SODA Sodastream International Ltd. - Ordinary Shares (delisted)

You should read the following selected consolidated financial data in conjunction with “Item 5 — Operating and Financial Review and Prospects” and our consolidated financial statements and the related notes appearing elsewhere in this annual report. The following table sets forth our selected consolidated financial and other financial and operating data. Historical results are not indicative of the results to be expected in the future. Our financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board. The consolidated statements of operations data for each of the years in the three-year period ended December 31, 2015 and the consolidated balance sheet data as of December 31, 2014 and December 31, 2015 are derived from our audited consolidated financial statements appearing elsewhere in this annual report. The consolidated statements of operations data for the year ended December 31, 2011 and 2012 and the consolidated balance sheet data as of December 31, 2011, 2012 and 2013 are derived from our audited consolidated financial statements that are not included in this annual report. The information presented below under the caption “Other financial and operating data” contains unaudited information that is not derived from our financial statements.

Our business faces significant risks. You should carefully consider all of the information set forth in this annual report and in our other filings with the United States Securities and Exchange Commission (the “SEC”), including the following risk factors. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this report and our other SEC filings. See also “Special Note Regarding Forward-Looking Statements.”

Risks Related to our Business and Industry

A key element of our strategy is to expand in target markets, including the United States, and our failure to do so would have a material adverse effect on our business, financial condition, results of operations and prospects.

A key element of our strategy is to grow our business by expanding sales of our sparkling water makers, CO ₂ refills and other consumables in certain existing markets that we believe have high growth potential and in select new markets. In particular, a significant portion of our growth efforts are focused on the United States, the world’s largest market for carbonated beverages and our most important potential growth market. Our success depends, in large part, upon long-term consumer acceptance and adoption of our products. We face several challenges in achieving consumer acceptance and adoption of our home beverage carbonation systems, including, among other things, identifying and addressing market trends and consumers’ tastes and preferences, which often differ between markets, adapting to changes in market trends and consumers’ tastes and preferences in our existing markets, encouraging consumers to make sparkling water beverages at home rather than purchasing sparkling water beverages and consumers’ willingness to exchange empty CO ₂ cylinders for filled CO ₂ cylinders. We have and expect to continue to invest amounts in repositioning our brand around health and wellness as per our growth plan. We may not be successful in establishing such positioning and such positioning might not appeal to consumers. We may not achieve the anticipated positive results or growth from repositioning our brand around health and wellness, even if we succeed in establishing such positioning. There can be no assurance that we will meet any of the challenges we face in our existing markets or new markets we are targeting, and the failure to do so would materially adversely affect our growth in a particular market and may materially adversely affect our business, financial condition, results of operations and prospects.

Our marketing campaigns and media spending might not result in increased sales or generate the levels of product and brand awareness we desire, which may adversely affect our business and prospects.

Our products are ultimately sold to consumers and, therefore, our future growth depends in large part on our ability to create and maintain awareness of our products and our brand in a manner that appeals to consumers. As part of our growth plan, we have and expect to continue to invest amounts to establish our new positioning around health and wellness and our future growth depends in part in our successfully positioning our brand and products in a manner that appeals to consumers. To create and maintain product and brand awareness, we engage in extensive advertising and promotional campaigns in certain key markets that we believe have significant growth potential, such as the United States. Our future growth and results of operations depend in part on the effectiveness and efficiency of these campaigns and our media spending, including our ability to:

We believe that our ability to drive sales of our products depends on raising awareness of our brand in a manner that appeals to consumers. Our advertising and marketing campaigns require significant financial resources and may require additional funds depending on the results they generate.

Our marketing campaigns and messages may not result in increased revenues or increased product or brand awareness in a manner that appeals to consumers, and we may not be able to increase our sales at the same rate as we increase our advertising expenditures, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our ability to grow our business successfully depends, among other things, on our ability to develop and implement our production and operating infrastructure in a way that would effectively support our growth in our target markets.

We are targeting certain markets for growth, including the United States. Achieving and successfully managing growth in our target markets will require us to continue developing and implementing our production and operating infrastructure including, among other things, infrastructure and logistics for our products’ distribution and supply chain, quality assurance controls, product development, manufacturing of our products, information technology and financial control systems. In addition, we will need to continue to develop the infrastructure for consumers to conveniently exchange empty CO ₂ cylinders for filled ones, whether through retailers or otherwise. The development and implementation of our infrastructure requires significant investment and can be complex in the markets in which we operate and seek to operate. We expect that these investments will increase and become increasingly complex as our business grows. Our future results will depend on our ability to successfully develop and implement these initiatives, particularly in our larger markets, such as the United States. Failure to do so could negatively impact our efforts to increase our sales in these markets and have a material adverse effect on our business, financial condition, results of operations and prospects.

Our future success also requires that we have adequate capacity in our manufacturing facilities to manufacture the quantities of products to support our current sales level and the anticipated increased levels that may result from our growth. There can be no assurance as to the timing or our ability to achieve planned, needed, or desired manufacturing capacity levels. We believe that the capacity of our current manufacturing facilities and subcontractors is sufficient to meet anticipated demand for our products through 2016.

In addition, we have experienced, and may in the future experience, difficulties that are common in the installation, functionality and operation of manufacturing equipment. Failures or delays in obtaining and installing the necessary equipment, technology and other resources or their malfunction could result in manufacturing delays, which could harm our business, financial condition and results of operations. There can also be no assurance that demand for our products will increase commensurate with the increased production capability available following the completion of the ramp-up of the Lehavim facility or that we will realize the anticipated production and operational benefits from the Lehavim facility, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Following the completion of the ramp-up of the Lehavim facility, a single facility houses the majority of our production operations. Business interruptions at any of our manufacturing facilities could result in our inability to produce products for extended periods of time, which would have a material adverse effect on our business, financial condition, results of operations and prospects.

We currently produce most of our products at a single facility, the Lehavim facility located in the southern part of Israel, including metals (such as cylinder manufacturing and cylinder retesting), CO ₂ refills, plastic injection, bottle blowing and printing, machining and assembly. We continue to manufacture flavors in Ashkelon, Israel, located on the Mediterranean coast of Israel.

If operations at any of our manufacturing facilities, and at the Lehavim facility in particular, were to be disrupted as a result of equipment failures, earthquakes or other natural disasters, fires, accidents, work stoppages, power outages, water shortages, acts of terrorism or war, or other reasons, we may be unable to produce our products for extended periods of time. A facility and certain equipment located in a facility would be difficult to replace and could require substantial replacement lead-time. Catastrophic events could also destroy any inventory located at a facility. Lost sales or increased costs that we may experience due to the disruption of operations may not be recoverable under our insurance policies, and longer-term business disruptions could result in a loss of customers. The occurrence of any of such events could have a material adverse effect on our business, financial condition, results of operations and prospects.

We lease some of our facilities from third parties, including our manufacturing facilities in Ashkelon. As such, there is a risk that we will not be able to renew the lease agreements, which could lead to a disruption of our operations, or that the terms of the leases under any such renewals will be on less favorable terms.

We may not be successful in continuing to develop or in maintaining our presence in retail networks for the sale of our products and the exchange of our empty CO ₂ cylinders in the markets we are targeting for growth, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our growth in both existing and new markets depends significantly on our ability to develop and maintain our presence in retail networks, as retailers are the primary channel through which consumers initially purchase our home beverage carbonation systems and through which our consumables and other products are sold. Our ability to successfully expand in our target markets depends, among other things, on whether we are able to establish relationships with strong retailers in those markets for the sale of our home beverage carbonation systems, the exchange of our empty CO ₂ cylinders and the sale of our other consumables and products. There can be no assurance that we will be successful in establishing or maintaining relationships with strong retailers in the markets we are targeting for growth, or if successful, that we will do so in a time frame consistent with our plans or that will enable us to achieve significant sales. Our failure to establish and maintain such relationships will adversely affect our ability to grow in a particular market and may adversely affect our business, financial condition, results of operations and prospects.

We rely on third-party distributors of our home beverage carbonation systems and consumables in a number of our markets.

We distribute our home beverage carbonation systems and consumables through relationships with third-party distributors in 23 countries. Our third-party distributors accounted for 12.2% of our revenues in 2015 and one of our distributors, serving one country in Western Europe, accounted for 9.0% of our revenues in 2015. Our distribution agreements are generally exclusive agreements for a given territory with a five-year term with an option to extend the term, and our distributors are generally required to meet defined purchase targets. If our distributors do not meet their defined purchase targets, they may lose their exclusivity right and we may also seek to terminate our distribution agreement with them. We may not be successful in terminating our distribution agreements with our distributors and even if we are successful, we may have to pay statutory compensation to such distributors or fines, and may also experience a delay in retaining new distributors. Where we rely on third-party distributors, we have less control than when we distribute directly and can be adversely impacted by the actions of our distributors. Furthermore, our distributors also undertake to manage the reverse logistics needed for customers to return empty CO ₂ cylinders and exchange them for filled CO ₂ cylinders. In the event that any of our distributors does not successfully manage the reverse logistics, it will make it more difficult for our customers to obtain replacement CO ₂ cylinders, which could negatively affect our brand and our revenues in that market. Any disruption in our distribution network could have a negative effect on our ability to sell our products and maintain our customers, which may, in turn, materially adversely affect our business, financial condition, results of operations and prospects.

We may face competition from sales of consumables and, in particular, CO ₂ cylinders, which could adversely impact our business, financial condition and results of operations.

Our business of refilling our exchangeable CO ₂ cylinders is important to the long-term success of our business and our future growth. For safety, public health and other reasons, we retain ownership of the exchangeable CO ₂ cylinders included in our home beverage carbonation systems and provide them under license, whether sold with our systems or as a separate component. Our agreements with retailers contain an acknowledgement that we retain title to the exchangeable CO ₂ cylinders. In addition, the packaging in which the cylinders are distributed, as well as the cylinders themselves, bear notices advising consumers that the cylinders are provided under license. Nevertheless, these contractual arrangements have not always been effective, and in a number of locations, suppliers of CO ₂ not authorized by us have sought or may in the future seek, to refill our exchangeable CO ₂ cylinders or refill other exchangeable CO ₂ cylinders marketed as compatible with our systems. In addition to creating potential safety and public health risks, such sales of consumables by third parties unauthorized by us may result in lost sales opportunities for us, negatively impact customer retention and could harm our reputation if these products cause damage when used with our products.

In 2008, the German Federal Court of Justice, the highest German court, upheld a decision by the German Federal Cartel Office that preventing end consumers from having their CO ₂ cylinders refilled by third parties constituted an abuse of a dominant position in violation of EU and German competition law and requiring us to permit the end consumers to have their CO ₂ cylinders refilled by or exchanged with third parties. Although the decision of the German Federal Court of Justice is not binding on courts in other jurisdictions, it could be cited as a precedent in other antitrust or competition law proceedings. There can be no assurance that a court of law in any other jurisdiction will determine that we have not violated applicable competition or antitrust laws. Further, there can be no assurance that a court in any of the jurisdictions in which we operate will uphold our ownership rights over the exchangeable CO ₂ cylinders or find that the cylinder refilling restrictions we impose do not violate applicable competition or antitrust laws. Our failure to successfully enforce our ownership rights to our exchangeable CO ₂ cylinders could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may be unable to compete effectively with other companies which offer, or may offer in the future, competing products.

We face competition in several of our markets from manufacturers which offer products that compete with ours, including sparkling water makers, carbonation bottles and flavors. We anticipate that we will face additional competition from competitors that may enter the home carbonated beverage and sparkling water market, including from manufacturers of home beverage carbonation systems and consumables and manufacturers of carbonated beverages. Current or future competitors may, for example, introduce products with features which may cause consumers to stop using our systems or to use them less frequently, such as sparkling water makers that do not require the exchange of CO ₂ cylinders or that use other methods of carbonation. The entry of new competitors into our market or the acquisition of our existing competitors by companies with substantial resources could result in further increased competition and harm our business. Increased competition from existing or new competitors may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Additionally, our competitors’ arrangements with their collaborators may prevent us from entering into similar, or other, arrangements with such collaborators.

We also face competition from manufacturers that sell counterfeit reproductions of our sparkling water makers. Although we monitor and attempt to take action against such manufacturers when we deem it appropriate, there can be no assurance that we will be successful in deterring competitors from manufacturing and selling counterfeit reproductions of our products. The sale of counterfeit reproductions of our products may result in lost sales opportunities and cause harm to our reputation due to the lower quality of these counterfeit products compared to our products. The risk of counterfeiting may increase with the expansion of our business and increased recognition of our brand name. Finally, we face competition from beverage companies, including large global companies, for the dollars spent by consumers on non-alcoholic beverages. These include primarily manufacturers of carbonated soft drinks and sparkling water.

A number of our competitors are substantially larger than we are and have significantly greater financial, sales and marketing, manufacturing and other resources than are available to us, and have established brands and greater brand awareness. These competitors may use their resources and scale to respond more rapidly than us to competitive pressures and changes in consumer preferences by introducing new products, reducing prices or increasing promotional activities.

We may be unable to retain our customers in markets where we have an established presence due to changes in consumer preferences, perceptions and spending habits.

Our long-term revenue growth and profitability depend upon our ability to implement our business model of selling sparkling water makers to new consumers and our consumables to consumers who already own our sparkling water makers. Since we derive higher profit margins from our consumables, the continued use of our home beverage carbonation systems by, and the repeat sales of our consumables to, consumers who have already purchased our systems are important to our business. In markets where we have an established presence, we face the challenge of retaining customers due to changes in consumer preferences, perceptions and spending habits, as well as the introduction of competing products, any of which may cause our customers to stop using our systems or to use them less frequently. In order to maintain the use of our systems by our customers, we will need to identify and respond quickly to such changes, including through creative initiatives, such as new product offerings and special promotions. For example, in response to what we believe is a shift in consumer preferences towards health and wellness in the carbonated beverage industry, under our growth plan, we are positioning our brand around health and wellness. However, we may not be successful in establishing such positioning and such positioning might not appeal to consumers. Our failure to predict, or respond effectively to changes in consumer behavior, including where they shop, could result in a reduction in the number of our customers, which could lead to lower revenues and increased inventories, and would have a material adverse effect on our business, financial condition, results of operations and prospects.

If we do not manage our inventory effectively, our business, financial condition and results of operations could be materially adversely affected.

We must manage our inventory effectively. If our forecasts for demand for our products exceed actual demand, we could experience excess inventory. As we innovate and introduce new sparkling water makers and new flavors to the marketplace, our existing sparkling water makers and flavors are at an increased risk of inventory obsolescence. If we ultimately determine that we have excess inventory, we may have to reduce our prices and write-down inventory which could have an adverse effect on our business, financial condition and results of operations. In addition, we may determine that having both older and newer products for sale in the marketplace is confusing to consumers or interferes with promoting our new products and therefore decide to cease selling our older products, which would result in our not receiving any revenues for such products. Conversely, if the introduction of new products is delayed, we may have insufficient existing inventory to meet our customer demand which could result in lost revenue opportunities and have an adverse impact on our financial condition and results of operations. Risks of inventory obsolescence also exist with our products that are subject to expiration, such as our carbonation bottles and flavors. If we are unable to accurately forecast demand for our products and inventory expires or becomes unusable, our business, financial condition and results of operations could be materially adversely affected.

Our home beverage carbonation systems and other products may fail, whether due to design faults, defects or misuse, and cause personal injury or property damage, which may subject us to product liability and other claims and harm our reputation.

Our home beverage carbonation systems and other products may fail and cause personal injury or property damages. Failures of our home carbonation beverage systems may be caused by, among other things, design defects, defects in workmanship or materials and misuse by consumers. Although we take quality assurance measures which are intended to ensure that our products are free from design faults and defects in workmanship and materials, there can be no assurance that our products will not fail. Additionally, although we include explicit instructions for the operation of our home beverage carbonation systems and place safety warnings on our products, consumers may misuse our products, including by:

The failure or misuse of any of the components of our home beverage carbonating systems may cause personal injury and damage to property. In addition, any unauthorized use of our home beverage carbonation systems, including by using third-party consumables with our systems, could lead to failure or malfunction of the systems which in turn could cause personal injury or property damage. Potential personal injury and property damage may also result from the deterioration of the quality or contamination of the materials used in our systems. Product safety or quality issues, actual or perceived, including allegations of product contamination or other issues, even when false or unfounded, could subject us to product liability and other claims, tarnish the image of the affected brands and may cause consumers to choose other products. Such issues or allegations may also require us to conduct product recalls and result in higher than anticipated rates of warranty returns and other returns of goods.

In addition, consumer protection agencies that have broad authority to order product modifications or recalls may take such actions with respect to our products, even if we include explicit instructions with our products regarding their use. Under these circumstances, we could be required to offer to exchange our existing products for new ones or to recall products entirely from the market, which would materially adversely impact our business, financial condition, results of operations and reputation.

Our product liability insurance for personal injury and damage to property may not be sufficient or available to cover product liability claims, or similar claims, against us, which could materially adversely impact our financial condition and results of operations. Whether or not a claim against us would be successful, defense of a claim may be costly and the existence of any claim may adversely impact our business, financial condition, results of operations and reputation.  

Our inability to protect our intellectual property rights could reduce the value of our products or permit competitors to more easily compete with us and have a material adverse effect on our business, brand, financial condition, results of operations and prospects.

While we make efforts to develop and protect our intellectual property, the validity, enforceability and commercial value of our intellectual property rights may be reduced or eliminated by the discovery of prior inventions by third parties, the discovery of similar marks previously used by third parties, non-use or non-enforcement by us or the successful independent development by third parties of the same or similar confidential or proprietary innovations. We have been in the past, and may in the future be, subject to opposition proceedings with respect to applications for registrations of our intellectual property, including, but not limited to, our marks. As we rely in part on brand names and trademark protection to enforce our intellectual property rights, barriers to the registration of our brand names and trademarks in various countries may restrict our ability to promote and maintain a cohesive brand throughout our key markets.

Our ability to compete effectively depends, in part, on our ability to maintain the proprietary nature of our technologies, which include the ability to obtain, protect and enforce patents and trade secrets and other know-how relating to our technologies. Our current patent portfolio is limited and certain patents of ours that cover aspects of our products have expired. Although we hold additional utility patents and design registrations and patents, as well as have pending patent and registration applications that may protect certain aspects of our products for an extended period, there can be no assurance that pending U.S. applications or applications in other jurisdictions will be approved in a timely manner or at all, or that such registrations will effectively protect our intellectual property. There can be no assurance that we will develop patentable intellectual property in the future, and we may choose not to pursue patents or other protection for innovations that subsequently turn out to be important.

To protect our intellectual property, including our know-how and trade secrets, we have implemented a system in most jurisdictions by which we require our relevant employees to enter into employment contracts which include clauses requiring such employees to acknowledge our ownership of all inventions and intellectual property rights they develop in the course of their employment and to agree not to disclose confidential information. Agreements with certain of our employees also typically contain provisions restricting employment with our competitors for a certain period of time after they stop working for us. These restrictions may be of no or little enforceability under applicable law. We also typically include similar provisions in our distributor and supplier agreements. These provisions may not be adequate or enforceable, and despite our efforts, our know-how, confidential information and trade secrets could be disclosed to third parties, or third parties could independently develop the same or similar information or technologies, which could cause us to lose competitive advantages.

From time to time, we may discover that third parties are infringing or otherwise violating our intellectual property rights. For example, we are aware of unauthorized third-party uses of our trademarks and designs, and there may be other third parties using trademarks or names, or designs, similar to ours of whom we are unaware. Monitoring unauthorized use of intellectual property is difficult and protecting our intellectual property rights could be costly and time consuming. The monitoring and protection of our intellectual property rights may become more difficult, costly and time consuming as we expand into new markets, particularly in those markets, such as China, Brazil, Russia and others, in which legal protection of intellectual property rights is less robust than in the United States and other developed markets in which we currently operate. We are prepared to protect our intellectual property rights vigorously; however, our patent portfolio is limited in certain markets and, as such, we may be unable to institute effective legal action against third parties engaged in copying our sparkling water makers and components.

There can also be no assurance that we will prevail in any intellectual property infringement litigation we institute to protect our intellectual property rights given the complex technical issues and inherent uncertainties in litigation. Such litigation may be time consuming, expensive, and may distract our management from running the day-to-day operations of our business. If we are unable to successfully defend our intellectual property rights, our business, brand, financial condition, results of operations and prospects could be materially adversely affected. There can be no assurance that our intellectual property rights can be successfully asserted or will not be invalidated, circumvented or challenged. In addition, there can be no assurance that these protections will be adequate to deter the unauthorized use of our intellectual property rights by third parties or to deter the development of products with features based upon, or otherwise similar to, our products.

We may be subject to claims by third parties asserting that our products and other intellectual property infringe, or may infringe, their proprietary rights.

We have in the past been, and may in the future be, subject to claims by third parties asserting misappropriation, or that our products and other intellectual property infringe, or may infringe, or otherwise violate, their proprietary rights. Any such claims, regardless of merit, could result in litigation, which could result in expenses, divert the attention of our management from running the day-to-day operations of our business, cause significant delays in and materially disrupt the conduct of our business. As a consequence of such claims, we could lose our proprietary rights, become subject to liabilities, including payments of damages, be required to develop non-infringing products, seek licenses from others, which may not be available on reasonable terms, if at all, stop selling our products or re-brand our products and could suffer other negative effects to our business. In the event of a successful claim of infringement against us or our failure or inability to develop non-infringing technology or license the infringed or similar technology or other intellectual property, our business, financial condition, results of operations and prospects could be materially adversely affected.

If a large number of empty exchangeable CO ₂ cylinders are returned to us without having been exchanged for full ones, we would incur costs with no corresponding revenues.

We retain ownership of the exchangeable CO ₂ cylinders and provide them under license. In most cases, we collect a license fee for each exchangeable CO ₂ cylinder from the distributors and retailers who receive them. The amount of the license fee varies from country to country and also changes over time as market conditions vary in a particular country. In addition, in some countries, including certain major markets in Northern and Western Europe, consumers have paid in the past an advance rental fee when they received their first exchangeable CO ₂ cylinder. A portion of these fees may be refundable when an empty exchangeable CO ₂ cylinder is returned and not exchanged for a full one. To date, returns of exchangeable CO ₂ cylinders from our distributors, retailers and consumers have been negligible. However, if distributors, retailers or consumers in any one or more of the markets in which we operate return a large number of cylinders without exchanging them for full ones, we may be required to pay a large amount of cash to refund a portion of the rental or license fees, which could have a material adverse effect on our financial condition and results of operations.

We are subject to currency exchange rate fluctuations and may not adequately hedge against them.

The dollar is our functional and reporting currency. However, a significant portion of our cost of revenues and operating expenses are incurred in NIS, and to a lesser extent, in other currencies, such as the Euro. As a result, we are exposed to the risks that the Israeli shekel or these other currencies may appreciate relative to the dollar. In any such event, the dollar cost of our non-dollar denominated operations would increase and our dollar-denominated results of operations would be adversely affected. Furthermore, because a material portion of our revenues is denominated in currencies other than the dollar, the strengthening of the dollar in relation to other currencies, in particular the Euro, will negatively affect our results of operations. For example, in 2015, our revenues and operating income were negatively impacted from changes in foreign currency exchange rates by approximately $58.6 million and $14.1 million, respectively. We cannot predict any future trends and rates of devaluation (if any) of the Israeli shekel or any of these other currencies against the dollar. Although we currently engage in hedging transactions to minimize our currency exchange rate risk, future currency exchange rate fluctuations that we have not adequately hedged could adversely affect our profitability and may vary from quarter to quarter. We are also exposed to credit risk if counterparties to our derivative instruments are unable to meet their obligations.

Fluctuations in our business caused by seasonality or unusual weather conditions could cause fluctuations in our quarterly results of operations and volatility in the market price of our ordinary shares.

Historically, our revenues have generally been strongest in the third and fourth quarters and weakest in the first quarter. We generally attribute this historical seasonality to increased demand for our products during the warmer summer months and increased sales associated with holiday shopping. As such, our revenues may also be impacted by the effects of the weather as our revenues would likely decrease if periods when the weather is colder are longer than usual. Our operating expenses and, therefore, our overall margins are also seasonally impacted. For example, although not the case in 2015, we typically increase our advertising and promotional expenditures in the second and fourth quarters. Consequently, our overall operating income may be lower in these quarters. The impact on sales volume and operating results due to these and other factors can significantly impact our business. Accordingly, our results for any quarter are not necessarily indicative of the results that may be achieved in subsequent quarters or for the full fiscal year. Our quarterly operating results should not be relied on as indications of our future performance. These fluctuations may also cause volatility in the market price of our ordinary shares.

We may have exposure to greater than anticipated tax liabilities.

We have endeavored to structure our activities in a manner so as to minimize our and our subsidiaries’ aggregate tax liabilities. However, we have operations in various taxing jurisdictions, and our tax liabilities in one or more jurisdictions could be more than reported in respect of prior taxable periods and more than anticipated in respect of future taxable periods. In this regard, the amount of income taxes that we pay in future taxable periods could be higher if earnings are lower than anticipated in jurisdictions where lower statutory tax rates apply and higher than anticipated in jurisdictions where higher statutory tax rates apply.

In addition, we have entered into transfer pricing arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures are not binding on the applicable taxing authorities. No official authority in any country has made a binding determination as to whether or not we are operating in compliance with its transfer pricing laws. Accordingly, taxing authorities in any of the countries in which we operate could challenge our transfer prices and require us to adjust them to reallocate our income and potentially to pay additional taxes for prior tax periods. For example, the tax authorities in the United States, our most important potential growth market, have increased their focus on transfer pricing procedures generally, which could result in a greater likelihood of a challenge to our transfer pricing arrangements and the risk that we will be required to adjust them and reallocate our income, which could result in a higher effective tax rate than that to which we are currently subject. We expect that the issue of the validity of our transfer pricing procedures will become of greater importance as we continue our expansion in markets in which we currently have a limited presence and attempt to penetrate new markets. Any change to the allocation of our income as a result of reviews by taxing authorities could have a negative effect on our financial condition and results of operations.

In addition, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment and there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, our ultimate tax liability may differ from the amounts recorded in our financial statements and may materially adversely affect our financial condition and results of operations in the period or periods for which such determination is made. We have created reserves with respect to tax liabilities where we believe it to be appropriate. However, there can be no assurance that our ultimate tax liability will not exceed the reserves we have created.

The base erosion and profit shifting (“BEPS”) project undertaken by the Organization for Economic Cooperation and Development (“OECD”), may have adverse consequences to our tax liabilities. The BEPS project contemplates changes to numerous international tax principles, as well as national tax incentives, and these changes, if adopted by individual countries, could adversely affect our provision for income taxes. It is hard to predict how the principles and recommendations developed by the OECD in the BEPS project will translate into specific national laws, and therefore we cannot predict at this stage the magnitude of the effect of such rules on our financial results.

Our products are subject to extensive governmental regulation in the markets in which we operate.

Our products are subject to extensive governmental regulation in the markets in which we operate. Among the regulations that we must comply with are those governing the manufacturing and transportation of our exchangeable CO ₂ cylinders. In the United States, and in certain other markets in which we currently operate or may in the future operate, our exchangeable CO ₂ cylinders are considered hazardous materials due to the highly pressurized CO ₂ inside, and the applicable regulations consequently restrict our ability to ship our exchangeable CO ₂ cylinders by air and also place significant restrictions on their land transportation, which results in additional costs. There can be no assurance that we will be in compliance with all applicable laws and regulations to which we and our products are subject. If we fail to comply, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well as criminal sanctions, which could have a material adverse effect on our business, financial condition, results of operations and reputation.

The flavors we manufacture and distribute are also subject to numerous health and safety laws regulating the manufacturing and distribution of food products. A failure to plan and develop effective procedures to address these laws and regulations, new or revised laws or regulations, or new interpretations or enforcement of existing laws and regulations, may affect our ability to manufacture, distribute and sell our products, which could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, new government laws and regulations may be introduced in the future that could result in additional compliance costs, seizures, confiscations, recalls or monetary fines, any of which could prevent or inhibit the development, distribution and sale of our products. For example, governmental authorities in certain of our markets, such as Finland, France and certain states in the U.S., have imposed taxes on sugar-sweetened beverages which apply to our flavors, and other governmental authorities, such as the United Kingdom and other states in the U.S., have introduced, or considered levying, similar taxes. If such taxes are introduced and were to apply to our flavors, the sales and consumption of such flavors might decrease and thereby have a material adverse impact on our financial condition and results of operations.

An increase in the cost or shortage of supply of the raw materials for our products could have a material adverse effect on our business, financial condition and results of operations.

We use certain raw materials to produce our sparkling water makers, exchangeable CO ₂ cylinders and consumables. The most important of these materials are aluminum, brass, certain plastics, flavoring essences, sugar, CO ₂ , sweeteners and fruit concentrate. These materials represent a significant portion of our cost of goods sold. The availability and cost of such raw materials have fluctuated in the past and may fluctuate in the future due to movements in currency exchange rates, government policies and regulations, increased demand for, or decreased supply of, such materials, crop failures, weather conditions, shortages or other reasons or unforeseen circumstances. To the extent that any of the foregoing or other factors increase the prices or limit the supply of such materials, and we are unable to increase our prices or adequately hedge against such changes in a manner that offsets such changes, our business, financial condition and results of operations could be materially adversely affected.

Disruption of our supply chain could adversely affect our business.

Damage or disruption to our manufacturing or distribution capabilities due to the financial and/or operational instability of key suppliers, distributors, warehousing and transportation providers, or brokers, or other reasons, could impair our ability to manufacture or sell our products. To the extent that we are unable to retain alternative sources of supply, to financially mitigate the impact of such events, such as by identifying an alternative supplier in a timely and cost-effective manner, or to effectively manage such events if they occur, there could be a material adverse effect on our sales and profitability, and additional resources could be required to restore our supply chain.

We are subject to certain safety risks in our manufacturing facilities.

Our business involves complex manufacturing processes and hazardous materials that can be dangerous to our employees. Although we employ safety procedures in the design and operation of our facilities, there have been two deaths at our facilities in the past, and there is a risk that an accident or death could occur in one of our facilities in the future. Any accident could result in manufacturing delays, which could harm our business and our results of operations. The potential liability resulting from any such accident or death, to the extent not covered by insurance, and any negative publicity associated therewith could harm our business, reputation, financial condition or results of operations. Whether or not a claim against us succeeds, its defense may be costly and the existence of any claim may adversely impact our business, reputation, financial condition and results of operations.

Higher energy costs and other factors affecting the cost of producing, transporting and distributing our products could adversely affect our results of operations.

Rising fuel, freight and energy costs have in the past, and may in the future, have an adverse impact on the cost of our operations, including the manufacture, transportation and distribution of our products. All of these costs may fluctuate due to a number of factors outside of our control, including governmental policies and regulations and weather conditions. Additionally, we may be unable to maintain favorable arrangements with respect to the costs of transporting products, which could result in increased expenses and negatively affect our operations. If we are unable to hedge against such increases or raise the prices of our products to offset the changes, our results of operations could be materially adversely affected.

Adverse conditions in the global economy could negatively impact customer demand for our products.

Consumer purchases of discretionary items tend to decline during recessionary periods, when disposable income is lower, and may impact sales of our products. If a global recession occurs, consumers may have less money for discretionary purchases as a result of job losses, foreclosures, bankruptcies and other events. A prolonged economic downturn or recession in any of the countries in which we conduct significant business or in any of the markets we are targeting for expansion, including the United States, may cause significant changes in both the volume and mix of our product sales, which could materially adversely affect our business, financial condition and results of operations.

We depend on the expertise of key personnel. If these individuals leave without replacements, our operations could suffer.

Our success depends on the continued service of our senior management. The loss of the services of any of these individuals could delay or prevent the successful implementation of our growth plan, or could otherwise affect our ability to manage our company effectively. Given their extensive knowledge of the home beverage carbonation industry, we believe that it would be difficult to find replacements should any of them leave. Our inability to find suitable replacements for any of the members of our senior management team, particularly our Chief Executive Officer, Daniel Birnbaum, would adversely impair our ability to implement our business strategies and plans and could have a material adverse effect on our business and results of operations.

We may need to raise additional capital in the future and may be unable to do so on acceptable terms, if at all.

Based on current expectations, we believe that our cash on hand, cash flows from operations and borrowings available under our short-term credit facilities from financial institutions will be sufficient to meet our currently anticipated cash requirements for the next 12 months. However, in the future, we may require additional capital in order to finance our activities. We may be unable to obtain requisite financing or such financing may not be available on terms that are acceptable to us. The incurrence of additional debt would result in increased debt service obligations and the terms of which may include additional operating or other covenants that might, among other things, restrict our ability to pay dividends to our shareholders. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. If we were to issue equity to raise capital, it would dilute the holdings of our existing shareholders.

Disruptions to our IT systems may impact our operations and materially harm our business.

Our servers and equipment may be subject to computer viruses, break-ins, and similar disruptions from unauthorized tampering with computer systems. There can be no assurance that our current information technology (IT) systems are fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats. A cyber-attack that bypasses our IT security systems causing an IT security breach may lead to a material disruption of our IT business systems and/or the loss of business information. Any such event could have a material adverse effect on our business. To the extent that such disruptions or uncertainties result in delays or cancellations of customer orders or the manufacture or shipment of our products, or in theft, destruction, loss, misappropriation or release of our confidential information or our intellectual property, our business, financial condition, results of operations and prospects could be materially adversely affected.

Compliance with regulations regarding the use of conflict minerals may disrupt our operations and harm our operating results.

In August 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC adopted requirements for companies that use certain minerals and derivative metals, namely -tantalum, tin, gold and tungsten (referred to as “conflict minerals” regardless of their actual country of origin) in their products. These rules require us to investigate whether our products contain such “conflict minerals” and include appropriate disclosures in our filings with the SEC. Potential costs, including costs of remediation and other changes to products, processes or sources of supply, may arise as a consequence of such activities. Compliance with these rules could adversely affect the sourcing, supply and pricing of materials used in our products. Also, we may face reputational challenges if we are unable to sufficiently verify the origins for all conflict minerals used in our products or lose those customers who require that all of the components of our products be certified as conflict-free. If we are not able to meet customer requirements, customer demand for our products may decline, and we may have to write off inventory in the event that it cannot be sold. The occurrence of any of these events could also have a material adverse impact on our ability to manufacture and market our products.

Risks Related to our Operations in Israel

We conduct operations in Israel and therefore, political, economic and military instability in Israel and its region may adversely affect our business.

We are incorporated under the laws of the State of Israel, and our principal offices and our manufacturing facilities are located in Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors, the Hamas (an Islamist militia and political group that controls the Gaza Strip) and Hezbollah (an Islamist militia and political group based in Lebanon). Although Israel has entered into peace treaties with Egypt and Jordan, and various agreements with the Palestinian National Authority, it is unclear whether any negotiations that may occur between Israel and the Palestinian Authority will result in any additional agreements. In mid-2006, Israel engaged in an armed conflict with Hezbollah, and in June 2007, there was an escalation in violence in the Gaza Strip. In recent years, including in July and August 2014, Israel engaged in an armed conflict with Hamas, which involved missile strikes against civilian targets in various parts of Israel and negatively affected business conditions in Israel. In addition, Israel faces threats from more distant neighbors, in particular, Iran, which is believed to have a strong influence among extremist groups in the region, such as Hamas in the Gaza Strip and Hezbollah in Lebanon.

Recent political uprisings and social unrest 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 relationships that exist between Israel and these countries, and have raised concerns regarding security in the region and the potential for armed conflict. Among other things, this instability may affect the global economy and marketplace through changes in oil and gas prices.

Any hostilities between Israel and its neighbors and any future armed conflict, terrorist activity, political instability or violence in the region could adversely affect our operations in Israel and adversely affect the market price of our ordinary shares. Further escalation of tensions or violence might result in a significant downturn in the economic or financial condition of Israel, which could have a material adverse effect on our operations in Israel and our business.

Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, there can be no assurance that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business, financial condition and results of operations.

In addition, several countries, principally in the Middle East, restrict doing business with Israel, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. These restrictions may limit our ability to distribute our products in these countries or establish distributor relationships with companies operating in these regions. The State of Israel and Israeli companies have been and are today subjected to threats of economic boycotts. In recent years, 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. Any hostilities involving Israel or any interruption or curtailment of trade between Israel and its present trading partners, or a significant downturn in the economic or financial condition of Israel, could adversely affect our business, financial condition and results of operations. We may also be targeted by cyber terrorists because we are an Israeli company.

Our operations could be disrupted as a result of the obligation of certain of our personnel in Israel to perform military service.

Our operations could be disrupted by the obligations of our employees to perform military service. Generally, adult citizens and permanent residents of Israel until the age of 40 (or older, for individuals who hold certain positions in the Israeli armed forces reserves) are, unless exempt, obligated to perform up to 36 days (and in some cases more) military reserve duty annually. Additionally, all Israeli residents of this age may be called to active duty at any time under emergency circumstances. Many of our employees, including members of our management, are currently obligated to perform annual reserve duty. In response to increased tension and hostilities in the region, there have been, at times, call-ups of military reservists, and it is possible that there will be additional call-ups in the future. Our operations could be disrupted by the absence of one or more of our key employees for a significant period due to military service. Such disruption could have a material adverse effect on our business and results of operations.

The tax benefits and grants that may be available to us may be terminated or reduced in the future, which could increase our costs and taxes. If we fail to satisfy various conditions, we may be required to refund the tax benefits and government grants we received.

One of our Israeli subsidiaries is eligible for tax benefits under the Israeli Law for the Encouragement of Capital Investments, 5719-1959 (the “Investment Law”) and the Israeli Law for the Encouragement of Industry (Taxes), 5729-1969. To remain eligible for these tax benefits, this subsidiary must continue to meet certain conditions stipulated in the Investment Law and the regulations promulgated thereunder, as amended. If this subsidiary does not meet these requirements, the tax benefits could be canceled and it could be required to refund any tax benefits and investment grants that it received in the past. Furthermore, these tax benefits may be reduced or discontinued in the future. The termination or reduction of these tax benefits would increase our tax liability, which would harm our financial condition and results of operations. See “Item 10.E. — Taxation — Israeli tax considerations and government programs — Law for the encouragement of capital investments, 5719-1959.”

We have received and have been approved to receive grants under certain Israeli Government programs and may apply from time to time in the future, to receive additional grants, including under the Investment Law. The receipt of approved grants and future grants, if approved, is subject to our satisfying certain conditions stipulated in applicable Israeli legislation and letters of approval. If we fail to meet these conditions, the grants could be canceled and we may be required to refund the amounts received, as adjusted by the Israeli consumer price index, and interest, and may become subject to other monetary penalties, which would harm our financial condition and results of operations. In addition, in order to secure fulfillment of the conditions related to the receipt of the grants, a floating lien was registered in favor of the State of Israel on substantially all of the assets of our Israeli subsidiary. The exercise of such lien could have a material adverse effect on our business.

It may be difficult to enforce the judgment of a U.S. court against us, our officers and directors in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors.

We are incorporated in Israel. All of our executive officers or most of our directors are not residents of the United States, and the majority of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a judgment of a U.S. court based upon the civil liability provisions of the U.S. federal securities laws against us or any of these persons in a U.S. or Israeli court, or to effect service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court.

Your rights and responsibilities as our shareholder are governed by Israeli law, which differs in some respects from the rights and responsibilities of shareholders of U.S. corporations.

Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in U.S. corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to the company’s articles of association, an increase in the company’s authorized share capital, a merger and approval of related party transactions that require shareholder approval. In addition, shareholders have a general duty to refrain from discriminating against other shareholders and a shareholder who knows that it possesses the power to determine the outcome of a shareholders’ vote or to appoint or prevent the appointment of a director or executive officer in a company has a duty of fairness towards the company with regard to such vote or appointment . There is limited case law available to assist us in understanding the nature of these duties 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. See “Item 6.C. — Board Practices — Fiduciary duties and approval of specified related party transactions under Israeli law — Duties of shareholders.”

As a foreign private issuer whose shares are listed on the Nasdaq Global Select Market, we follow and we may in the future elect to follow additional 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 have elected to follow certain home country corporate governance practices instead of certain requirements of the Nasdaq Stock Market Rules (the “Nasdaq Rules”). We may in the future elect to follow Israeli corporate governance practices with regard to, among other things, the composition of our board of directors, compensation of officers and director nomination procedures. In addition, we may elect to follow Israeli corporate governance practices instead of the requirements under the Nasdaq Rules to obtain shareholder approval for certain dilutive events (such as for the establishment or amendment of certain equity-based compensation plans, issuances that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company). Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq’s corporate governance rules. Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the Nasdaq Global Select Market may provide less protection than is accorded to investors of U.S. domestic issuers. We currently rely on this “foreign private issuer exemption” with respect to the quorum requirement for meetings of our shareholders. See “Item 16G. — Corporate Governance.”

In addition, as a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements and we are not required under the Exchange Act to file annual, quarterly 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. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information. Moreover, as a foreign private issuer, our officers, directors and 10% shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. We may from time to time disclose certain purchases or sales of our shares by certain of our officers and directors, but may not do so consistently and may not disclose sales of shares which we reported were purchased. Investors should therefore assume that there may be additional purchase and sale information that we may not have disclosed.

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, including the requirement to disclose the compensation of our Chief Executive Officer, Chief Financial Officer and other three most highly compensated executive officers on an individual basis. Nevertheless, pursuant to regulations promulgated under the Israeli Companies Law, 5759-1999 (the “Companies Law”), we are required to disclose the annual compensation of SodaStream International Ltd.’s five most highly compensated office holders on an individual basis. Under the Companies Law regulations, this disclosure is required to be included, or referenced, in the proxy statement for our annual meeting of shareholders each year, which we furnish to the SEC under cover of a Report of Foreign Private Issuer on Form 6-K. Because of that disclosure requirement under Israeli law, we are also including such information in this annual report. See “Item 6.B. Directors, Senior Management and Employees — Compensation.”

We would lose our foreign private issuer status if, as of the determination date under rules promulgated under the Exchange Act, a majority of our directors or executive officers are U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We would also be required to follow U.S. proxy disclosure requirements, including the requirement to disclose more detailed information about the compensation of our senior executive officers on an individual basis. We may also be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.

Provisions of our articles of association, Israeli law and certain of our agreements may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or assets.

Our articles of association contain certain provisions that may delay or prevent a change of control. These provisions include that our directors (other than external directors) are elected on a staggered basis, and therefore a potential acquiror cannot readily replace our entire board of directors at a single annual general shareholder meeting. Our articles of association also include the requirement of a supermajority vote of our shareholders to amend certain provisions of our articles of association. In addition, Israeli corporate law regulates acquisitions of shares through tender offers and mergers, requires special approvals for transactions involving significant shareholders and regulates other matters that may be relevant to these types of transactions. See “Item 10.B. — Memorandum and Articles of Association — Acquisitions under Israeli law.” Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including, in some cases, a holding period of two years from the date of the transaction during which certain sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred. Certain of our agreements require the receipt of consents, including from governmental authorities, for change of control transactions. These provisions of Israeli law, our agreements and our articles of association could have the effect of delaying or preventing a change in control in us and may make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing to pay in the future for our ordinary shares.

Risks Related to our Ordinary Shares and the Trading of our Ordinary Shares

The price of our ordinary shares may fluctuate significantly.

Our ordinary shares were first offered publicly in our initial public offering in November 2010, at a price of $20.00 per share, and our ordinary shares have subsequently traded on the Nasdaq Global Select Market as high as $79.72 per share and as low as $11.40 per share and were trading at $14.28 per share as of April 15, 2016.

In the recent past, stock prices generally have experienced high levels of volatility. The trading price of our ordinary shares may fluctuate significantly. Fluctuations in the market price of our ordinary shares may be exaggerated if the trading volume of our ordinary shares is too low. The lack of a trading market may result in the loss of research coverage by any one or more of the securities analysts that may cover our company in the future. The market price for our ordinary shares is affected by a number of factors, some of which are beyond our control, including, without limitation:

These factors may materially and adversely affect the market price of our ordinary shares and result in significant price fluctuations.

In the past, many companies that have experienced volatility in the market price of their securities have become subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

If securities or industry analysts cease to publish research or publish inaccurate or unfavorable research about our business, the price of our ordinary shares could decline.

The trading price for our ordinary shares may be affected by any research or reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us or our business publish inaccurate or unfavorable research about us or our business, and in particular, if they downgrade their evaluations of our ordinary shares, the price of our ordinary shares would likely decline. If one or more of these analysts cease coverage of our company, we could lose visibility in the market for our ordinary shares, which in turn could cause the price of our ordinary shares to decline.

We do not expect to pay any dividends for the foreseeable future.

We do not anticipate that we will pay any dividends to holders of our ordinary shares in the foreseeable future. In addition, our ability to pay dividends might be limited by the terms of any future credit facility we may take containing terms prohibiting or limiting the amount of dividends that may be declared or paid on our ordinary shares. Accordingly, investors must rely on sales of their ordinary shares after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our ordinary shares. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholding taxes.

Our ordinary shares are traded on more than one market and this may result in price variations.

In addition to being listed on the Nasdaq Global Select Market, since December 2015, our ordinary shares are also listed for trade on the Tel Aviv Stock Exchange (“TASE”). Trading in our ordinary shares on these markets take place in different currencies (U.S. dollars on the Nasdaq Global Select Market and NIS on the TASE), and at different times (resulting from different time zones, trading days and public holidays in the United States and Israel). The trading prices of our ordinary shares on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on one market could cause a decrease in the trading price of our ordinary shares on the other market.

Our U.S. shareholders may suffer adverse tax consequences if we are characterized as a Passive Foreign Investment Company.

Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company for U.S. federal income tax purposes. To determine if at least 50% of our assets are held for the production of, or produce, passive income, we are required to use the market capitalization method. Under the market capitalization method, the total asset value of a company would be considered to equal the fair market value of its outstanding shares plus outstanding indebtedness on a relevant testing date. Because the market price of our ordinary shares is likely to fluctuate and may be volatile, the market price may affect the determination of whether we will be considered a passive foreign investment company. Accordingly, there can be no assurance that we will not be considered a passive foreign investment company for any taxable year. If we are characterized as a passive foreign investment company, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are United States holders, and having interest charges apply to distributions by us and the proceeds of share sales. See “Item 10.E. — Taxation — United States federal income taxation.”