be taxed at the reduced corporate tax rate applicable to such profits (between 10%-25%) and an income tax liability of up to approximately $ 115,000 would be incurred as of December 31, 2003. The Company currently intends to reinvest the amount of its tax-exempt income and not to distribute such income as a dividend. Accordingly, no deferred income taxes have been provided on income attributable to the Company’s “Approved Enterprise”.

	The entitlement to the above benefits is conditional upon the Company’s fulfilling the conditions stipulated by the Law, regulations published thereunder and the certificates of approval for the specific investments in approved enterprises.

		Should Check Point Ltd. fail to meet such requirements in the future, income attributable to its “Approved Enterprise” programs could be subject to the statutory Israeli corporate tax rate of 36%, and the Company could be required to refund a portion of the tax benefits already received, with respect to such programs.
		Income from sources other than the “Approved Enterprise” is subject to tax at regular Israeli corporate tax rate of 36%.
	3.	The Israeli company has final tax assessments through the year 2001.
	4.	On January 1, 2003, a comprehensive tax reform took effect in Israel. Pursuant to the reform, resident companies are subject to Israeli tax on income accrued or derived in Israel or abroad. In addition, the concept of “controlled foreign corporation” was introduced, according to which an Israeli company may become subject to Israeli taxes on 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 capital gains). The tax reform also substantially changed the system of taxation of capital gains.

F- 21

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 8:-	TAXES ON INCOME (Cont.)

	b.	Deferred tax assets:

	Deferred tax assets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of December 31, 2002 and 2003, the Company’s deferred taxes were in respect of the following:

		December 31,
		2002			2003
	U.S. carryforward tax deductions	$	231,000		$	251,125
	Accrued vacation, severance pay and property and equipment		4,963			5,519
	Net deferred tax assets before valuation allowance		235,963			256,644
	Valuation allowance		(231,000	)		(251,125	)
	Net deferred tax assets (presented in other long term assets)	$	4,963		$	5,519
	Domestic	$	694		$	1,313
	Foreign		4,269			4,206
		$	4,963		$	5,519

	The subsidiary in the U.S. has provided valuation allowances in respect of deferred tax assets resulting from tax benefits related to employee stock option exercises, which will be credited to additional paid-in capital when realized. Management currently believes that it is more likely than not that those deferred tax deductions will not be realized in the foreseeable future.
	Through December 31, 2003, the U.S. subsidiary had a U.S. federal loss carryforward of approximately $ 690,000 resulting from tax benefits related to employees stock option exercises that can be carried forward and offset against taxable income for 15 to 20 years, expiring between 2010 - 2023.
	Utilization of U.S. loss carryforwards may be subject to substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of losses before utilization.

F- 22

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 8:-	TAXES ON INCOME (Cont.)

	c.	Income before taxes on income is comprised as follows:

		Year ended December 31,
		2001			2002			2003
	Domestic	$	366,237		$	289,116		$	255,282
	Foreign		15,286			15,210			43,908
		$	381,523		$	304,326		$	299,190

	d.	Income tax expenses are comprised as follows:

		Year ended December 31,
		2001			2002			2003
	Current	$	59,843		$	48,450		$	55,867
	Deferred		(240	)		796			(556	)
		$	59,603		$	49,246		$	55,311
	Domestic	$	52,884		$	43,700		$	49,638
	Foreign		6,719			5,546			5,673
		$	59,603		$	49,246		$	55,311

	e.	Reconciliation of the theoretical tax expenses:

	A reconciliation between the theoretical tax expenses, assuming all income is taxed at the statutory rate applicable and the actual income tax as reported in the statements of income, is as follows:

		Year ended December 31,
		2001			2002			2003
	Income before taxes as reported in the
	statements of income	$	381,523		$	304,326		$	299,190
	Statutory tax rate in Israel		36	%		36	%		36	%
	Increase (decrease) in taxes resulting from:
	Effect of “Approved Enterprise”status (*)		(17	%)		(22	%)		(17	%)
	Others, net		(3	%)		2	%		(1	%)
	Effective tax rate		16	%		16	%		18	%
	(*) Basic net earnings per share amounts of the
	benefit resulting from the “Approved
	Enterprise” status	$	0.27		$	0.27		$	0.20
	(*) Diluted net earnings per share amounts of
	the benefit resulting from the
	“Approved Enterprise” status	$	0.25		$	0.26		$	0.20

F- 23

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 9:-	SHARE CAPITAL

	a.	General:

	Ordinary shares confer upon their holders the right to receive notice to participate and vote in general meetings of the Company, and the right to receive dividends if declared.
	Dividends declared on Ordinary shares will be paid in NIS. Dividends paid to shareholders outside Israel will be converted into U.S. dollars, on the basis of the exchange rate prevailing at the date of payment.
	On January 18, 2001, the Company’s Board of Directors approved a three-for-two stock split in the form of a stock dividend, effective February 1, 2001. This stock split has been reflected in the statement of changes in shareholders equity in 2000.
	Shareholders otherwise entitled to receive fractional shares because they held a number of old Ordinary shares that are not evenly divisible by the split number, were paid by cash.
	All shares, options and earnings per share amounts have been retroactively adjusted for all periods presented to reflect the stock splits effected as a stock dividend.

	b.	Deferred share:

	The Deferred share is not entitled to any rights other than the right to receive its nominal value upon liquidation of the Company.

	c.	Employee Stock Purchase Plan (“ESPP”):
		The Company reserved a total of 6,000,000 shares for issuance under the ESPP. Eligible employees use up to 15% of their salaries to purchase Ordinary shares but no more than 1,250 shares per participant on any purchase date. The purchase plan is being implemented by effecting an offering every six months. The price of an Ordinary share purchased under the purchase plan is equal to 85% of the lower of the fair market value of the Ordinary share on the subscription date of each offering period, or on the purchase date.

	During 2001, 2002 and 2003, employees purchased 81,265, 146,291 and 254,889 Ordinary shares at average prices of $ 46.90, $ 21.08 and $12.29 per share, respectively.

	As of December 31, 2003, 4,833,527 Ordinary shares were available for future issuance.

	d.	Stock options:

Under the Company’s 1996 International and U.S. Incentive Employee Stock Option Plans (“the Plan”), options are granted to employees, officers and directors at an exercise price equal to at least the fair market value at the date of grant and are granted for periods not to exceed seven years. Options granted under this plan, generally vest over a period of four to five years of employment. Any options that are cancelled or forfeited before expiration become available for future grants.

F- 24

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 9:-	SHARE CAPITAL (Cont.)

	Under the terms of the Plan, options to purchase 171,210,000 Ordinary shares were reserved for issuance for the plan.
	As of December 31, 2003, 93,343,000 options were available for future grant under the plan.
	A summary of the Company’s stock option activity, and related information, is as follows:

	Options (in thousands)									Weighted average exercise price
	2001			2002			2003			2001			2002			2003
Outstanding at beginning		33,428			26,477			28,769		$	11.57		$	16.14		$	17.34
of year
Granted		2,607			6,954			5,370			41.65			17.84			17.14
Exercised		(7,314	)		(2,939	)		(3,112	)		4.75			4.16			4.73
Cancelled		(2,244	)		(1,723	)		(1,590	)		14.84			23.71			31.28
Outstanding as of
December 31,		26,477			28,769			29,437		$	16.14		$	17.34		$	17.88
Exercisable as of
December 31,		9,611			14,454			17,710		$	10.74		$	13.04		$	15.36

	The options outstanding as of December 31, 2003, have been separated into ranges of exercise price, as follows:

Exercise price			Options outstanding at December 31, 2003 (in thousands)			Weighted average remaining contractual life (years)			Weighted average exercise price			Options exercisable at December 31, 2003 (in thousands)			Weighted average exercise price of exercisable options
$									$						$
2.65 – 3.19				3,031			1.71			2.82			2,992			2.83
3.77 – 4.46				1,445			1.95			4.25			1,157			4.21
4.56 – 9.38				699			2.18			6.95			522			6.80
9.83 – 13.02				9,958			3.62			10.94			7,351			10.23
13.33 – 17.64				8,378			5.65			16.80			2,745			16.54
20.36 – 23.60				153			2.87			20.43			128			20.44
27.22 – 30.54				1,816			4.69			28.08			534			28.97
31.75 – 36.72				250			3.53			34.04			216			34.19
40.09 – 44.42				2,100			4.45			42.30			1,055			42.30
44.96 – 51.21				594			3.33			47.17			401			47.09
57.59 – 65.58				28			3.66			63.27			16			64.54
68.42 – 70.02				398			3.75			69.04			276			69.11
70.19 – 75.08				127			3.54			71.44			85			71.33
79.79 – 86.54				460			4.18			85.08			232			83.78
2.65 – 86.54				29,437			4.01			17.88			17,710			15.36

	The weighted average fair values at grant date of options granted for the years ended December 31, 2001, 2002 and 2003, were $ 28.29, $ 9.44 and $ 5.44, respectively. All options are granted with an exercise price equal to the market value at the date of grant.

F- 25

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 10:-	EARNINGS PER SHARE

	The following table sets forth the computation of historical basic and diluted net earnings per share:

		Year ended December 31,
		2001			2002			2003
	Net income	$	321,920		$	255,080		$	243,879
	Weighted average Ordinary shares outstanding		240,008			244,097			247,691
	Dilutive effect:
	Employee stock options		18,067			10,675			7,392
	Diluted weighted average Ordinary shares
	outstanding		258,075			254,772			255,083
	Basic net earnings per Ordinary share	$	1.34		$	1.04		$	0.98
	Diluted net earnings per Ordinary share	$	1.25		$	1.00		$	0.96

F- 26

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands

NOTE 11:-	GEOGRAPHIC INFORMATION AND SELECTED STATEMENTS OF INCOME DATA

	a.	Summary information about geographical areas:
		The Company adopted Statement of Financial Accounting Standard No. 131, “Disclosures About Segments of an Enterprise and Related Information”, (“SFAS No. 131”). The Company operates in one reportable segment (see Note 1 for a brief description of the Company’s business). The total revenues are attributed to geographic areas based on the location of the end customer. The following present total revenues for the years ended December 31, 2001, 2002 and 2003 and long-lived assets as of December 31, 2001, 2002 and 2003:
		1.     Revenues based on the channel partners’ location:

		Year ended December 31,
		2001			2002			2003
	Americas	$	235,360		$	184,823		$	185,186
	Europe, Middle East and Africa		199,303			173,369			175,887
	Japan		52,827			40,068			39,622
	Asia Pacific		40,153			28,729			31,877
		$	527,643		$	426,989		$	432,572

		2.     Long-lived assets:

		December 31,
		2001			2002			2003
	Israel	$	7,772		$	6,134		$	4,372
	Americas		4,356			3,499			2,452
	Other		1,120			820			570
		$	13,248		$	10,453		$	7,394

	b.	Financial income, net:

	Financial income:
	Interest income	$	42,537		$	46,098		$	42,852
	Foreign currency translation adjustments and
	others		2,523			3,521			1,006
			45,060			49,619			43,858
	Financial expense:
	Others		300			305			352
			300			305			352
		$	44,760		$	49,314		$	43,506

F- 27

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CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars

NOTE 12:- SUBSEQUEENT EVENT (UNAUDITED)

In March 2004, the Company completed the acquisition 100% of the outstanding shares of privately held Zone Labs for approximately $114 million in cash and 5.3 million ordinary shares. The Company also assumed Zone Labs’ outstanding employee stock options which could convert to approximately 2.8 million of the Company’s Ordinary shares.

Zone Labs’ endpoint security solutions for enterprises, small businesses and consumers which include the Integrity, ZoneAlarm and IM secure product lines, are expected to further strengthen the Company’s perimeter, internal and Web security portfolio, enabling the Company to deliver a comprehensive end-to-end Internet security to all types of customers.

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F- 28

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SIGNATURES

                The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

	CHECK POINT SOFTWARE TECHNOLOGIES LTD.
	By:   /s/ Gil Shwed________________________________
	Gil Shwed       Chief Executive Officer and Chairman of the Board
	By:   /s/ Eyal Desheh______________________________
	Eyal Desheh                               Chief Financial Officer
Date: March 29, 2004

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