UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2016
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission file number 000-28584
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
(Exact name of Registrant as specified in its charter)
ISRAEL
(Jurisdiction of incorporation or organization)
5 Ha’Solelim Street, Tel Aviv 6789705, Israel
(Address of principal executive offices)
John Slavitt, Esq.
General Counsel
Check Point Software Technologies, Inc.
959 Skyway Road, Suite 300
San Carlos, CA 94070 U.S.A.
Tel: (650) 628-2110
Fax: (650) 649-1975
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Ordinary shares, NIS 0.01 nominal value
Name of exchange on which registered
NASDAQ Global Select Market
Securities registered or to be registered pursuant to Section 12(g) of the Act. None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2016.
165,975,204 Ordinary Shares, nominal value NIS 0.01 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act: Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934: Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging
growth company. See definitions of “large accelerated filer”, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large Accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards†
provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to
its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued
by the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant
has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act): Yes ☐ No ☒
Currency of Presentation and Certain Defined Terms
In this Annual Report on Form 20-F, or the Annual Report, references to “U.S.” or “United States” are to the United States of
America, its territories and possessions; and references to “Israel” are to the State of Israel. References to “$”, “dollar” or “U.S. dollar”
are to the legal currency of the United States of America; references to “NIS” or “Israeli shekel” are to the legal currency of Israel;
references to “Euro” are to the legal currency of the European Union; and references to “Swedish Krona” are to the legal currency of
the Kingdom of Sweden. Our financial statements are presented in U.S. dollars and are prepared in conformity with accounting
principles generally accepted in the United States of America, or U.S. GAAP.
All references to “we,” “us,” “our” or “Check Point” shall mean Check Point Software Technologies Ltd., and, unless specifically
indicated otherwise or the context indicates otherwise, our consolidated subsidiaries.
Forward-Looking Statements
In addition to historical fact, this Annual Report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. These forward-looking statements are subject to risks and uncertainties, and include information about possible or
assumed future results of our business, financial condition, results of operations, liquidity, plans and objectives. In some cases you can
identify forward-looking statements by terminology such as “may,” “will,” “could,” “would,” “should,” “expects,” “plans,”
“anticipates,” “believes,” “intends,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other
comparable terminology. These forward-looking statements include, but are not limited to, statements concerning the following:
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our expectations for our business, trends related to our business and the markets in which we operate and into which we sell
products;
the effects of increased competition in our market;
our ability to timely and effectively scale and adapt our existing technology and infrastructure to meet current and future
market demands;
our ability to develop or acquire new and more technologically advanced products, and to successfully commercialize these
products;
our ability to protect our proprietary technology and intellectual property;
our ability to increase adoption of our products and to maintain or increase our market share;
our ability to maintain our growth;
future amounts and sources of our revenue;
our future costs and expenses;
the adequacy of our capital resources;
our expectations with respect to share repurchases by us and dividend payments by us;
our ongoing relationships with our current and future customers and channel partners, suppliers, contract manufacturers and
distributors; and
our other expectations, beliefs, intentions and strategies.
These statements are subject to known and unknown risks, uncertainties and other factors, which are difficult to predict and which
may cause our actual results to differ materially and adversely from those implied by the forward-looking statements. Many of these
risks, uncertainties and assumptions are described in the risk factors set forth in “Item 3 – Key Information – Risk Factors” and
elsewhere in this Annual Report. All forward-looking statements included in this Annual Report are based on information available to
us on the date of the filing. While we may elect to update forward-looking statements in the future, we specifically disclaim any
obligation to update or revise any of the forward-looking statements after the date of the filing, except as required by applicable law.
1
TABLE OF CONTENTS
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
Item 2.
Offer Statistics and Expected Timetable
Item 3.
Key Information
Item 4.
Information on Check Point
Item 4A. Unresolved Staff Comments
Item 5.
Operating and Financial Review and Prospects
Item 6.
Directors, Senior Management and Employees
Item 7.
Major Shareholders and Related Party Transactions
Item 8.
Financial Information
Item 9.
The Offer and Listing
Item 10.
Additional Information
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
Item 12.
Description of Securities Other than Equity Securities
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15.
Controls and Procedures
Item 16.
Reserved
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F. Change in Registrant’s Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Item 17.
Financial Statements
Item 18.
Financial Statements
Item 19.
Exhibits
PART III
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3
3
3
18
27
27
38
48
49
49
50
64
65
65
65
66
67
67
67
67
68
68
68
68
69
69
69
70
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
Selected Financial Data
We prepare our historical consolidated financial statements in accordance with U.S. GAAP. The selected financial data, set forth
in the table below, have been derived from our audited historical financial statements for each of the years from 2012 to 2016. The
selected consolidated statement of income data for the years 2014, 2015 and 2016, and the selected consolidated balance sheet data at
December 31, 2015 and 2016, have been derived from our audited consolidated financial statements set forth in “Item 18 – Financial
Statements.” The selected consolidated statement of income data for the years 2012 and 2013, and the selected consolidated balance
sheet data at December 31, 2012, 2013 and 2014, have been derived from our previously published audited consolidated financial
statements, which are not included in this Annual Report. These selected financial data should be read in conjunction with our
consolidated financial statements, as set forth in Item 18, and the related notes thereto, and are qualified entirely by reference to such
consolidated financial statements.
Consolidated Statements of Income Data:
Revenues
Operating expenses (*):
Cost of revenues
Research and development
Selling and marketing
General and administrative
Total operating expenses
Operating income
Financial income, net
Income before taxes on income
Taxes on income
Net income
Basic earnings per ordinary share
Shares used in computing basic earnings per ordinary share
Diluted earnings per ordinary share
Shares used in computing diluted earnings per ordinary
2016
2015
Year ended December 31,
2014
(in thousands)
2013
2012
$1,741,301
$1,629,838
$1,495,816
$1,394,105
$1,342,695
202,003
178,372
420,526
88,130
889,031
852,270
44,402
896,672
171,825
$ 724,847
4.26
$
170,155
4.18
$
189,057
149,279
359,804
91,981
790,121
839,717
34,073
873,790
187,924
$ 685,866
3.83
$
179,218
3.74
$
176,541
133,300
306,363
78,558
694,762
801,054
28,762
829,816
170,245
$ 659,571
3.50
$
188,487
3.43
$
162,634
121,764
276,067
72,735
633,200
760,905
34,931
795,836
143,036
$ 652,800
3.34
$
195,647
3.27
$
159,161
111,911
255,345
69,743
596,160
746,535
40,332
786,867
166,867
$ 620,000
3.04
$
203,918
2.96
$
share
173,296
183,619
192,300
199,487
209,170
(*)
Including pre-tax charges for stock based compensation, amortization of intangible assets and acquisition related expenses in the
following items:
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Amortization of intangible assets and acquisition related expenses
Cost of revenues
Research and development
Selling and marketing
Stock-based compensation
Cost of revenues
Research and development
Selling and marketing
General and administrative
Consolidated Balance Sheet Data:
Working capital
Total assets
Shareholders’ equity
Capital stock
2016
$ 2,184
7,588
3,358
$ 2,153
12,718
19,168
48,693
2015
Year ended December 31,
2014
(in thousands)
2013
$ 1,808
6,146
3,267
$ 1,585
11,544
16,351
46,822
$
240
—
1,866
$ 1,090
9,284
13,339
39,456
$
612
—
2,408
$ 1,048
9,001
11,193
29,870
2012
$ 3,982
—
3,046
$
829
8,594
9,677
26,187
2016
2015
December 31,
2014
(in thousands)
2013
2012
$ 726,597
5,217,636
3,491,123
1,140,416
$ 678,981
5,069,880
3,531,866
988,105
$ 780,825
4,948,818
3,637,559
859,898
$ 617,520
4,886,437
3,602,097
775,691
$1,061,143
4,544,885
3,346,309
693,986
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Risk Factors
An investment in our ordinary shares involves a high degree of risk. The risks and uncertainties described below are not the only ones
we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become
important factors that affect us. If any of the following risks materialize, our business, financial condition, results of operations and
prospects could be materially harmed. In that event, the market price of our ordinary shares could decline and you could lose part or
all of your investment.
Risks Related to Our Business and Our Market
If the market for information and network security solutions does not continue to grow, our business will be adversely affected
The market for information and network security solutions may not continue to grow. Continued growth of this market will
depend, in large part, upon:
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the continued expansion of Internet usage and the number of organizations adopting or expanding intranets;
the continued adoption of “cloud” infrastructure by organizations;
the ability of the infrastructures implemented by organizations to support an increasing number of users and services;
the continued development of new and improved services for implementation across the Internet and between the Internet
and intranets;
the adoption of data security measures as it pertains to data encryption and data loss prevention technologies;
government regulation of the Internet and governmental and non-governmental requirements and standards with respect to
data security and privacy; and
general economic conditions in the markets in which we, our customers and our suppliers operate.
In 2016, global and regional economies around the world and financial markets, remained volatile as a result of a multitude of
factors, including adverse credit conditions, changes in economic activity, concerns about inflation and deflation, fluctuating energy
costs, decreased consumer confidence, reduced capital spending, adverse business conditions, liquidity concerns and other factors.
During this period, many organizations limited their expenditures and a significant portion of such organizations have remained
reluctant to increase expenditures. If challenging economic conditions continue or worsen, it may cause our customers to reduce or
postpone their technology spending significantly, which could result in reductions in sales of our products, longer sales cycles, slower
adoption of new technologies and increased price competition.
Further, if the necessary infrastructure or complementary products and services are not developed in a timely manner and,
consequently, the enterprise security, data security, Internet or intranet markets fail to grow or grow more slowly than we currently
anticipate, our business, results of operations and financial condition may be materially adversely affected. Additional details are
provided in “Item 4 – Information on Check Point.”
We may not be able to successfully compete, which could adversely affect our business and results of operations
The market for information and network security solutions is intensely competitive and we expect that competition will continue
to increase in the future. Our competitors include Cisco Systems, Inc., Juniper Networks, Inc., Fortinet Inc., SonicWall Inc., Palo Alto
Networks, Inc., McAfee, Inc., and other companies in the network security space. We also compete with several other companies,
including Microsoft Corporation, Symantec Corporation, International Business Machines Corporation, Hewlett-Packard, and FireEye,
Inc., with respect to specific products that we offer. In addition, there are hundreds of small and large companies that offer security
products and services that we may compete with from time to time.
Some of our current and potential competitors have various advantages over us, including longer operating histories; access to
larger customer bases; significantly greater financial, technical and marketing resources; a broader portfolio of products, applications
and services; and larger patent and intellectual property portfolios. As a result, they may be able to adapt better than we can to new or
emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their products.
Furthermore, some of our competitors with more diversified product portfolios and larger customer bases may be better able to
withstand a reduction in spending on information and network security solutions, as well as a general slowdown or recession in
economic conditions in the markets in which they operate. In addition, some of our competitors have greater financial resources than we
do, and they have offered, and in the future may offer, their products at lower prices than we do, or may bundle security products with
their other offerings, which may cause us to lose sales or to reduce our prices in response to competition.
5
In addition, consolidation in the markets in which we compete may affect our competitive position. This is particularly true in
circumstances where customers are seeking to obtain a broader set of products and services than we are able to provide.
The markets in which we compete also include many niche competitors, generally smaller companies at a relatively early stage of
operations, which are focused on specific Internet and data security needs. These companies’ specialized focus may enable them to
adapt better than we can to new or emerging technologies and changes in customer requirements in their specific areas of focus. In
addition, some of these companies can invest relatively large resources on very specific technologies or customer segments. The effect
of these companies’ activities in the market may result in price reductions, reduced gross margins and loss of market share, any of
which will materially adversely affect our business, results of operations and financial condition.
Further, vendors of operating system software, networking hardware or central processing units, or CPUs, may enhance their
products to include functionality that is currently provided by our products. The widespread inclusion of similar functionality to that
which is offered by our solutions, as standard features of operating system software and networking hardware could significantly reduce
the demand for our products, particularly if the quality of such functionality were comparable to that of our products. Furthermore, even
if the network or application security functionality provided as standard features by operating systems software and networking
hardware is more limited than that of our solutions, a significant number of customers may elect to accept more limited functionality in
lieu of purchasing additional products.
We may not be able to continue competing successfully against our current and future competitors, and increased competition
within the market may result in price reductions, reduced gross margins and operating margins, reduced net income, and loss of market
share, any or all of which may materially adversely affect our business, results of operations and financial condition. For additional
information, see “Item 4 – Information on Check Point.”
If we fail to enhance our existing products, develop or acquire new and more technologically advanced products, or fail to successfully
commercialize these products, our business and results of operations will suffer
The information and network security industry is characterized by rapid technological advances, changes in customer
requirements, frequent new product introductions and enhancements, and evolving industry standards in computer hardware and
software technology. In particular, the markets for data security, Internet and intranet applications are rapidly evolving. As a result, we
must continually change and improve our products in response to changes in operating systems, application software, computer and
communications hardware, networking software, programming tools, and computer language technology. We must also continually
change our products in response to changes in network infrastructure requirements, including the expanding use of cloud computing.
Further, we must continuously improve our products to protect our customers’ data and networks from evolving security threats.
Our future results of operations will depend upon our ability to enhance our current products and to develop and introduce new
products on a timely basis; to address the increasingly sophisticated needs of our customers; and to keep pace with technological
developments, new competitive product offerings, and emerging industry standards. Our competitors’ introduction of products
embodying new technologies and the emergence of new industry standards may render our existing products obsolete or unmarketable.
While we have historically been successful in developing, acquiring, and marketing new products and product enhancements that
respond to technological change and evolving industry standards, we may not be able to continue to do so. In addition, we may
experience difficulties that could delay or prevent the successful development, introduction, and marketing of these products, as well as
the integration of acquired products. Furthermore, our new products or product enhancements may not adequately meet the
requirements of the marketplace or achieve market acceptance. In some cases, a new product or product enhancements may negatively
affect sales of our existing products. If we do not respond adequately to the need to develop and introduce new products or
enhancements of existing products in a timely manner in response to changing market conditions or customer requirements, our
business, results of operations and financial condition may be materially adversely affected. For additional information, see “Item 4 –
Information on Check Point” and under the caption “We may not be able to successfully compete, which could adversely affect our
business and results of operations” in this “Item 3 – Key Information – Risk Factors.”
If our products fail to protect against attacks and our customers experience security breaches, our reputation and business could be
harmed
Hackers and other malevolent actors are increasingly sophisticated, often affiliated with organized crime and operate large scale
and complex attacks. In addition, their techniques change frequently and generally are not recognized until launched against a target. If
we fail to identify and respond to new and increasingly complex methods of attack and to update our products to detect or prevent such
threats in time to protect our customers’ high-value business data, our business and reputation will suffer.
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In addition, an actual or perceived security breach or theft of the sensitive data of one of our customers, regardless of whether the
breach is attributable to the failure of our products, could adversely affect the market’s perception of our security products. Despite our
best efforts, there is no guarantee that our products will be free of flaws or vulnerabilities, and even if we discover these weaknesses we
may not be able to correct them promptly, if at all. Our customers may also misuse our products, which could result in a breach or theft
of business data.
Product defects may increase our costs and impair the market acceptance of our products and technology
Our products are complex and must meet stringent quality requirements. They may contain undetected hardware or software errors
or defects, especially when new or acquired products are introduced or when new versions are released. In particular, the personal
computer hardware environment is characterized by a wide variety of non-standard configurations that make pre-release testing for
programming or compatibility errors very difficult and time-consuming. We may need to divert the attention of our engineering
personnel from our research and development efforts to address instances of errors or defects.
Our products are used to deploy and manage Internet security and protect information, which may be critical to organizations. As
a result, the sale and support of our products entails the risk of product liability and related claims. We do not know whether, in the
future, we will be subject to liability claims or litigation for damages related to product errors, or will experience delays as a result of
these errors. Our sales agreements and product licenses typically contain provisions designed to limit our exposure to potential product
liability or related claims. In selling our products, we rely primarily on “shrink wrap” licenses that are not signed by the end user, and
for this and other reasons, these licenses may be unenforceable under the laws of some jurisdictions. As a result, the limitation of
liability provisions contained in these licenses may not be effective. Although we maintain product liability insurance for most of our
products, the coverage limits of these policies may not provide sufficient protection against an asserted claim. If litigation were to arise,
it could, regardless of its outcome, result in substantial expense to us, significantly divert the efforts of our technical and management
personnel, and disrupt or otherwise severely impact our relationships with current and potential customers. In addition, if any of our
products fail to meet specifications or have reliability, quality or compatibility problems, our reputation could be damaged significantly
and customers might be reluctant to buy our products, which could result in a decline in revenues, a loss of existing customers, and
difficulty attracting new customers.
We are subject to risks relating to acquisitions
We have made acquisitions in the past and we may make additional acquisitions in the future. The pursuit of acquisitions may
divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable
acquisitions, whether or not they are consummated.
Competition within our industry for acquisitions of businesses, technologies, assets and product lines has been, and may in the
future continue to be, intense. As such, even if we are able to identify an acquisition that we would like to consummate, we may not be
able to complete the acquisition on commercially reasonable terms or because the target is acquired by another company. Furthermore,
in the event that we are able to identify and consummate any future acquisitions, we could:
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issue equity securities which would dilute the current shareholders’ percentage of ownership;
incur substantial debt;
assume contingent liabilities; or
expend significant cash.
These financing activities or expenditures could harm our business, results of operations and financial condition or the price of our
ordinary shares. Alternatively, due to difficulties in the capital and credit markets, we may be unable to secure capital on acceptable
terms, or at all, to complete acquisitions.
In addition, if we acquire additional businesses, we may not be able to integrate the acquired personnel, operations, and
technologies successfully or effectively manage the combined business following the completion of the acquisition. We may also not
achieve the anticipated benefits from the acquired business due to a number of factors, including:
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unanticipated costs or liabilities associated with the acquisition;
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incurrence of acquisition-related costs;
diversion of management’s attention from other business concerns;
harm to our existing business relationships with manufacturers, distributors and customers as a result of the acquisition;
the potential loss of key employees;
use of resources that are needed in other parts of our business;
use of substantial portions of our available cash to consummate the acquisition; or
unrealistic goals or projections for the acquisition.
Moreover, even if we do obtain benefits from acquisitions in the form of increased sales and earnings, there may be a delay
between the time when the expenses associated with an acquisition are incurred and the time when we recognize such benefits.
We are dependent on a small number of distributors
We derive our sales primarily through indirect channels. During 2016, 2015 and 2014, we derived approximately 52%, 53%, and
54%, respectively, of our sales from our ten largest distributors. In 2016, 2015, and 2014, our two largest distributors accounted for
approximately 37%, 38% and 37% of our sales. We expect that a small number of distributors will continue to generate a significant
portion of our sales. Furthermore, there has been an industry trend toward consolidation among distributors, and we expect this trend to
continue in the near future which could further increase our reliance on a small number of distributors for a significant portion of our
sales. If these distributors reduce the amount of their purchases from us for any reason, including because they choose to focus their
efforts on the sales of the products of our competitors, our business, results of operations and financial condition could be materially
adversely affected.
Our future success is highly dependent upon our ability to establish and maintain successful relationships with our distributors. In
addition, we rely on these entities to provide many of the training and support services for our products and equipment. Accordingly,
our success depends in large part on the effective performance of these distributors. Recruiting and retaining qualified distributors and
training them in our technology and products requires significant time and resources. Further, we have no minimum purchase
commitments with any of our distributors, and our contracts with these distributors do not prohibit them from offering products or
services that compete with ours. Our competitors may be effective in providing incentives to existing and potential distributors to favor
their products or to prevent or reduce sales of our products. Our distributors may choose not to offer our products exclusively or at all.
Our failure to establish and maintain successful relationships with distributors would likely materially adversely affect our business,
results of operations and financial condition.
We purchase several key components and finished products from limited sources, and we are increasingly dependent on contract
manufacturers for our hardware products
Many components, subassemblies and modules necessary for the manufacture or integration of our hardware products are obtained
from a limited group of suppliers. Our reliance on sole or limited suppliers, particularly foreign suppliers, and our reliance on
subcontractors involves several risks, including a potential inability to obtain an adequate supply of required components,
subassemblies or modules and limited control over pricing, quality and timely delivery of components, subassemblies or modules.
Although we have been successful in the past, replacing suppliers may be difficult and it is possible it could result in an inability or
delay in producing designated hardware products. Substantial delays could have a material adverse impact on our business.
Managing our supplier and contractor relationships is particularly difficult during time periods in which we introduce new
products and during time periods in which demand for our products is increasing, especially if demand increases more quickly than we
expect. We also have extended support contracts with these suppliers and are dependent on their ability to perform over a period of
years.
We are dependent on a limited number of product families
Currently, we derive the majority of our revenues from sales of integrated appliances and Internet security products, as well as
related revenues from subscriptions and from software updates and maintenance. We expect that this concentration of revenues from a
small number of product families will continue for the foreseeable future. Endpoint security products and associated software updates,
maintenance and subscriptions represent an additional revenue source. Our future growth depends heavily on our ability to effectively
develop and sell new and acquired products as well as add new features to existing products. For more details, see “Item 4 –
Information on Check Point” and “Item 5 – Operating and Financial Review and Prospects.”
8
We incorporate third party technology in our products, which may make us dependent on the providers of these technologies and
expose us to potential intellectual property claims
Our products contain certain technology that we license from other companies. Third party developers or owners of technologies
may not be willing to enter into, or renew, license agreements with us regarding technologies that we may wish to incorporate in our
products, either on acceptable terms or at all. If we cannot obtain licenses to these technologies, we may be at a disadvantage compared
with our competitors who are able to license these technologies. In addition, when we do obtain licenses to third party technologies that
we did not develop, we may have little or no ability to determine in advance whether the technology infringes the intellectual property
rights of others. Our suppliers and licensors may not be required or may not be able to indemnify us in the event that a claim of
infringement is asserted against us, or they may be required to indemnify us only up to a maximum amount, above which we would be
responsible for any further costs or damages. Any failure to obtain licenses to intellectual property or any exposure to liability as a
result of incorporating third party technology into our products could materially and adversely affect our business, results of operations
and financial condition.
We incorporate open source technology in our products which may expose us to liability and have a material impact on our product
development and sales
Some of our products utilize open source technologies. These technologies are licensed to us under varying license structures,
including the General Public License. If we have improperly used, or in the future improperly use, software that is subject to such
licenses with our products in such a way that our software becomes subject to the General Public License, we may be required to
disclose our own source code to the public. This could enable our competitors to eliminate any technological advantage that our
products may have over theirs. Any such requirement to disclose our source code or other confidential information related to our
products could materially and adversely affect our competitive position and impact our business, results of operations and financial
condition.
We are the defendants in various lawsuits and have been subject to tax disputes and governmental proceedings, which could adversely
affect our business, results of operations and financial condition
As a global company we are subject to taxation in Israel, the United States and various other countries and states, and accordingly
attempt to utilize an efficient operating model to structure our tax payments based on the laws in the countries in which we operate. This
can cause disputes between us and various tax authorities in different parts of the world.
In 2015, the Organization for Economic Co-operation and Development, or OECD, published final proposals under its Base
Erosion and Profit Shifting, or BEPS, Action Plan. The BEPS Action Plan includes fifteen Actions to address BEPS in a comprehensive
manner and represents a significant change to the international corporate tax landscape. These proposals, if adopted by countries, may
increase tax uncertainty and adversely affect our provision for income taxes.
In addition, we are subject to the continuous examination of our income tax returns by tax authorities around the world. It is
possible that tax authorities may disagree with certain positions we have taken and any adverse outcome of such a review or audit could
have a negative effect on our financial position and results of operations. We regularly assess the likelihood of adverse outcomes
resulting from these examinations to determine the adequacy of our provision for income taxes, but the determination of our worldwide
provision for income taxes and other tax liabilities requires significant judgment by management, and there are transactions where the
ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ
from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or
periods for which such determination is made. There can be no assurance that the outcomes from continuous examinations will not have
an adverse effect on our business, financial condition and results of operations.
We are the defendant in various other lawsuits, including employment-related litigation claims, construction claims and other legal
proceedings in the normal course of our business. Litigation and governmental proceedings can be expensive, lengthy and disruptive to
normal business operations, and can require extensive management attention and resources, regardless of their merit. While we
currently intend to defend the aforementioned matters vigorously, we cannot predict the results of complex legal proceedings, and an
unfavorable resolution of a lawsuit or proceeding could materially adversely affect our business, results of operations and financial
condition. See also “Item 8 – Financial Information” under the caption “Legal Proceedings.”
9
Class action litigation due to stock price volatility or other factors could cause us to incur substantial costs and divert our
management’s attention and resources
In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has
often been instituted against that company. Companies such as ours in the technology industry are particularly vulnerable to this kind of
litigation as a result of the volatility of their stock prices. We have been named as a defendant in this type of litigation in the past. Any
litigation of this sort in the future could result in substantial costs and a diversion of management’s attention and resources.
We may not be able to successfully protect our intellectual property rights, which could cause substantial harm to our business
We seek to protect our proprietary technology by relying on a combination of statutory as well as common law copyright and
trademark laws, trade secrets, confidentiality procedures and contractual provisions as indicated below in the section entitled
“Proprietary Rights” in “Item 4 – Information on Check Point.” We have certain patents in the United States and in several other
countries, as well as pending patent applications. We cannot assure you that pending patent applications will be issued, either at all or
within the scope of the patent claims that we have submitted. In addition, someone else may challenge our patents and these patents
may be found invalid. Furthermore, others may develop technologies that are similar to or better than ours, or may work around any
patents issued to us. Despite our efforts to protect our proprietary rights, others may copy aspects of our products or obtain and use
information that we consider proprietary. In addition, the laws of some foreign countries do not protect our proprietary rights to the
same extent as the laws of the United States, Israel or Sweden. Our efforts to protect our proprietary rights may not be adequate and our
competitors may independently develop technology that is similar to our technology.
In addition to patents, we rely on trade secret and other rights to protect our unpatented proprietary intellectual property and
technology. Despite our efforts to protect our proprietary technologies and our intellectual property rights, unauthorized parties,
including our employees, consultants, service providers or customers, may attempt to copy aspects of our products or obtain and use our
trade secrets or other confidential information. We generally enter into confidentiality agreements with our employees, consultants, and
other service providers, and generally limit access to and distribution of our proprietary information and proprietary technology through
certain procedural safeguards. These agreements and arrangements may not effectively prevent unauthorized use or disclosure of our
intellectual property or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our
intellectual property or technology. We cannot be certain that the steps taken by us will prevent misappropriation of our intellectual
property or technology or infringement of our intellectual property rights.
If we are unable to secure, protect and enforce our intellectual property rights, such failure could harm our brand and adversely
impact our business, financial condition and results of operations.
If a third-party asserts that we are infringing its intellectual property, whether successful or not, it could subject us to costly and time-
consuming litigation or expensive licenses, which could harm our business
There is considerable patent and other intellectual property development activity in our industry. Our success depends, in part,
upon our ability not to infringe upon the intellectual property rights of others. Our competitors, as well as a number of other entities and
individuals, own or claim to own intellectual property relating to our industry. From time to time, third parties have brought, and
continue to bring, claims that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such
rights. In addition, third-parties have in the past sent us correspondence claiming that we infringe upon their intellectual property, and in
the future we may receive claims that our products infringe or violate their intellectual property rights. Furthermore, we may be
unaware of the intellectual property rights of others that may cover some or all of our technology or products. Any claims or litigation
could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or
royalty payments, prevent us from selling our products, or require that we comply with other unfavorable terms. In addition, we may
decide to pay substantial settlement costs and/or licensing fees in connection with any claim or litigation, whether or not successfully
asserted against us. Even if we were to prevail, any disputes or litigation regarding intellectual property matters could be costly and
time-consuming and divert the attention of our management and key personnel from our business operations. As such, third-party
claims with respect to intellectual property may increase our cost of goods sold or reduce the sales of our products, and may have a
material and adverse effect on our business.
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We are exposed to various legal, business, political and economic risks associated with international operations; these risks could
increase our costs, reduce future growth opportunities and affect our results of operations
We operate our business primarily from Israel, we sell our products worldwide, and we generate a significant portion of our
revenue outside the United States. We intend to continue to expand our international operations, which will require significant
management attention and financial resources. In order to continue to expand worldwide, we will need to establish additional
operations, hire additional personnel and recruit additional channel partners internationally. To the extent that we are unable to do so
effectively, our growth is likely to be limited and our business, results of operations and financial condition may be materially adversely
affected.
Our international sales and operations subject us to many potential risks inherent in international business activities, including, but
not limited to:
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technology import and export license requirements;
costs of localizing our products for foreign countries, and the lack of acceptance of localized products in foreign countries;
trade restrictions;
imposition of or increases in tariffs or other payments on our revenues in these markets;
greater difficulty in protecting intellectual property;
difficulties in managing our overseas subsidiaries and our international operations;
declines in general economic conditions;
political instability and civil unrest which could discourage investment and complicate our dealings with governments;
difficulties in complying with a variety of foreign laws and legal standards and changes in regulatory requirements;
expropriation and confiscation of assets and facilities;
difficulties in collecting receivables from foreign entities or delayed revenue recognition;
recruiting and retaining talented and capable employees;
differing labor standards;
increased tax rates;
potentially adverse tax consequences, including taxation of a portion of our revenues at higher rates than the tax rate that
applies to us in Israel;
fluctuations in currency exchange rates and the impact of such fluctuations on our results of operations and financial
position; and
the introduction of exchange controls and other restrictions by foreign governments.
These difficulties could cause our revenues to decline, increase our costs or both. This is also specifically tied to currency
exchange rates which have an impact on our financial statements based on currency rate fluctuations.
11
Compliance with new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance
policies and increases our costs of compliance.
Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), new SEC
regulations, new amendments to the Israeli Companies Law and NASDAQ Global Select Market rules are creating increased
compliance costs and uncertainty for companies like ours. These new or changed laws, regulations and standards may lack specificity
and are subject to varying interpretations. The implementation of these laws and their application in practice may evolve over time as
new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters
and higher costs of compliance as a result of ongoing revisions to such governance standards.
In addition, continuing compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our
required assessment of our internal control over financial reporting requires the commitment of significant financial and managerial
resources and the report of an independent registered public accounting firm on the Company’s internal control over financial reporting.
In connection with our Annual Report for fiscal 2016, our management assessed our internal control over financial reporting, and
determined that our internal control over financial reporting was effective as of December 31, 2016, and our independent auditors have
expressed an unqualified opinion over the effectiveness of our internal control over financial reporting as of December 31, 2016.
However, we will undertake management assessments of our internal control over financial reporting in connection with each annual
report, and any deficiencies uncovered by these assessments or any inability of our auditors to issue an unqualified report could harm
our reputation and the price of our ordinary shares.
The SEC has also adopted rules pursuant to Dodd-Frank setting forth new disclosure requirements concerning the use of certain
minerals that are mined from the Democratic Republic of Congo and adjoining countries. We have incurred and expect to continue to
incur costs associated with determining whether any of our products include materials that are covered by the conflict minerals rules.
Based on our most recent evaluation, we have determined that our products do not contain materials covered by the conflict minerals
rules. However, in the event that our products in the future do contain materials covered by the conflict minerals rules, we would be
required to comply with applicable disclosure requirements, including conducting diligence procedures to determine the sources of
certain minerals that may be used or necessary for the production of our products and, if applicable, undertake potential changes to
products, processes or sources of supply as a consequence of such verification activities. In addition, if our products do contain
materials covered by the conflict mineral rules, these rules could adversely affect the sourcing, supply and pricing of materials used in
our products, particularly if the number of suppliers offering the minerals identified as “conflict minerals” sourced from locations other
than the Democratic Republic of Congo and adjoining countries is limited. It is also possible that we may face reputational harm if we
determine that certain of our products contain minerals not determined to be conflict free and/or we are unable to alter our products,
processes or sources of supply to avoid such materials.
If we fail to comply with new or changed laws or regulations, our business and reputation may be harmed.
A small number of shareholders own a substantial portion of our ordinary shares, and they may make decisions with which you or
others may disagree
As of January 31, 2017, our directors and executive officers owned approximately 21.9% of the voting power of our outstanding
ordinary shares, or 25.4% of our outstanding ordinary shares if the percentage includes options currently exercisable or exercisable
within 60 days of January 31, 2017. The interests of these shareholders may differ from your interests and present a conflict. If these
shareholders act together, they could exercise significant influence over our operations and business strategy. For example, although
these shareholders hold considerably less than a majority of our outstanding ordinary shares, they may have sufficient voting power to
influence matters requiring approval by our shareholders, including the election and removal of directors and the approval or rejection
of mergers or other business combination transactions. In addition, this concentration of ownership may delay, prevent or deter a change
in control, or deprive a shareholder of a possible premium for its ordinary shares as part of a sale of our company.
We may be required to indemnify our directors and officers in certain circumstances
Our articles of association allow us to indemnify, exculpate and insure our directors and senior officers to the fullest extent
permitted under the Israeli Companies Law. As such, we have entered into agreements with each of our directors and senior officers to
indemnify, exculpate and insure them against some types of claims, subject to dollar limits and other limitations. Subject to Israeli law,
these agreements provide that we will indemnify each of these directors and senior officers for any of the following liabilities or
expenses that they may incur due to an act performed or failure to act in their capacity as our director or senior officer:
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• Monetary liability imposed on the director or senior officer in favor of a third party in a judgment, including a settlement or
an arbitral award confirmed by a court.
• Reasonable legal costs, including attorneys’ fees, expended by a director or senior officer as a result of an investigation or
proceeding instituted against the director or senior officer by a competent authority; provided, however, that such
investigation or proceeding concludes without the filing of an indictment against the director or senior officer and either:
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No financial liability was imposed on the director or senior officer in lieu of criminal proceedings, or
Financial liability was imposed on the director or senior officer in lieu of criminal proceedings, but the alleged
criminal offense does not require proof of criminal intent.
• Reasonable legal costs, including attorneys’ fees, expended by the director or senior officer or for which the director or
senior officer is charged by a court:
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In an action brought against the director or senior officer by us, on our behalf or on behalf of a third party,
In a criminal action in which the director or senior officer is found innocent, or
In a criminal action in which the director or senior officer is convicted, but in which proof of criminal intent is not
required.
Our cash balances and investment portfolio have been, and may continue to be, adversely affected by market conditions and interest
rates
We maintain substantial balances of cash and liquid investments, for purposes of acquisitions and general corporate purposes. Our
cash, cash equivalents, short-term bank deposits and marketable securities totaled $3,669 million as of December 31, 2016. The
performance of the capital markets affects the values of funds that are held in marketable securities. These assets are subject to market
fluctuations and various developments, including, without limitation, rating agency downgrades that may impair their value. We expect
that market conditions will continue to fluctuate and that the fair value of our investments may be affected accordingly.
Financial income is an important component of our net income. The outlook for our financial income is dependent on many
factors, some of which are beyond our control, and they include the future direction of interest rates, the amount of any share
repurchases or acquisitions that we effect and the amount of cash flows from operations that are available for investment. We rely on
third-party money managers to manage the majority of our investment portfolio in a risk-controlled framework. Our investment
portfolio throughout the world is invested primarily in fixed-income securities and is affected by changes in interest rates which
continue to be low. Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and
international economic and political conditions. In a low or declining interest rate environment, borrowers may seek to refinance their
borrowings at lower rates and, accordingly, prepay or redeem securities we hold more quickly than we initially expected. This action
may cause us to reinvest the redeemed proceeds in lower yielding investments. Any significant decline in our financial income or the
value of our investments as a result of the low interest rate environment, falling interest rates, deterioration in the credit rating of the
securities in which we have invested, or general market conditions, could have an adverse effect on our results of operations and
financial condition.
We generally buy and hold our portfolio positions, while minimizing credit risk by setting a maximum concentration limit per
issuer and credit rating. Our investments consist primarily of government and corporate debentures. Although we believe that we
generally adhere to conservative investment guidelines, the continuing turmoil in the financial markets may result in impairments of the
carrying value of our investment assets. We classify our investments as available-for-sale. Changes in the fair value of investments
classified as available-for-sale are not recognized as income during the period, but rather are recognized as a separate component of
equity until realized. Realized losses in our investments portfolio may adversely affect our financial position and results. Had we
reported all the accumulated changes in the fair values of our investments as part of our income, our reported net income for the year
ended December 31, 2016, would have decreased by $9 million.
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Currency fluctuations may affect the results of our operations or financial condition
Our functional and reporting currency is the U.S. dollar. We generate a majority of our revenues and expenses in U.S. dollars. In
2016, we incurred approximately 42% of our expenses in foreign currencies, primarily Israeli Shekels and Euros. Accordingly, changes
in exchange rates may have a material adverse effect on our business, results of operations and financial condition. The exchange rates
between the U.S. dollar and certain foreign currencies have fluctuated substantially in recent years and may continue to fluctuate
substantially in the future. We expect that a majority of our revenues will continue to be generated in U.S. dollars for the foreseeable
future and that a significant portion of our expenses, including personnel costs, as well as capital and operating expenditures, will
continue to be denominated in the currencies referred to above. The results of our operations may be adversely affected in relation to
foreign exchange fluctuations. During 2016, we entered into forward contracts to hedge against some of the risk of foreign currency
exchange rates fluctuations resulting in changes in future cash flow from payments of payroll and related expenses denominated in
Israeli Shekels and Euros. As of December 31, 2016, we had outstanding forward contracts that hedge against changes in foreign
currency exchange rates of $52 million.
We entered into forward contracts to hedge the exchange impacts on assets and liabilities denominated in Israeli Shekels and other
currencies. As of December 31, 2016, we had outstanding forward contracts that did not meet the requirement for hedge accounting, in
the amount of $153 million. We use derivative financial instruments, such as foreign exchange forward contracts, to mitigate the risk of
changes in foreign exchange rates on accounts receivable and forecast cash flows denominated in certain foreign currencies. We may
not be able to purchase derivative instruments adequate to fully insulate ourselves from foreign currency exchange risks and over the
past year we have incurred losses as a result of exchange rate fluctuations on exposures that have not been covered by our hedging
strategy.
Additionally, our hedging activities may also contribute to increased losses as a result of volatility in foreign currency markets. If
foreign exchange currency markets continue to be volatile, such fluctuations in foreign currency exchange rates could materially and
adversely affect our profit margins and results of operations in future periods. Also, the volatility in the foreign currency markets may
make it difficult to hedge our foreign currency exposures effectively.
The imposition of exchange or price controls or other restrictions on the conversion of foreign currencies could also have a
material adverse effect on our business, results of operations and financial condition.
The economic effects of “Brexit” may affect relationships with existing and future customers and could have an adverse impact on our
business and results of operations
On June 23, 2016, the United Kingdom (the “U.K.”) held a referendum in which voters approved an exit from the European Union
(“E.U.”), commonly referred to as “Brexit.” On February 8, 2017, the U.K.’s House of Commons approved a bill authorizing the
government to start exit talks with the European Union. The impact on us from Brexit will depend, in part, on the outcome of tariff,
trade, regulatory and other negotiations.
As a result of the referendum, the global markets and certain currencies were adversely impacted, including a sharp decline in the
value of the British pound as compared to other global currencies, which led to a decrease in our revenues generated from sales in the
U.K. A potential further reduction in value of the British pound may impair the purchasing power of buyers in the U.K. and could cause
those buyers to decrease their purchase of our products and services.
Volatility in the foregoing exchange rates resulting from Brexit may continue as the U.K. negotiates its exit from the E.U. We
translate sales and other results denominated in foreign currency into U.S. dollars for our financial statements. During periods of a
strengthening U.S. dollar, our reported international sales and earnings would be reduced because sales made in these currencies would
translate into fewer U.S. dollars.
Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U.
laws to replace or replicate, and those laws and regulations may be cumbersome, difficult or costly in terms of compliance. Any of these
effects of Brexit, among other factors, could adversely affect our business, financial condition, results of operations and cash flows.
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Third parties might attempt to gain unauthorized access to our network or seek to compromise our products and services
We regularly face attempts by others to gain unauthorized access through the Internet or to introduce malicious software to our
information technology (IT) systems. Additionally, malicious hackers may attempt to gain unauthorized access and corrupt the
processes of hardware and software products that we manufacture and services we provide. We or our products are a frequent target of
computer hackers and organizations that intend to sabotage, take control of, or otherwise corrupt our manufacturing or other processes
and products. We are also a target of malicious attackers who attempt to gain access to our network or data centers or those of our
customers or end users; steal proprietary information related to our business, products, employees, and customers; or interrupt our
systems or those of our customers or others. We believe such attempts are increasing in number. From time to time we encounter
intrusions or attempts at gaining unauthorized access to our products and network. To date, none have resulted in any material adverse
impact to our business or operations. While we seek to detect and investigate all unauthorized attempts and attacks against our network
and products, and to prevent their recurrence where practicable through changes to our internal processes and tools and/or changes or
patches to our products, we remain potentially vulnerable to additional known or unknown threats. Such incidents, whether successful
or unsuccessful, could result in our incurring significant costs related to, for example, rebuilding internal systems, reduced inventory
value, providing modifications to our products and services, defending against litigation, responding to regulatory inquiries or actions,
paying damages, or taking other remedial steps with respect to third parties. Publicity about vulnerabilities and attempted or successful
incursions could damage our reputation with customers or users, and reduce demand for our products and services.
We may need to change our pricing models to compete successfully
The intense competition we face in the sales of our products and services and general economic and business conditions can put
pressure on us to change our prices. If our competitors offer deep discounts on certain products or services or develop products that the
marketplace considers more valuable, we may need to lower prices or offer other favorable terms in order to compete successfully. Any
such changes may reduce margins and could adversely affect results of operations. Additionally, the increasing prevalence of cloud and
SaaS delivery models offered by us and our competitors may unfavorably impact pricing in both our on-premise enterprise software
business and our cloud business, as well as overall demand for our on-premise software product and service offerings, which could
reduce our revenues and profitability. Our competitors may offer lower pricing on their support offerings, which could put pressure on
us to further discount our product or support pricing.
We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in
international markets
Because we incorporate encryption technology into our products, certain of our products are subject to U.S. export controls and
may be exported outside the U.S. only with the required export license or through an export license exception. If we were to fail to
comply with U.S. export licensing requirements, U.S. customs regulations, U.S. economic sanctions, or other laws, we could be subject
to substantial civil and criminal penalties, including fines, incarceration for responsible employees and managers, and the possible loss
of export or import privileges. Obtaining the necessary export license for a particular sale may be time-consuming and may result in the
delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain
products to U.S. embargoed or sanctioned countries, governments, and persons. Even though we take precautions to ensure that we
comply with all relevant regulations, any failure by us or any partners to comply with such regulations could have negative
consequences for us, including reputational harm, government investigations, and penalties.
In addition, various countries regulate the import of certain encryption technology, including through import permit and license
requirements, and have enacted laws that could limit our ability to distribute our products or could limit our end-customers’ ability to
implement our products in those countries. Changes in our products or changes in export and import regulations may create delays in
the introduction of our products into international markets, prevent our end-customers with international operations from deploying our
products globally or, in some cases, prevent or delay the export or import of our products to certain countries, governments, or persons
altogether. Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of
existing regulations, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in
decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with
international operations. Any decreased use of our products or limitation on our ability to export to or sell our products in international
markets would likely adversely affect our business, financial condition, and results of operations.
Changes in the U.S. taxation of international business activities or the adoption of other tax reform policies could materially impact our
business, results of operations and financial condition.
Changes to the U.S. Tax laws that may be enacted in the future could impact the tax treatment of our earnings. The new administration
under President Donald Trump has included as part of the agenda a potential reform of U.S. tax laws. The “Tax Reform Blueprint”
published by the House of Representatives includes a framework of various issues that may significantly affect our results of operations,
business and tax position including a reduction in the corporate tax, elimination of interest deduction and the implementation of a
border tax, tariff or increase in custom duties.
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Our business and operations are subject to the risks of earthquakes, fire, floods and other natural catastrophic events, as well as
manmade problems such as power disruptions or terrorism
Our headquarters in the United States, as well as certain of our research and development operations, are located in the Silicon
Valley area of Northern California, a region known for seismic activity. We also have significant operations in other regions that have
experienced natural disasters. A significant natural disaster occurring at our facilities in Israel or the United States or elsewhere, or
where our channel partners are located, could have a material adverse impact on our business, results of operations and financial
condition. In addition, acts of terrorism could cause disruptions to our or our customers’ businesses or the economy as a whole. Further,
we rely on information technology systems to communicate among our workforce located worldwide. Any disruption to our internal
communications, whether caused by a natural disaster or by manmade problems, such as power disruptions or terrorism, could delay our
research and development efforts. To the extent that such disruptions result in delays or cancellations of customer orders, our research
and development efforts or the deployment of our products, our business and results of operations would be materially and adversely
affected.
Risks Related to Our Operations in Israel
Potential political, economic and military instability in Israel, where our principal executive offices and our principal research and
development facilities are located, may adversely affect our results of operations
We are incorporated under the laws of the State of Israel, and our principal executive offices and principal research and
development facilities are located in Israel. Accordingly, political, economic and military conditions in and surrounding Israel may
directly affect our business. Since the State of Israel was established in 1948, a number of armed conflicts have occurred between Israel
and its Arab neighbors. Terrorist attacks and hostilities within Israel; the hostilities between Israel and Hezbollah and between Israel
and Hamas; as well as tensions between Israel and Iran, have also heightened these risks, including an escalation in terrorist attacks in
late 2015 and in the first few months of 2016 and extensive hostilities from July to August 2014 along Israel’s border with the Gaza
Strip, which included missiles being fired from the Gaza Strip into Israel. Our principal place of business is located in Tel Aviv, Israel,
which is approximately 40 miles from the nearest point of the border with the Gaza Strip. There can be no assurance that attacks
launched from the Gaza Strip will not reach our facilities, which could result in a significant disruption of our business. In addition,
there are significant ongoing hostilities in the Middle East, particularly in Syria and Iraq, which may impact Israel in the future. Any
hostilities involving Israel, a significant increase in terrorism or the 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 materially adversely affect our
operations. Ongoing and revived hostilities or other Israeli political or economic factors could materially adversely affect our business,
results of operations and financial condition. In addition, there have been increased efforts by activists to cause companies and
consumers to boycott Israeli goods based on Israeli government policies. Such actions, particularly if they become more widespread,
may adversely impact our ability to sell our products.
Recent uprisings and armed conflicts in various countries in the Middle East and North Africa are affecting the political stability
of those countries. This instability may lead to deterioration of the political and trade relationships that exist between Israel and these
countries. In addition, this instability may affect the global economy and marketplace, including as a result of changes in oil and gas
prices.
Our operations may be disrupted by the obligations of our personnel to perform military service
Many of our employees in Israel are obligated to perform annual military reserve duty in the Israel Defense Forces, in the event of
a military conflict, could be called to active duty. Our operations could be disrupted by the absence of a significant number of our
employees related to military service or the absence for extended periods of military service of one or more of our key employees.
Military service requirements for our employees could materially adversely affect our business, results of operations and financial
condition.
The tax benefits available to us require us to meet several conditions, and may be terminated or reduced in the future, which would
increase our taxes
For the year ended December 31, 2016, our effective tax rate was 19%. We have benefited or currently benefit from a variety of
government programs and tax benefits that generally carry conditions that we must meet in order to be eligible to obtain any benefit.
Our tax expenses and the resulting effective tax rate reflected in our financial statements may increase over time as a result of changes
in corporate income tax rates, other changes in the tax laws of the countries in which we operate or changes in the mix of countries
where we generate profit.
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If we fail to meet the conditions upon which certain favorable tax treatment is based, we would not be able to claim future tax
benefits and could be required to refund tax benefits already received. Additionally, some of these programs and the related tax benefits
are available to us for a limited number of years, and these benefits expire from time to time.
Any of the following could have a material effect on our overall effective tax rate:
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Some programs may be discontinued,
• We may be unable to meet the requirements for continuing to qualify for some programs,
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These programs and tax benefits may be unavailable at their current levels,
• Upon expiration of a particular benefit, we may not be eligible to participate in a new program or qualify for a new tax
benefit that would offset the loss of the expiring tax benefit, or
• We may be required to refund previously recognized tax benefits if we are found to be in violation of the stipulated
conditions.
Additional details are provided in “Item 5 – Operating and Financial Review and Products” under the caption “Taxes on income”,
in “Item 10 – Additional Information” under the caption “Israeli taxation, foreign exchange regulation and investment programs” and in
Note 12 to our Consolidated Financial Statements.
Your rights and responsibilities as a shareholder are, and will continue to be, governed by Israeli law which differs in some material
respects from the rights and responsibilities of shareholders of U.S. companies
The rights and responsibilities of the holders of our ordinary shares are governed by our articles of association and by Israeli law.
These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S.-based
corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising
its rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in the
company, including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’s
articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions
requiring shareholder approval. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a
shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward
the company. There is limited case law available to assist in understanding the nature of this duty or the implications of these
provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that
are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law and our articles of association may delay, prevent or make difficult an acquisition of us, prevent a change of
control, and negatively impact our share price
Israeli corporate law regulates acquisitions of shares through tender offers and mergers, requires special approvals for transactions
involving directors, officers or significant shareholders, and regulates other matters that may be relevant to these types of transactions.
Furthermore, Israeli tax considerations may make potential acquisition transactions unappealing to us or to some of our shareholders.
For example, Israeli tax law may subject a shareholder who exchanges his or her ordinary shares for shares in a foreign corporation, to
taxation before disposition of the investment in the foreign corporation. These provisions of Israeli law may delay, prevent or make
difficult an acquisition of our company, which could prevent a change of control and, therefore, depress the price of our shares.
In addition, our articles of association contain certain provisions that may make it more difficult to acquire us, such as the
provision which provides that our board of directors may issue preferred shares. These provisions may have the effect of delaying or
deterring a change in control of us, thereby limiting the opportunity for shareholders to receive a premium for their shares and possibly
affecting the price that some investors are willing to pay for our securities.
Additional details are provided in “Item 10 – Additional Information” under the caption “Articles of Association and Israeli
Companies Law – Anti-takeover measures.”
17
As a foreign private issuer we are not subject to the provisions of Regulation FD or U.S. proxy rules and are exempt from filing certain
Exchange Act reports
As a foreign private issuer, we are exempt from a number of requirements under U.S. securities laws that apply to public
companies that are not foreign private issuers. In particular, we are exempt from the rules and regulations under the Exchange Act
related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the
reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required
under the Exchange Act to file annual and current reports and financial statements with the SEC as frequently or as promptly as U.S.
domestic companies whose securities are registered under the Exchange Act and we are generally exempt from filing quarterly reports
with the SEC under the Exchange Act. We are also exempt from the provisions of Regulation FD, which prohibits issuers from making
selective disclosure of material nonpublic information to, among others, broker-dealers and holders of a company’s securities under
circumstances in which it is reasonably foreseeable that the holder will trade in the company’s securities on the basis of the information.
For so long as we qualify as a foreign private issuer, we are not required to comply with the proxy rules applicable to U.S. domestic
companies, although pursuant to the Companies Law, we disclose the annual compensation of our five most highly compensated office
holders (as defined under the Israeli Companies Law) on an individual basis, including in this Annual Report.
As a foreign private issuer whose shares are listed on the NASDAQ Global Select Market, we may follow certain home country
corporate governance practices instead of certain NASDAQ requirements
As a foreign private issuer whose shares are listed on the NASDAQ Global Select Market, we are permitted to follow certain
home country corporate governance practices instead of certain requirements of the NASDAQ Stock Market Rules. For example, we
follow our home country law, instead of the NASDAQ Stock Market Rules, which require that we obtain shareholder approval for the
establishment or amendment of certain equity based compensation plans and arrangements. Under Israeli law and practice, in general,
the approval of the board of directors is required for the establishment or amendment of equity based compensation plans and
arrangements, unless the arrangement is for the benefit of a director or a controlling shareholder, in which case compensation
committee or audit committee and shareholder approval are also required. A foreign private issuer that elects to follow a home country
practice instead of NASDAQ requirements must submit to NASDAQ in advance a written statement from an independent counsel in
such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws. In addition, a foreign
private issuer must disclose in its annual reports filed with the Securities and Exchange Commission each such requirement that it does
not follow and describe the home country practice followed by the issuer instead of any such requirement. Accordingly, our
shareholders may not be afforded the same protection as provided under NASDAQ’s corporate governance rules.
ITEM 4. INFORMATION ON CHECK POINT
Check Point Heritage and Vision
Since its inception, Check Point’s sole focus has been on IT security. Making the Internet secure, reliable and available for
corporations and consumers everywhere has been – and continues to be – our ongoing vision. Building on our heritage of pioneering the
first firewall, and with a long track record of industry-leading security gateways, Check Point is continuing to develop cutting-edge
solutions to enable maximum security and business efficiencies. Today, Check Point is one the largest pure security vendors globally.
We are committed to addressing the real needs of our customers and to developing new and innovative security solutions that redefine
the security landscape.
Future of Cyber Security: Cloud, Mobile, and Threat Prevention
Our mission becomes especially vital in a rapidly changing digital world that is less and less controlled, with disappearing
boundaries. Hackers are innovating just as quickly as enterprises, and are finding new ways to attack an increasingly connected world.
Malware is increasingly being put into an ecosystem that traditional security techniques cannot always prevent. Attacks targeting
networks, mobile devices, and cloud environments are on the rise. Ransomware, a type of computer malware that can hold a victim’s
data hostage, was recently used to attack trains in San Francisco; dangerous hacking tools are being sold online; and personal data is
constantly exposed. The Gooligan breach that we revealed in November 2016 demonstrates the scale of these current threats, with more
than one million Google accounts breached by mobile malware.
18
In 2017, we expect cyber security to play an even bigger role in our lives. Advanced threats will continue to grow. The continued
expansion to the cloud will spark evolving security issues. Mobile will continue to be a high priority. All of this drives and shapes a
new imperative to provide the most advanced cyber security solutions that anticipate and solve for the challenges of the future. At
Check Point, we see this aligned to three pillars: cloud, mobility, and threat prevention.
Business leaders must guard against things they cannot see, know, or control. They need to protect every point in the
infrastructure, from mobile to cloud to virtual and physical. They need to be able to prevent attacks at every stage. To do so, enterprises
must have visibility to tomorrow’s threats, not just the threats of today. We do not believe that the right solution is to continuously add
point solutions that result in complex technology mosaics. These point solutions typically result in security gaps in an enterprise’s
infrastructure. These tenets are the basis for Check Point’s security vision—a single architecture that consolidates comprehensive
management and integrated threat intelligence, with the most advanced threat prevention solutions for cloud, mobile, and on-premise
networks.
Organizations around the world rely on Check Point to protect their networks, customers, employees, assets, data, and reputation
from cyber-attacks. For more than 20 years, Check Point has been at the forefront of the cyber security industry. With a reputation for
industry firsts and continuous innovation, Check Point enables millions of users to safely and confidently accelerate their businesses in
an ever-changing digital economy.
Check Point Technology Leadership in 2016
Gartner
Leader Enterprise Network Firewall Market Quadrant 2016
Leader Unified Threat Management Magic Quadrant 2016
NSS Labs
Recommended in Next Generation Firewall Test 2016
Recommended in Breach Detection Systems Test 2016
Recommended in Intrusion Prevention Systems Test 2016
Forrester
Leader Automated Malware Analysis Forrester Wave 2016
Common Criteria Certification: Check Point was awarded Common Criteria (CC) certification for R77.30, following a rigorous
third-party evaluation and testing process.
Business Highlights
Details regarding the important events in the development of our business since the beginning of 2016 are provided in “Item 5 –
Operating and Financial Review and Prospects” under the caption “Overview.”
We were incorporated as a company under the laws of the State of Israel in 1993 under the name of “Check Point Software
Technologies Ltd.” Our registered office and principal place of business is located at 5 Ha’Solelim Street, Tel Aviv 6789705 Israel. The
telephone number of our registered office is 972-3-753-4555. Our company’s web site is www.checkpoint.com. The contents of our
web site are not incorporated by reference into this Annual Report.
This Annual Report is available on our web site. If you would like to receive a printed copy via mail, please contact our Investor
Relations department at 959 Skyway Road, Suite 300, San Carlos, CA 94070, U.S.A., Tel.: 650-628-2050, email:
ir@us.checkpoint.com.
Our agent for service of process in the United States is CT Corporation System, 818 West Seventh Street, Los Angeles, CA 90017
U.S.A.; Tel: 213-627-8252.
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Cyber Security Industry Today
Organizations of all sizes face a challenging threat landscape. With countless new connections formed every day, the world is
more globally linked than ever. Cloud, mobility, virtualization, and the Internet of Things (“IoT”) are changing the way customers
deploy and consume technology. While this provides more opportunities to innovate and compete, the network edges are blurring. As a
result, our networks are becoming more complex, which increases the risk of cyberattacks. Specific trends within this dynamic
landscape include:
Increased Sophistication of Threats and Attacks. Today’s threats use sophisticated technology, the Internet, and deception to
acquire sensitive information and to disrupt business operations. Many of these threats contain new, unknown signatures when they
reach their targets. Because these new, unknown signatures – also known as zero-day threats – are not recognized, they cause damage to
their targets immediately. Enterprises need to put in place multi-layer defenses to prevent, detect, and extract these threats before they
cause damage.
Rise of Mobility. The proliferation of smartphones and people working remotely through mobile devices has expanded the need to
safeguard and manage access to information. Regardless of location, employees and other service providers need constant connectivity
to the enterprise network, which also opens up new avenues of attack. As a result, enterprises relying on remote connectivity need to
ensure security across all points of their infrastructure and deploy mobile-specific security solutions. As an example, in 2016, Check
Point discovered malware embedded in mobile applications, such as ‘DressCode,’ downloaded from Google Play and ‘QuadRooter’, a
set of four vulnerabilities affecting Android devices. It also revealed the ‘Gooligan’ breach in November 2016 that demonstrated the
extent of these current threats, with over 1 million Google accounts breached by mobile malware.
Cloud Computing and Network Virtualization. Cloud computing, or Internet-based computing, provides resources, software and
data storage to computers and other devices on demand using shared servers. New virtual environments and public and private clouds
drive the need for enterprise security for both on-premise and in-the-cloud infrastructures. Deploying cloud based security solutions are
crucial and are as important as on premise network security measures, to ensure that assets in the cloud are not compromised and that
attacks are contained before laterally spreading within the cloud, across virtualized server and network environments.
Overall Complexity within the Enterprise IT Infrastructure. The increasing complexity of deploying, managing, and monitoring
multiple security technologies is another key trend. As a result, enterprises face two challenges: how to cost-effectively manage a patch-
work of point product solutions, and how to ensure that no gaps are left in the infrastructure. Single-architecture solutions with
simplified management can keep the security infrastructure robust, yet simple to manage and adaptable to ongoing changes.
Increased Data Privacy and Compliance Regulation. Data has long been a prime target for hackers seeking financial information,
intellectual property, insider business information and authentication credentials. These attacks have exposed personal health and
financial data of millions of consumers. As a result, governmental regulations regarding data privacy are on the rise globally, including
the new EU based data protection regulations. To ensure compliance – and avoid sanctions, fines and penalties – enterprises need to
implement cybersecurity protections and security controls to prevent data loss or data theft.
Role of Social Engineering. Despite constantly improving security solutions, the human element is still a wild card. Attackers
attempt to bypass security mitigations and restrictions, using phishing techniques, by tricking employees into exposing credentials or
other sensitive information, or to open infected files or infected links. Specific technologies to detect phishing attempts, setting specific
security policies, increasing segmentation of the infrastructure, and deploying multi-layer defense solutions are needed to prevent these
types of attacks.
Emergence of Security for Operational Technology (OT) and Internet of Things (IoT). Gartner predicts that by 2020, there will
be over 21 billion endpoint “connected things” in use worldwide. These connected things vary from smart light bulbs, to wearables and
driverless cars, and to almost any area of our lives. In addition more and more OT SCADA based production lines, utilities and critical
infrastructures are connected to the Internet and the mix between OT and IT networks is clearly evident. This continuously connected
world opens new avenues of attack as the risk of IoT vulnerabilities leading to IT threats becomes more evident. As a result, more
robust security will need to be implemented. Enterprises that use or connect with these types of products will need to consider how to
prevent unauthorized access and other attacks to their infrastructures through these connected technologies.
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Product Strategy and Offerings
In the beginning of 2017, we announced our strategy to focus on the future of cyber security. Securing expanding customer
environments, which focus on cloud, mobile and advanced threat prevention. In April of 2017, we launched “Check Point Infinity” that
we tag “The Cyber Security Architecture of the Future”.
We believe that Check Point Infinity is the first consolidated security architecture performing across all networks, cloud and
mobile. This unique platform provides the highest level of threat prevention, against both known and unknown targeted attacks, to keep
you protected now and in the future.
Check Point Infinity leverages our unified threat intelligence and open interfaces, enabling all environments to stay protected
against targeted attacks. Unlike other solutions, Check Point believes in a preemptive threat prevention strategy, focused on prevention
rather than detection only, blocking the most sophisticated attacks before they occur.
Check Point Infinity architecture consolidates management of multiple security layers, providing superior policy efficiency which
enables security management through a single pane of glass. This single management centrally correlates all types of events across all
network environments, cloud services and mobile infrastructures.
With Check Point Infinity, customers can unify more security capabilities and consolidate it with the Check Point architecture,
elevating the overall security level and reducing their total cost of ownership.
The attributes of Check Point Infinity will be embedded into our entire product line and are consistent with the strategy and
products outlined below:
Protecting Our Customers’ Networks. At Check Point, we strive to bring to market the most innovative, highest quality products
that provide exceptional value to our customers – allowing businesses of all sizes to proactively protect their networks and prevent
sophisticated threats. Check Point’s security gateways include all of our security capabilities in a single platform for enterprise, data
center, and branch offices, small and large. Our product strategy of driving innovation through research and development and strategic
partnerships reflects that goal, allowing Check Point to blaze new trails with market leading products and solutions. This strategy steers
corporate security strategies away from merely detecting threats to effectively preventing threats while enabling businesses to adopt
advanced IT technology and services, including mobility and cloud solutions.
In order to cater to the different needs and demands of our customers, Check Point offers a wide portfolio of security gateway
appliances, from platforms for small business (SMB) and small office locations to high end and high demanding data center and
perimeter environments. In 2016, we launched new product lines for the vast majority of our product categories, starting with the 700
appliance line for SMBs, the 1400, 3000 and 5000 families of security gateways for enterprises and 15000, 23000 families for data
centers and high-end data centers.
Consolidating & Managing Security. A significant part of our product strategy addresses the need for scalable and consolidated
security solutions. Companies often take the approach of using multiple point solutions, each with a separate management console. This
approach can be costly and often results in an ineffective security strategy. Check Point’s security architecture enables its customers of
all sizes – from a single office to hundreds and thousands of offices—to manage, from a single pane of glass, and tailor their security
policy to express their business needs.
21
In 2016, Check Point released our Security Management Software version R80 which offers security management through a single
console which streamlines security operations, provides a greater visibility into policy administration and threat analysis. It consolidates
many security functions and capabilities with a more unified security console allowing customers to get a higher level of security with
efficient utilization of customer personnel.
Cloud. Enterprises seeking availability, scalability, and cost reduction are increasingly shifting more and more applications to
cloud-based data centers. These new data centers reside on-premise as private cloud-based data centers (using software defined
networking technologies of companies like VMware or Cisco) or are based on a third party provider’s resources as public cloud-based
data centers (such as Amazon’s AWS, Microsoft’s Azure cloud or Google’s cloud platform). Check Point’s cloud security architecture
is based on the vSEC product line and provides advanced threat prevention technologies on top of these cloud deployments. Tight
integration between these cloud’s management platforms and Check Point’s security management enables dynamic scalability and auto-
provisioning to help customers build a secure infrastructure today and protect future deployments across these private and public cloud
solutions.
Mobile. With the increase in cyber threats to mobile devices, there a substantial increase in the requirements to safeguard business
data, provide secure mobile access to business documents and keep mobile devices safe from threats. Check Point’s enterprise mobile
security solutions provide a wide range of products to help customers secure mobile devices. Check Point provides a broad mobile
security solution that protects devices from threats on the device (OS), in apps, and in the network, and delivers a superior threat catch
rate for iOS and Android. Check Point’s Capsule product establishes a secure business environment by segregating a customer’s
business data and applications, including those on personally owned devices and with Capsule Docs, controls and encrypts business
documents and enables seamless access by authorized users only.
Threat Prevention. Protecting organizations from cybercriminals is critical and a top priority for organizations. In this ongoing
task, the technologies offered to customers are continuously increasing the catch rate of threats but, more importantly, are increasing the
ability to block and prevent attacks before they happen. Check Point’s Sandblast family of advanced threat prevention and zero-day
protections include over 30 different innovative technologies developed to combat the growing frequency and sophistication of cyber
security threats. In 2016, we added to this portfolio with the release of SandBlast Agent and SandBlast Cloud, expanding Check Point’s
advanced security and zero-day protection technology to PC endpoint devices and the cloud. Check Point’s Next Generation Threat
Prevention product network offerings (NGTP and NGTX), cloud and endpoint options, together with Check Point’s threat intelligence
ThreatCloud infrastructure, deliver a multi-layered line of prevention to help keep customers secure.
22
Revenues by Category of Activity
The following table presents our revenues for the last three fiscal years by category of activity:
Category of Activity:
Products and licenses
Subscriptions
Software updates and maintenance
Total revenues
2016
Year Ended December 31,
2015
(in thousands)
2014
$ 572,964
$ 389,885
$ 778,452
$1,741,301
$ 555,792
$ 318,624
$ 755,422
$1,629,838
$ 520,312
$ 265,021
$ 710,483
$1,495,816
Our revenues for the last three fiscal years by geographic area are set out in “Item 5 – Operating and Financial Review and
Prospects” under the caption “Overview.”
Sales and Marketing
At the heart of Check Point’s strategy to drive revenue is a commitment to address current and future customer requirements for
enterprises of all sizes. We do this in multiple ways:
•
Through a global network of thousands of partners, which spans two-tier distributors, value-added resellers, global
systems integrators, telcos and managed service providers.
• With a team of sales support and account management Check Point works closely with the partner ecosystem to
capture customer needs and match them with the right solutions.
•
•
As part of our pre-sale support to our channel partners, we employ technical consultants and systems engineers who
work closely with our channel partners and customers to assist them with pre-sale configuration, use and application
support.
Through technology integration with hardware and software suppliers such as IBM, Hewlett-Packard, VMware, Blue
Coat Systems, Apple, Google, Amazon and Microsoft, Check Point enables tight integration with other technology
solutions.
We drive awareness and demand for Check Point solutions through messaging and communications strategies that target users and
business decision makers. These efforts include global media campaigns, thought-leadership programs, digital marketing, social media,
as well as press and analyst relations. We promote our innovation and technology agenda globally through frequent product launches
supported by demand generation programs.
As of December 31, 2016, we had 1,967 employees and contractors dedicated to sales and marketing.
Support and Services
We operate a worldwide technical services organization which provides a wide range of services including the following:
(i) technical customer support programs and plans, as well as (ii) professional services in implementing, upgrading and optimizing
Check Point products, such as design planning and security implementation; and (iii) certification and educational training on Check
Point products.
Our technical assistance centers in the United States, Israel, Canada, Japan, India, China and Australia offer support worldwide,
24-hour service, seven days per week. As of December 31, 2016, we had 618 employees and contractors in our technical services
organization.
Our support solutions include both indirect and direct offerings. Channel partners provide customers with installation, training,
maintenance and support, while we provide technical support to our channel partners. Alternatively, our customers may elect to receive
support directly from us. In addition, because of the increased demand for our portfolio of security gateway appliances, from
23
small office locations to telco grade and capacity infrastructure platforms, we have expanded our technical support offerings around the
world. This includes same and next-business-day replacements, on-site support availability and device pre-configuration. We also offer
ThreatCloud Managed Security Services and Incident Response Services. These services are focused on helping our partners and
customers maximize the effectiveness of advanced protections and mitigate and remediate critical security events quickly.
Research and Product Development
We believe that our future success will depend upon our ability to enhance our existing products, and to develop, acquire and
introduce new products to address the increasingly sophisticated needs of our customers. We work closely with existing and potential
customers, distribution channels and major resellers, who provide significant feedback for product development and innovation. Our
product development efforts are focused on providing unified security architecture, named the Check Point Software Blade
Architecture, that functions throughout all layers of the network and devices that carry data. This includes enhancements to our current
family of products and the continued development of new products to respond to the rapidly changing threat landscape through the
provision of services, such as network perimeter protections, protection against cyber-threats, data protection for today’s mobile
environments, web security and security for managed enterprise endpoints. Our technology also centrally manages all of these layers
and solutions. We develop most of our new products internally and also expect to leverage the products and technologies we have
acquired. We may decide, based upon timing and cost considerations that it would be more efficient to acquire or license certain
technologies or products from third parties, or to make acquisitions of other businesses. Research and development expenses were
$178 million in 2016, $149 million in 2015 and $133 million in 2014. These amounts include stock-based compensation in the amount
of $13 million in 2016, $12 million in 2015 and $9 million in 2014. As of December 31, 2016, we had 1,331 employees and contractors
dedicated to research and development activities and quality assurance.
Competition
Information concerning competition is provided in “Item 3 – Key Information” under the caption “Risk Factors – Risks Relating
to Our Business and Our Market – We may not be able to successfully compete.”
Proprietary Rights
Check Point relies on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The company relies on trade secret and copyright laws to protect its software, documentation,
and other written materials. Further, Check Point generally enters into confidentiality agreements with employees, consultants,
customers and potential customers, and limits access and distribution of materials and information that the company considers
proprietary.
We have 71 U.S. patents, 36 U.S. patents pending, and additional patents issued and patent applications pending worldwide. Our
efforts to protect our patent rights and other proprietary rights may not be adequate and our competitors may independently develop
technology that is similar. Additional details are provided in “Item 3 – Key Information” under the caption “Risk Factors – Risks
Relating to Our Business and Our Market – We may not be able to successfully protect our intellectual property rights.”
Effect of Government Regulation on our Business
Information concerning regulation is provided in “Item 5 – Operating and Financial Review and Products” under the caption
“Taxes on income” and in “Item 10 – Additional Information” under the caption “Israeli taxation, foreign exchange regulation and
investment programs.”
24
Organizational Structure
We are organized under the laws of the State of Israel. We wholly own the subsidiaries listed below, directly or through other
subsidiaries, unless otherwise specified in the footnotes below:
NAME OF SUBSIDIARY
Check Point Software Technologies, Inc.
Check Point Software (Canada) Technologies Inc.
Check Point Software Technologies (Japan) Ltd.
Check Point Software Technologies (Netherlands) B.V.
Check Point Holding (Singapore) PTE Ltd.
Check Point Holding (Singapore) PTE Ltd. (1)
Check Point Holding (Singapore) PTE Ltd. – U.S. Branch (2)
Israel Check Point Software Technologies Ltd. China (3)
Check Point Holding AB (4)
SofaWare Technologies Ltd.
Dynasec Ltd.
Check Point Advanced Threat Prevention Ltd. (formerly known as Hyperwise Ltd.)
Check Point Mobile Security Ltd. (formerly known as Lacoon Mobile Security Ltd.)
Lacoon Security, Inc.
Check Point Software Technologies South Africa PTY. Ltd
Check Point Software (Kenya) Ltd.
Check Point Software Technologies B.V Nigeria Ltd.
COUNTRY OF INCORPORATION
United States of America (Delaware)
Canada
Japan
Netherlands
Singapore
Indonesia
United States of America (New York)
China
Sweden
Israel
Israel
Israel
Israel
Delaware
South Africa
Kenya
Nigeria
(1) Representative office of Check Point Holding (Singapore) PTE Ltd.
(2) Branch of Check Point Holding (Singapore) PTE Ltd.
(3) Representative office of Check Point Software Technologies Ltd.
(4) Subsidiary of Check Point Holding (Singapore) PTE Ltd. (former name: Protect Data AB)
Check Point Software Technologies (Netherlands) B.V. acts as a holding company. It wholly owns the principal operating
subsidiaries listed below, unless otherwise indicated in the footnotes below:
NAME OF SUBSIDIARY
Check Point Software Technologies S.A.
Check Point Software Technologies (Australia) PTY Ltd.
Check Point Software Technologies (Austria) GmbH
Check Point Software Technologies (Belarus) LLC
Check Point Software Technologies (Belgium) S.A.
Check Point Software Technologies (Brazil) LTDA
Check Point Software Technologies (Hong Kong) Ltd. (Guangzhou office) (1)
Check Point Software Technologies (Hong Kong) Ltd. (Shanghai office) (1)
Check Point Software Technologies (Czech Republic) s.r.o.
Check Point Software Technologies (Denmark) ApS
Check Point Software Technologies (Finland) Oy
Check Point Software Technologies SARL
Check Point Software Technologies GmbH
Check Point Software Technologies (Greece) SA
Check Point Software Technologies (Hungary) Ltd.
Check Point Software Technologies (Hong Kong) Ltd.
Check Point Software Technologies (India) Private Limited
Check Point Software Technologies (Italia) Srl (2)
Check Point Software Technologies Mexico S.A. de C.V.
Check Point Software Technologies B.V.
Check Point Software Technologies Norway A.S.
Check Point Software Technologies (Poland) Sp.z.o.o.
CPST (Portugal), Sociedade Unipessoal Lda.
Check Point Software Technologies (RMN) SRL.
Check Point Software Technologies (Russia) OOO
Check Point Software Technologies (Korea) Ltd.
Check Point Software Technologies (Spain) S.A.
COUNTRY OF INCORPORATION
Argentina
Australia
Austria
Belarus
Belgium
Brazil
China
China
Czech Republic
Denmark
Finland
France
Germany
Greece
Hungary
Hong Kong
India
Italy
Mexico
Netherlands
Norway
Poland
Portugal
Romania
Russia
S. Korea
Spain
25
NAME OF SUBSIDIARY
Check Point Software Technologies (Switzerland) A.G.
Check Point Software Technologies (Taiwan) Ltd.
Check Point Yazilim Teknolojileri Pazarlama A.S. (3)
Check Point Software Technologies (UK) Ltd.
COUNTRY OF INCORPORATION
Switzerland
Taiwan
Turkey
United Kingdom
(1) Representative office of Check Point Software Technologies (Hong Kong) Ltd.
(2)
97% owned by Check Point Software Technologies (Netherlands) B.V. and 3% owned by Check Point Software Technologies
Ltd.
96% owned by Check Point Software Technologies (Netherlands) B.V., 1% owned by Check Point Software Technologies Ltd.
and 3% owned in trust by the directors of Check Point Yazilim Teknolojileri Pazarlama A.S. on behalf of Check Point Software
Technologies (Netherlands) B.V.
(3)
Check Point Holding AB wholly owns the subsidiaries listed below, directly or through other subsidiaries:
NAME OF SUBSIDIARY
Check Point Software Technologies (Sweden) AB
Pointsec Norway AS
Reflex Software Ltd. (Jersey)
Reflex Software Luxembourg SARL (1)
(1) The company is dormant.
Check Point Software Technologies Inc. wholly owns the subsidiaries listed below:
NAME OF SUBSIDIARY
Pointsec Mobile Technologies, LLC.
NFR Security, Inc.
Zone Labs, L.L.C.
Liquid Machines Inc.
Property and Equipment
COUNTRY OF INCORPORATION
Sweden
Norway
Jersey
Luxembourg
COUNTRY OF INCORPORATION
United States of America (California)
United States of America (Delaware)
United States of America (California)
United States of America (Delaware)
Our international headquarters are located in Tel Aviv, Israel. We occupy our headquarters pursuant to a long-term lease with the
City of Tel Aviv – Jaffa, which expires in August 2059. We made a prepayment for the entire term upon entering into this lease and we
are not required to make any additional payments under the lease. Our international headquarters building currently contains
approximately 172,000 square feet of office space. We began construction of an additional building at our international headquarters in
December 2014 for an additional 160,000 square feet of office space at an anticipated total investment of approximately $65M. We
invested approximately $30M by the end of 2016 and we expect to invest the majority of the remainder throughout 2017.
We also lease approximately 95,000 square feet of additional space in Tel Aviv in short term leases.
Outside of Israel, we lease offices in various locations throughout the world. The breakdown in the various geographies is as
follows:
Location
Americas
Europe
Asia-Pacific, Middle East and Africa
Space (square feet)
116,000
51,000
37,000
Principal Capital Expenditures and Divestitures
For more information regarding our principal capital expenditures currently in progress, see “Item 5 – Operating and Financial
Review and Prospects” under the caption “Liquidity and Capital Resources.”
26
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis is based on our consolidated financial statements including the related notes, and should be
read in conjunction with them. Our consolidated financial statements are provided in “Item 18 – Financial Statements”.
Overview
We develop, market and support a wide range of products and services for IT security and offer our customers an extensive
portfolio of network and gateway security solutions, management solutions and data and endpoint security solutions. Our solutions
operate under a unified security architecture that enables end-to-end security with a single line of unified security gateways and allow a
single agent for all endpoint security that can be managed from a single unified management console. This unified management allows
for ease of deployment and centralized control and is supported by, and reinforced with, real-time security updates. Our products and
services are sold to enterprises, service providers, small and medium sized businesses and consumers. Our open platform framework
allows customers to extend the capabilities of our products and services with third-party hardware and security software applications.
Our products are sold, integrated and serviced by a network of channel partners worldwide.
Our business is subject to the effects of general global economic conditions and, in particular, market conditions in the IT, Internet
security and data security industries. If general economic and industry conditions deteriorate, demand for our products could be
adversely affected.
We derive our sales primarily through indirect channels. During 2016, 2015 and 2014, we derived approximately 52%, 53% and
54%, respectively of our sales from our ten largest channel partners. In 2016, 2015 and 2014, our two largest distributors accounted for
approximately 37%, 38% and 37%% of our sales. The following table presents the percentage of total consolidated revenues that we
derive from sales in each of the regions shown:
Year Ended December 31,
2015
2014
2016
Region:
Americas, principally U.S.
Europe
Asia-Pacific, Middle East and Africa
49%
36%
15%
48%
37%
15%
49%
37%
14%
For information on the impact of foreign currency fluctuations, please refer to “Item 11 – Quantitative and Qualitative Disclosures
about Market Risk – Foreign Currency Risk.”
On February 17, 2015, we completed the acquisition of Hyperwise Ltd, a privately-held Israeli-based company. Hyperwise Ltd.
has developed an advanced CPU-level threat prevention engine that eliminates threats at the point of pre-infection. The exploit
prevention technology provides a higher catch rate of threats and provides organizations an unmatched level of protection against
attackers.
On April 2, 2015, we completed the acquisition of Lacoon Mobile Security, a privately held Israeli based company. Lacoon
provides a comprehensive solution for iOS and Android, delivering real-time mobile security and intelligence to an organization’s
existing security and mobility infrastructure.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to
make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we make are
reasonable based upon information available to us at the time that these estimates, judgments and assumptions were made. These
estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements
as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences
between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. The
accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to
aid in fully understanding and evaluating our reported financial results, include the following:
27
• Revenue recognition (including sales reserves),
• Goodwill,
• Realizability of long-lived assets (including intangible assets),
• Accounting for income taxes,
•
Equity-based compensation expense,
• Allowances for doubtful accounts,
• Derivative and hedge accounting, and
•
Impairment of marketable securities.
In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require
management’s judgment in its application. There are also areas in which management’s judgment in selecting among available
alternatives would not produce a materially different result. Our senior management has reviewed these critical accounting policies and
related disclosures with the audit committee of our board of directors. You can see a summary of our significant accounting policies in
Note 2 to our consolidated financial statements, as set forth in Item 18.
Revenue recognition
We derive our revenues mainly from sales of products and licenses, subscriptions and software updates and maintenance. Our
products are generally integrated with software that is essential to the functionality of the product. We sell our products primarily
through channel partners including distributors, resellers, Original Equipment Manufacturers (“OEMs”), system integrators and
Managed Security Service Providers (“MSPs”), all of whom are considered end users.
Subscriptions provide customers with access to its suite of security solutions and are either sold as a service or an annuity.
Software updates and maintenance provide customers with rights to unspecified software product upgrades released during the
term of the agreement and include maintenance services to end-user customers, through primarily telephone access to technical support
personnel as well as hardware support services.
We recognize revenues when persuasive evidence of an arrangement exists, the product or software license has been delivered or
services were rendered, the amounts are fixed or determinable and collection of the amount is considered probable. Revenues from sales
of products and licenses are recognized upon shipment or when the customer has been provided access through delivery of the
Certificate Key. Revenues from subscriptions and from software updates and maintenance are recognized ratably over the term of the
agreement. Revenues from arrangements with payment terms extending beyond customary payment terms are considered not to be
fixed or determinable, in which this case revenue is deferred and recognized when payments become due, provided that all other
revenue recognition criteria have been met.
Our products and services generally qualify as separate units of accounting. As such, revenues from multiple element
arrangements that include products, subscriptions and software updates and maintenance are separated into their various elements using
the relative selling price. The estimated selling price for each deliverable is based on its vendor specific objective evidence (“VSOE”),
if available, third party evidence (“TPE”) if VSOE is not available, or best estimated selling price (“BESP”) if neither VSOE nor TPE is
available.
We establish VSOE of fair value based on the renewal prices. If VSOE cannot be established for a deliverable, we use BESP. We
determine fair value based on BESP by reviewing historical transactions, and considering several other external and internal factors
including, but not limited to, pricing practices.
Deferred revenues represent mainly the unrecognized revenue billed for subscriptions and for software updates and maintenance.
Such revenues are recognized ratably over the term of the related agreement.
28
We recognize revenues net of estimated amounts that may be refunded for sales returns, rebates, stock rotations and other rights
provided to customers on product and service related sales subject to varying limitations. We estimate and record these reductions based
on our historical sales returns experience, analysis of credit memo data, rebate plans, stock rotation and other known factors. In each
accounting period, we use judgments and estimates to determine potential future sales credits, returns and stock rotation, related to
current period revenue. These estimates affect our “revenue” line item on our consolidated statements of income and affect our
“accounts receivable, net”, our “deferred revenues” and our “accrued expenses and other current liabilities” on our consolidated balance
sheets.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an ASU No. 2014-09 on revenue from contracts with
customers, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with
customers and supersedes most current revenue recognition guidance. In 2015, the FASB issued guidance to defer the effective date to
fiscal years beginning after December 15, 2017 with early adoption for fiscal years beginning after December 15, 2016.
In March, April, May and December 2016, the FASB issued additional updates regarding certain principal versus agent
considerations, identifying performance obligations and licensing, various narrow scope improvements and technical corrections and
improvements based on practical questions raised by users.
The standard requires revenue to be recognized when control of promised goods or services is transferred to customers in amounts
that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The standard also
provides guidance on the recognition of costs related to obtaining customer contracts. The two permitted transition methods under the
new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or
the modified retrospective method, in which case the standard is applied only to the period of adoption and the cumulative effect of
applying the standard would be recognized at the beginning of that period.
We anticipate adopting the new standard at the effective date of January 1, 2018. We believe that an impact may be on accounting
for costs related to obtaining contracts with customers. We are continuing to assess all the potential impacts this standard will have, and
as such we cannot reasonably estimate quantitative information related to the impact of this standard on our consolidated financial
statements at this time.
Goodwill
Goodwill is measured as the excess of the cost of acquisition over the sum of the amounts assigned to tangible and identifiable
intangible assets acquired less liabilities assumed. We have one operating segment, and this segment comprises our only reporting unit.
We review goodwill for impairment annually during the fourth quarter of each fiscal year and whenever events or changes in
circumstances indicate its carrying value may not be recoverable in accordance with ASC 350 “Intangibles – Goodwill and other”. ASC
350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill
impairment test. An entity is not required to calculate the fair value of a reporting unit unless the entity determines, based on a
qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. Alternatively, ASC 350 permits
an entity to bypass the qualitative assessment for any reporting unit and proceed directly to performing the first step of the goodwill
impairment test. Goodwill impairment is deemed to exist if the carrying value of a reporting unit exceeds its fair value. In such cases,
we then calculate the goodwill’s implied fair value by performing a hypothetical allocation of the reporting unit’s fair value to the
underlying assets and liabilities, with the residual being the implied fair value of goodwill. This allocation process involves using
significant estimates, including estimates of future cash flows, future short-term and long-term growth rates, weighted average cost of
capital and assumptions about the future deployment of the long-lived assets of the reporting unit. Other factors we consider are the
brand awareness and the market position of the reporting unit and assumptions about the period of time we will continue to use the
brand in our product portfolio. If these estimates or their related assumptions change in the future, we may be required to record
impairment charges for our goodwill.
We perform the first step of the quantitative goodwill impairment test during the fourth quarter of each fiscal year, or more
frequently if impairment indicators are present and compare the fair value of the reporting unit with its carrying value. Our annual
goodwill impairment analysis did not result in impairment. As of December 31, 2016, the market capitalization of the Company was
significantly higher than the equity book value.
29
Realizability of long-lived assets (including intangible assets)
We are required to assess the impairment of tangible and intangible long-lived assets subject to amortization, under ASC 360
“Property, Plant and Equipment”, on a periodic basis, when events or changes in circumstances indicate that the carrying value may not
be recoverable. Impairment indicators include any significant changes in the manner of our use of the assets or the strategy of our
overall business, significant negative industry or economic trends and significant decline in our share price for a sustained period.
Upon determination that the carrying value of a long-lived asset may not be recoverable based upon a comparison of aggregate
undiscounted projected future cash flows from the use of the asset or asset group to the carrying amount of the asset, an impairment
charge is recorded for the excess of carrying amount over the fair value. We measure fair value using discounted projected future cash
flows. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain.
If these estimates or their related assumptions change in the future, we may be required to record impairment charges for our tangible
and intangible long-lived assets subject to amortization. No impairment charges were recognized during 2016, 2015 and 2014.
Accounting for income tax
We account for income taxes in accordance with ASC No. 740, “Income Taxes” (“ASC No. 740”). ASC No. 740 prescribes the
use of the liability method whereby deferred tax asset and liability account balances are determined for temporary 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. Changes in tax rates may significantly affect the deferred tax assets included in our
Consolidated Financial Statements. We provide a valuation allowance, if necessary, to reduce deferred tax assets to amounts more
likely than not to be realized.
We are subject to income taxes in Israel, the U.S. and numerous foreign jurisdictions. Significant judgment is required in
evaluating our uncertain tax positions and determining our provision for income taxes. Based on the guidance in ASC 740 “Income
Taxes”, we use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position
for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as
the largest amount that is more than 50% likely to be realized upon settlement.
Accounting for tax positions requires judgments, including estimating reserves for potential uncertainties. While we believe the
resulting tax balances are appropriately accounted for, the ultimate outcome of such matters could result in favorable or unfavorable
adjustments to our consolidated financial statements and such adjustments could be material. The provision for income taxes includes
the impact of changes to reserve provisions that are considered appropriate, as well as the related interest. See Note 12 to our
Consolidated Financial Statements for further information regarding income taxes. We have filed or are in the process of filing local
and foreign tax returns that are subject to audit by the respective tax authorities. The amount of income tax we pay is subject to ongoing
audits by the tax authorities, which often result in proposed assessments. We believe that we have adequately provided for any
reasonably foreseeable outcomes related to tax audits and settlements. However, our future results may include favorable or unfavorable
adjustments to our estimated tax liabilities in the period the assessments are made or resolved, audits are closed or when statutes of
limitation on potential assessments expire. See: “Item 3 – Key Information – Risk Factors – Risks Related to Our Business and Our
Market”.
Equity-based compensation expense
We account for equity-based compensation in accordance with ASC 718 “Compensation – Stock Compensation.” Under the fair
value based measurement approach of this statement, stock-based compensation cost is measured at the grant date based on the fair
value of the award and is recognized as an expense over the requisite service periods. Determining the fair value of stock-based awards
at the grant date as well as the determination of the amount of stock-based awards that are expected to be forfeited requires the exercise
of judgment. If actual forfeitures differ from our estimates, equity-based compensation expense and our results of operations would be
impacted. Performance restricted share units are subject to certain performance criteria. We recognized compensation expense for such
awards when we determine it is probable that the related performance condition will be satisfied.
We estimate the fair value of employee stock options and employee stock purchase plan using a Black-Scholes-Merton valuation
model. The fair value of an award is affected by our stock price on the date of grant as well as other assumptions, including the
estimated volatility of our stock price over the expected term of the awards, and the estimated period of time that we expect employees
to hold their stock options. The risk-free interest rate assumption is based upon United States treasury interest rates
30
appropriate for the expected term of the awards. We use the historical volatility of our publicly traded shares in order to estimate future
stock price trends. In order to determine the estimated period of time that we expect employees to hold their stock options, we use
historical exercise rates of employee groups by job classification. Our expected dividend rate is zero since we do not currently pay cash
dividends on our common stock and do not anticipate doing so in the foreseeable future. We base the fair value of restricted stock units
on the market value of the underlying shares at the date of grant.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, “Compensation — Stock Compensation (Topic
718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the
accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning
after December 15, 2016, and interim periods within those fiscal years. The standard became effective for the Company on January 1,
2017. We adopted ASU 2016-09 in the first quarter of 2017 using a modified retrospective transition method. As a result, we expect to
increase our deferred tax asset in the amount of $86 million.
Under the new guidance, we have elected to change our policy and have started to recognize forfeitures of awards as they occur.
The change in forfeiture policy was adopted using a modified retrospective transition method. We expect to record a total cumulative-
effect adjustment in retained earnings as of January 1, 2017 for the revision of the forfeiture fair value that have not previously been
recognized in an amount of approximately $3 million upon transition.
Subsequent to adoption of the new guidance, our income tax expense and associated effective tax rate will be impacted by
fluctuations in stock price between the grant dates, exercise dates and vesting dates of equity awards, as applicable.
Allowance for doubtful accounts
We maintain an allowance for doubtful accounts for losses that may result from the failure of our channel partners to make
required payments. We estimate this allowance based on our judgment as to our ability to collect outstanding receivables. We form this
judgment based on factors that may affect a customer’s ability to pay, such as age of the receivable balance and past experience. If the
financial condition of our channel partners were to deteriorate, resulting in their inability to make payments, we would need to increase
the allowance for doubtful accounts.
Derivative and hedge accounting
Approximately 58% of our operating expenses were denominated in U.S. dollars or linked to the U.S. dollar. In 2016, 2015 and
2014, we entered into foreign exchange forward contracts to hedge our balance sheet items and significant portion of our future cash
flow from payments of payroll and related expenses, in order to reduce the impact of foreign currency on our results. These foreign
exchange forward contracts are mainly denominated in Israeli Shekel and in Euro. Our cash flow from operations could be affected
from the outcome of these instruments.
The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative
instruments that are designated and qualify as hedging instruments, we must designate the hedging instrument, based upon the exposure
being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. If the derivatives meet the
definition of a hedge and are so designated, depending on the nature of the hedge, changes in the fair value of such 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 immediately in earnings. We estimate the fair value of such derivative contracts based on forward and spot rates
quoted in markets that are not active.
Establishing and accounting for foreign exchange contracts involve judgments, such as determining the fair value of the contracts,
determining the nature of the exposure, assessing its amount and timing, and evaluating the effectiveness of the hedging arrangement.
Although we believe that our estimates are accurate and meet the requirement of hedge accounting, actual results could differ from
these estimates, and such difference could cause fluctuation in our recorded operating expenses.
31
Impairment of marketable securities
Our marketable securities are classified as available-for-sale securities. We assess our available-for-sale marketable securities on a
regular basis for other-than-temporary impairment. Pursuant to the accounting guidance in ASC 320 “Investments- Debt and Equity
Securities”, if we have a security with a fair value less than its amortized cost and we intend to sell the security or it is more likely than
not we will be required to sell the security before it recovers, an other-than temporary impairment has occurred and we must record the
entire amount of the impairment in earnings. If we do not intend to sell the security or it is not more likely than not we will be required
to sell the security before it recovers in value, we must estimate the net present value of cash flows expected to be collected. If the
amortized cost exceeds the net present value of cash flows, such excess is considered a credit loss and an other-than-temporary
impairment has occurred. The credit loss component is recognized in earnings and the residual portion of the other-than-temporary
impairment is recorded in other comprehensive income. The determination of credit losses requires significant judgment and actual
results may be materially different than our estimate. We consider the likely reason for the decline in value, the period of time the fair
value was below amortized cost, changes in and performance of the underlying collateral, the ability of the issuer to meet payment
obligations, changes in ratings and market trends and conditions.
We measure our money market funds and marketable securities at fair value. Money market funds and marketable securities are
classified within Level 1 or Level 2. This is because these assets are valued using quoted market prices or alternative pricing sources
and models utilizing market observable inputs.
Results of Operations
The following table presents information concerning our results of operations in 2016, 2015 and 2014:
Revenues:
Products and licenses
Subscriptions
Software updates and maintenance
Total revenues
Operating expenses(*):
Cost of products and licenses
Cost of subscriptions
Cost of software updates and maintenance
Amortization of technology
Total cost of revenues
Research and development
Selling and marketing
General and administrative
Total operating expenses
Operating income
Financial income, net
Income before taxes on income
Taxes on income
Net income
2016
Year Ended December 31,
2015
(in thousands)
2014
$ 572,964
389,885
778,452
1,741,301
105,967
10,841
83,011
2,184
202,003
178,372
420,526
88,130
889,031
852,270
44,402
896,672
171,825
$ 724,847
$ 555,792
318,624
755,422
1,629,838
101,158
7,623
78,468
1,808
189,057
149,279
359,804
91,981
790,121
839,717
34,073
873,790
187,924
$ 685,866
$ 520,312
265,021
710,483
1,495,816
95,868
5,626
74,807
240
176,541
133,300
306,363
78,558
694,762
801,054
28,762
829,816
170,245
$ 659,571
(*)
Including pre-tax charges for stock-based compensation, amortization of intangible assets and acquisition related expenses in the
following items:
32
Amortization of intangible assets and acquisition related expenses
Amortization of technology
Research and development
Selling and marketing
Total amortization of intangible assets and acquisition related expenses
Stock-based compensation
Cost of products and licenses
Cost of software updates and maintenance
Research and development
Selling and marketing
General and administrative
Total stock-based compensation
$ 2,184
7,588
3,358
$13,130
$
66
2,087
12,718
19,168
48,693
$82,732
$ 1,808
6,146
3,267
$11,221
$
65
1,520
11,544
16,351
46,822
$76,302
$
240
—
1,866
$ 2,106
$
66
1,024
9,284
13,339
39,456
$63,169
The following table presents information concerning our results of operations as a percentage of revenues for the periods
indicated:
Year Ended December 31,
2015
2014
2016
Revenues:
Products and licenses
Subscriptions
Software updates and maintenance
Total revenues
Operating expenses:
Cost of products and licenses
Cost of subscriptions
Cost of software updates and maintenance
Amortization of technology
Total cost of revenues
Research and development
Selling and marketing
General and administrative
Total operating expenses
Operating income
Financial income, net
Income before taxes on income
Taxes on income
Net income
*)
Lower than 1%.
Revenues
33%
22
45
100%
34%
20
46
100%
35%
18
47
100%
6
1
5
—*)
12
10
24
5
51
49
3
52
10
42
6
1
5
—*)
12
9
22
5
48
52
2
54
12
42
6
1
5
—*)
12
9
20
5
46
54
2
56
12
44
We derive our revenues mainly from the sale of products and licenses, subscriptions and software updates and maintenance. Our
revenues were $1,741 million in 2016, $1,630 million in 2015 and $1,496 million in 2014.
Total revenues in 2016 grew by 7% compared to 2015. Product and license revenues increased by $17 million, or 3%, from
$556 million in 2015 to $573 million in 2016, which was attributed primarily to growth in sales of our security solutions products.
Subscription revenues increased by $71 million, or 22%, from $319 million in 2015 to $390 million in 2016, which was driven by
increased sales of our Blade Packages, which primarily include Next Generation Threat Prevention and Next Generation Threat
Extraction. In 2016, product and license and subscription revenues as a percentage of total revenues were 55%, compared to 54% in
2015. Software updates and maintenance revenues increased by $23 million, or 3%, from $755 million in 2015 to $778 million in 2016,
primarily as a result of renewals of existing and sales of new maintenance contracts. During the year we experienced increase in
discount rates across different regions relating mainly to competitive environment, currency changes and launch of new products.
33
Total revenues in 2015 grew by 9% compared to 2014. Product and license revenues increased by $36 million, or 7%, from
$520 million in 2014 to $556 million in 2015, which was attributed primarily to growth in sales of our security solutions products.
Subscription revenues increased by $54 million, or 20%, from $265 million in 2014 to $319 million in 2015, which was driven by
continuing shift toward Blade Packages which include our Next Generation Firewall, Next Generation Threat Prevention and Next
Generation Threat Extraction. In 2015, product and license and subscription revenues as a percentage of total revenues were 54%,
compared to 53% in 2014. Software updates and maintenance revenues increased by $45 million, or 6%, from $710 million in 2014 to
$755 million in 2015, primarily as a result of renewals of existing and new sales of maintenance contracts.
Cost of Revenues
Total cost of revenues was $202 million in 2016, $189 million in 2015 and $177 million in 2014. Cost of revenues includes cost of
product and licenses, cost of subscriptions and cost of software updates and maintenance and amortization of technology. Our cost of
products and licenses includes mainly cost of software and hardware production, packaging and shipping. Our cost of subscriptions
includes license fees paid to third parties. Our cost of software updates and maintenance include mainly the cost of post-sale customer
support.
Cost of products and licenses was $106 million in 2016, $101 million in 2015 and $96 million in 2014, and represented 18% of
products and licenses revenues in each of 2016, 2015 and 2014. The increase of $5 million in 2016 and $5 million in 2015 in cost of
products and licenses was in line with the growth in revenues from product and licenses.
Cost of subscriptions was $11 million in 2016, $8 million in 2015 and $6 million in 2014, and represented 3%, 2% and 2% of
subscription revenues in 2016, 2015 and 2014, respectively. The change in the percentage of these costs is consistent with the increase
in subscriptions revenues.
Cost of software updates and maintenance was $83 million in 2016, $78 million in 2015 and $75 million in 2014 and represented
11%, 10% and 11% of software updates and maintenance revenues in 2016, 2015 and 2014, respectively. In 2016, the $5 million
increase in the cost of updates and maintenance was primarily the result of an increase in compensation expenses, which was related
mainly to an increase in headcount of employees and contractors, from 590 at the end of 2015 to 618 at the end of 2016. In 2015, the
$3 million increase in the cost of software updates and maintenance was primarily the result of a $3 million increase in compensation
expenses, which was related mainly to increase in headcount of employees and contractors, from 557 at the end of 2014 to 590 at the
end of 2015.
In 2016, amortization of technology increased from $1.8 in 2015 to $2.2 million. The increase is attributed to the acquisition made
during 2015.
Research and Development
Research and development expenses were $178 million in 2016, $149 million in 2015 and $133 million in 2014, and represented
10% of revenues in 2016, and 9% of revenues in each of 2015 and 2014. Research and development expenses consist primarily of
salaries and other related expenses for personnel, as well as the cost of facilities and depreciation of capital equipment. Out of the
$29 million increase in 2016 compared to 2015, $23 million was primarily a result of an increase in compensation for employees
engaged in research and development, mainly attributed to new hires and acquisitions made during 2015. Out of the $16 million
increase in 2015 compared to 2014, $11 million was primarily a result of an increase in compensation for employees engaged in
research and development.
The majority of our personnel engaged in research and development are located in Israel, where compensation-related expenses
are paid in Israeli Shekels, and in Sweden, where compensation-related expenses are paid in Swedish Krona, while our research and
development expenses are reported in U.S. dollars. Therefore, changes to the exchange rate between the Israeli Shekel and the U.S.
dollar, and between the Swedish Krona and the U.S. dollar, have affected and may in the future affect our research and development
expenses. We have forward contracts to hedge against a certain portion of the exposure mentioned above.
34
Selling and Marketing
Selling and marketing expenses consist primarily of salaries, commissions, advertising, trade shows, seminars, public relations,
co-op activities with partners, travel and other related expenses. Selling and marketing expenses were $421 million in 2016,
$360 million in 2015 and $306 million in 2014, which represented 24% of revenues in 2016, 22% of revenues in 2015 and 20% of the
revenues in 2014. In 2016 and 2015, there was an increase of $61 million and $54 million, respectively. Of this change, $49 million and
$35 million, respectively, was primarily due to an increase in compensation and travel expenses.
Our selling and marketing expenses worldwide are paid in local currencies and are reported in U.S. dollars. Therefore, changes to
the exchange rates between the local currencies and the U.S. dollar have affected, and may in the future affect, our expense level.
General and Administrative
General and administrative expenses consist primarily of salaries and other related expenses for personnel, professional fees,
insurance costs, legal and other expenses. General and administrative expenses were $88 million in 2016, $92 million in 2015 and
$79 million in 2014, and represented 5% of revenues in each of 2016, 2015 and 2014. In 2016, there was a decrease of $4 million in
general and administrative expenses, which was primarily due to a decrease in legal expenses. In 2015, there was an increase of
$13 million in general and administrative expenses, which was primarily due to an increase in share-based compensation of $7 million
and an increase in legal expenses and compensation.
Operating Income Margin
We had an operating margin of 49% in 2016, 52% in 2015 and 54% in 2014. Our operating margin decreased by 3% and 2% in
2016 and 2015, respectively, due to an increase in compensation expense related mainly to the growth in headcount during these years.
We may experience future fluctuations or declines in operating margins from historical levels due to several factors, as described
above in “Item 3 – Key Information” under the caption “Risk Factors – Risks Relating to Our Business and Our Market – Our operating
margins may decline.”
Financial Income, Net
Net financial income consists primarily of interest earned on cash equivalents and marketable securities. Net financial income was
$44 million in 2016, $34 million in 2015 and $29 million in 2014. As we generally hold debt securities until maturity, our current
portfolio’s yield is derived primarily from market interest rates and the yield of securities on the date of the investment. Since most of
our investments are in U.S. dollars denominated securities, our net financial income is heavily dependent on prevailing U.S. interest
rates changes and the market expectations to such changes. The increase in net financial income in 2016 was primarily due to an
increase in interest rate in 2016 and market expectations for an increase in U.S. interest rates during 2017, leading to better yields on
securities purchased in 2016. The increase was also attributed to one-time gain of $4 million from exercise of an investment in 2016.
The increase in net financial income in 2015 was primarily due to market expectations for an increase in U.S. interest rates, leading to
better yields on securities purchased in 2015.
We review various factors in determining whether we should recognize an impairment charge for our marketable securities,
including whether the Company intends to sell, or if it is more likely than not that the Company will be required to sell before recovery
of the amortized cost basis of, such marketable securities, the length of time and extent to which the fair value has been less than its cost
basis in such marketable securities, the credit ratings of such marketable securities, the nature of underlying collateral as applicable and
the financial condition, expected cash flow and near-term prospects of the issuer. In evaluating when declines in fair value are other-
than-temporary, we considered all available evidence, including market declines subsequent to the end of the period. We may recognize
additional losses in the future should the prospects of the issuers of these securities continue to deteriorate. In 2016, no other-than-
temporary impairment was recorded.
For further risk related to our portfolio see also Item 3, “Risk Factors – Risks Related to Our Business and Our Market – Our cash
balances and investment portfolio have been, and may continue to be, adversely affected by market conditions and interest rates”.
35
Taxes on Income
Total taxes on income were $172 million in 2016, $188 million in 2015 and $170 million in 2014. Our effective tax rate was 19%
in 2016, 21.5% in 2015 and 20.5% in 2014. The lower effective tax rate in 2016 in comparison to 2015 and 2014 is attributed to tax
benefits relating to research and development tax credits, tax settlements and lapse of statute of limitation on certain provisions in an
aggregate amount of $19 million. See Note 12 to our consolidated financial statements for further information on our statutory rates.
Additional details are provided in “Item 10 – Additional Information” under the caption “Israeli taxation, foreign exchange
regulation and investment programs” and “Item 3 – Key Information” under the caption “The tax benefits available to us require us to
meet several conditions, and may be terminated or reduced in the future, which would increase our taxes.”
Liquidity and Capital Resources
During 2016, 2015 and 2014, we financed our operations through cash generated from operations. Our total cash and cash
equivalents, short-term investments and long-term interest bearing investments, were $3,669 million as of December 31, 2016 and
$3,615 million as of December 31, 2015. Our cash and cash equivalents and short-term investments were $1,373 million as of
December 31, 2016 and $1,284 million as of December 31, 2015. Our long-term interest bearing investments were $2,296 million as of
December 31, 2016 and $2,331 million as of December 31, 2015. Our financial assets are held and managed through the parent
company in Israel and our subsidiaries in Singapore and the U.S.
We generated net cash from operations of $946 million in 2016, $947 million in 2015 and $786 million in 2014. Net cash from
operations for 2016, 2015 and 2014 consisted primarily of net income adjusted for non-cash activity including stock-based
compensation expenses, depreciation, amortization of intangible assets plus changes in deferred revenues, deferred income tax benefit,
accrued expenses and other liabilities, trade receivables and prepaid expenses and other assets. In addition to the increase in our net
income in 2016, our cash flows provided by operating activities reflect also the increase in our deferred revenues and accrued expenses
and other current liabilities. In 2016 and 2014, we paid additional taxes as a result of settlement agreements. See also Note 12 to our
Consolidated Financial Statements for further information.
Net cash used in investing activities was $110 million in 2016, $153 million in 2015 and $246 million in 2014. In 2016 net cash
used in investing activities consisted primarily of additional investments and proceeds related to marketable securities and short terms
deposits. In 2015 and 2014 our net cash used in investing activities consisted primarily of investments and proceeds related to
marketable securities and short terms deposits, as well as cash paid for acquisitions of subsidiaries in 2015. Our capital expenditures
amounted to $24 million in 2016, $17 million in 2015 and $13 million in 2014. Our capital expenditures consisted primarily of
computer equipment and software, construction of a new office building in Israel and leasehold improvements.
Net cash used in financing activities was $841 million in 2016, $864 million in 2015 and $686 million in 2014. In 2016, 2015 and
2014, net cash used in financing activities was attributed primarily to the repurchase of ordinary shares. Under the repurchase programs,
we may purchase our ordinary shares from time to time, depending on market conditions, share price, trading volume and other factors.
In 2016, 2015 and 2014, we repurchased ordinary shares in the amount of $988 million, $986 million and $768 million, respectively.
We re-issued the repurchased shares to settle exercises of options and awards of restricted share units to our employees and directors.
Proceeds from such activities were $129 million, $103 million and $70 million in 2016, 2015 and 2014, respectively.
Our investments in marketable securities are classified as available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, recorded in other comprehensive income. Amortization of premium, discount and
interest is recorded in our statements of income.
Our liquidity could be negatively affected by a decrease in demand for our products and services, including the impact of changes
in customer buying that may result from the current general economic downturn. Also, if the financial system or the credit markets
continue to deteriorate or remain volatile, our investment portfolio may be impacted and the values and liquidity of our investments
could be adversely affected.
Our principal sources of liquidity consist of our cash and cash equivalents, short-term deposits and marketable securities (which
aggregated $3,669 million as of December 31, 2016) and our cash flow from operations. We believe that these sources of liquidity will
be sufficient to satisfy our capital expenditure requirements for the next twelve months.
36
Research and Development, Patents and Licenses, etc.
Additional details are provided in this Item 5, under the caption “Results of Operations”.
Trend Information
Additional details are provided in this Item 5, under the caption “Results of Operations”.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements. In addition, we have no unconsolidated special purpose financing or
partnership entities that are likely to create contingent obligations.
Tabular Disclosure of Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2016:
Operating lease obligations
Uncertain income tax positions(*)
Severance pay(**)
Total
Payments due by period
Total
$ 18,313
$306,677
$ 8,953
$333,943
Less than 1
year
$
$
7,963
—
—
7,963
1-3 years
(in thousands)
$ 8,067
—
—
$ 8,067
4-5 years
Over 5 years
$ 2,247
—
—
$ 2,247
$
$
36
—
—
36
(*) Accrual for uncertain income tax position under ASC 740 “Income Taxes,” is paid upon settlement and we are unable to
reasonably estimate the ultimate amount or timing of settlement. See Note 12f of our Consolidated Financial Statements for
further information regarding the Company’s liability under ASC 740.
(**) Severance pay obligations to our Israeli employees, as required under Israeli labor law, are payable only upon termination,
retirement or death of the respective employee and there is no obligation for benefits accrued prior to 2007, if the employee
voluntarily resigns. These obligations are partially funded through accounts maintained with financial institutions and recognized
as an asset on our balance sheet. Of this amount, $4 million is unfunded.
37
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors and Senior Management
Our directors and executive officers as of December 31, 2016, were as follows:
Name
Gil Shwed
Marius Nacht
Jerry Ungerman
Amnon Bar-Lev
Tal Payne
Dorit Dor
Yoav Chelouche (3)
Irwin Federman (3)
Guy Gecht (3)
Dan Propper
Ray Rothrock (3)
David Rubner
Tal Shavit
Position
Chief Executive
Officer and Director
Chairman of the Board
Vice Chairman of the
Board
President
Chief Financial and
Operations Officer
Vice President of
Products
Director
Director
Director
Director
Director
Director
Director
Independent
Director (1)
Outside
Director
(2)
Member
of Audit
Committee
Member of
Compensation
Committee
Member of
Nominating
Committee
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
(1)
(2)
(3)
“Independent Director” under the NASDAQ Global Select Market regulations and the Israeli Companies Law (see explanation
below).
“Outside Director” as required by the Israeli Companies Law (see explanation below).
“Financial expert” as required by the Israeli Companies Law and NASDAQ requirements with respect to membership on the audit
committee (see “Item 16A – Audit Committee Financial Expert”).
Gil Shwed is the founder, Chief Executive Officer and Director. Mr. Shwed served as Chairman of our board of directors until
September 2015. Mr. Shwed is considered the inventor of the modern firewall and authored several patents, such as the company’s
Stateful Inspection technology. Mr. Shwed has received numerous accolades for his individual achievements and industry contributions,
including an honorary Doctor of Science from the Technion – Israel Institute of Technology, an honorary Doctor of Science from Tel
Aviv University, the World Economic Forum’s Global Leader for Tomorrow for his commitment to public affairs and leadership in
areas beyond immediate professional interests, and the Academy of Achievement’s Golden Plate Award for his innovative contribution
to business and technology. Mr. Shwed is the Chairman of the Board of Trustees of the Youth University of Tel Aviv University.
Mr. Shwed is a Tel Aviv University Governor and founder of the University’s Check Point Institute for Information Security. He is also
Chairman of the Board of the board of directors of Yeholot Association Founded by the Rashi Foundation whose charter is, among
other things, to reduce the dropout rates in high schools.
Marius Nacht, one of Check Point’s founders, has served as Chairman of our board of directors since September 2015 and as Vice
Chairman of our board of directors from 2001 until September 2015. Mr. Nacht has also served as one of our directors since we were
incorporated in 1993. From 1999 through 2005, Mr. Nacht held Senior Vice President roles at Check Point. He also serves as a director
in a number of private companies. Mr. Nacht earned a B.S. (cum laude) in Physics and Mathematics from the Hebrew University of
Jerusalem in 1983, and an M.S. in Electrical Engineering and Communication Systems from Tel Aviv University in 1987.
Jerry Ungerman has served as Vice Chairman of our board of directors since 2005. From 2001 to 2005, Mr. Ungerman served as
our President and before that, from 1998 until 2000, he served as our Executive Vice President. Prior to joining us, Mr. Ungerman
accumulated extensive experience in high-tech sales, marketing and management experience at Hitachi Data Systems (HDS), a data
storage company and a member of the Hitachi, Ltd. group. He began his career with International Business Machines Corp. (IBM), a
global technology products and services company, after earning a B.A. in Business Administration from the University of Minnesota.
38
Amnon Bar-Lev, President at Check Point, is responsible for worldwide sales, global partner programs, business development and
technical services for the company. Mr. Bar-Lev joined Check Point in 2005 and brings a diverse background of high-tech sales,
marketing and management experience to the organization. Prior to joining Check Point, Mr. Bar-Lev was founder and CEO of Xpert
Integrated System Ltd., a leading provider of security, business-continuity and infrastructure platforms and solutions. Before forming
Xpert, Mr. Bar-Lev began his career in the Israeli Air Force where he held several positions within the operational and administration
units. Mr. Bar-Lev holds a B.A. in Computer Science (HONS) and Management (HONS) from Tel-Aviv University.
Tal Payne has been serving as Chief Financial Officer of Check Point since joining in 2008 and as Chief Financial and Operations
Officer since 2015. Ms. Payne oversees Check Point’s global operations and finance, including investor relations, legal, treasury,
purchasing and facilities. Prior to joining Check Point, Ms. Payne served as Chief Financial Officer at Gilat Satellite Networks, Ltd.,
where she held the role of Vice President of Finance for over five years. Ms. Payne began her career as a certified public accountant at
PricewaterhouseCoopers. Ms. Payne holds a B.A. in Economics and Accounting and an Executive M.B.A., both from Tel Aviv
University. Ms. Payne is a certified public accountant. Ms. Payne is a board member of SolarEdge Technologies, Inc.
Dr. Dorit Dor, Vice President of Products at Check Point, manages all product and development functions from concept to
delivery. Since joining the company in 1995, Dr. Dor has served in several pivotal roles in Check Point’s R&D organization. She has
been instrumental to the organization’s growth and managed many successful product releases. Dr. Dor holds a Ph.D. and M.S degree
in computer science from Tel-Aviv University, in addition to graduating cum laude for her B.S. In 1993, she won the Israel National
Defense Prize.
Yoav Z. Chelouche has served on our board of directors since 2006. Mr. Chelouche has also served as one of our outside directors
under the Israeli Companies Law since 2006. Mr. Chelouche has been Managing Partner of Aviv Venture Capital since August 2000.
Prior to joining Aviv Venture Capital, Mr. Chelouche served as President and Chief Executive Officer of Scitex Corp., a world leader in
digital imaging and printing systems, from December 1994 until July 2000. From August 1979 until December 1994, Mr. Chelouche
held various managerial positions with Scitex, including VP Strategy and Business Development, VP Marketing and VP Finance for
Europe. Mr. Chelouche is a member of the board of directors of a number of private companies. Mr. Chelouche is an independent board
member of Tower Semiconductor Ltd. as of July 2016. He is also an external director of the Tel Aviv Stock Exchange (TASE).
Mr. Chelouche earned a B.A. in Economics and Statistics from Tel Aviv University, and an M.B.A. from INSEAD University in
Fontainebleau, France.
Irwin Federman has served on our board of directors since 1995. Mr. Federman has also served as one of our outside directors
under the Israeli Companies Law since 2000. Mr. Federman was a General Partner of U.S. Venture Partners, a venture capital firm,
from 1990 to 2015. He is presently a senior advisor to that firm. Mr. Federman serves as chairman of Mellanox Technologies Ltd., and
director in Intermolecular, Inc. and a number of private companies. Mr. Federman received a B.S. in Economics from Brooklyn
College.
Guy Gecht has served on our board of directors since 2006. Mr. Gecht has also served as one of our outside directors under the
Israeli Companies Law since 2006. Mr. Gecht is the Chief Executive Officer of Electronics For Imaging, Inc. (EFI), a company that
provides digital imaging and print management solutions for commercial and industrial applications and has served in this position
since January 2000. From October 1995 until January 2000, Mr. Gecht held various positions with EFI, including President of the
company. Prior to joining EFI, Mr. Gecht held various software engineering positions with technology companies. Mr. Gecht holds a
B.S. in Computer Science and Mathematics from Ben-Gurion University in Israel.
Dan Propper has served on our board of directors since 2006. Mr. Propper is the Chairman of the Board for the Osem Group, a
leading Israeli manufacturer of food products. Mr. Propper served as the Chief Executive Officer of Osem for 25 years until April 2006.
In addition to his role at Osem, from 1993 until 1999, Mr. Propper served as President of Israel’s Manufacturers’ Association, an
independent umbrella organization representing industrial enterprises in Israel, and as Chairman of the Federation of Economic
Organizations in Israel, which unites economic and business organizations that represents all business sectors in Israel. Mr. Propper has
received numerous awards for his contributions to the Israeli industry and economy, including an honorary Doctorate from the
Technion – Israel Institute of Technology in 1999. Mr. Propper serves as a member of the board of directors of Osem Investments Ltd.,
Vitania Ltd. and a number of private companies. Mr. Propper is also a member of the board of governors of the Technion, the
Weizmann Institute of Science, Tel Aviv University and Ben-Gurion University in Israel. Mr. Propper earned a B.Sc. (summa cum
laude) in Chemical Engineering and Food Technology from the Technion. From October 2011 to September 2014, Mr. Propper served
as the Chairman of the Supervisory Council of the Bank of Israel.
39
Ray Rothrock has served on our board of directors since 1995. Mr. Rothrock has also served as one of our outside directors under
the Israeli Companies Law since 2000. Mr. Rothrock is a Partner emeritus at Venrock, a venture capital firm, where he was a member
since 1988 and a general partner since 1995. He retired from Venrock in 2013. Presently, Mr. Rothrock is the Chairman and Chief
Executive Officer of RedSeal, Inc., a cybersecurity analytics company. Mr. Rothrock is also a director of a number of private
companies. Mr. Rothrock is a member of the Massachusetts Institute of Technology Corporation, and a Trustee of the University of
Texas and Texas A&M Investment Management Company. Mr. Rothrock received a B.S. in Engineering from Texas A&M University,
an M.S. from the Massachusetts Institute of Technology and an M.B.A. from the Harvard Business School.
David Rubner has served on our board of directors since 1999. Mr. Rubner is Chairman and Chief Executive Officer of Rubner
Technology Ventures Ltd., a venture capital firm, and is a general partner at Hyperion Israel Advisors Ltd., a venture capital fund. Prior
to founding Rubner Technology Ventures, Mr. Rubner served as President and Chief Executive Officer of ECI Telecommunications
Ltd., a provider of telecommunications networking infrastructure solutions from September 1991 to February 2000. Prior to his
appointment as President and Chief Executive Officer, Mr. Rubner held various management positions at ECI Telecom. Mr. Rubner
serves as a member of the boards of directors of Messaging International Ltd., Radware Ltd., Eltek Ltd., and a number of private
companies. Mr. Rubner is also a member of the Board of Trustees of Jerusalem College of Technology and Shaare Zedek Hospital.
Mr. Rubner holds a B.S. in Engineering from Queen Mary College, University of London and an M.S. in Electrical Engineering from
Carnegie Mellon University, and he was a recipient of the Industry Prize in 1995.
Dr. Tal Shavit has served on our board of directors since 2000. Dr. Shavit is an organizational consultant specializing in
international collaboration between Israeli and American companies, consulting in the management of cultural differences in order to
forge effective collaboration. Her work with leading management teams includes the definition of organizational culture as the engine
of the company’s activities. She consults with companies undergoing structural change with emphasis on organizational growth through
effective mergers and acquisitions and a redefining of management roles in order to meet market changes.
Of the individuals mentioned above, only Gil Shwed and Marius Nacht owned more than one percent of our outstanding shares as
of December 31, 2016. Additional details are provided in this Item 6, under the caption “Share ownership” and in “Item 7 – Major
Shareholders and Related Party Transactions.”
Some of our directors are board members of multiple companies, some of which may be technology companies. The board of
directors has determined that there are no current conflicts of interest with respect to any of our directors.
The terms of Gil Shwed, Marius Nacht, Jerry Ungerman, Dan Propper, David Rubner and Dr. Tal Shavit will expire at our 2017
annual meeting of shareholders. The terms of Irwin Federman and Ray Rothrock will expire at our 2017 annual meeting of
shareholders, and the terms of Yoav Chelouche and Guy Gecht will expire at our 2018 annual meeting of shareholders.
There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any of the
directors or members of senior management are elected.
Compensation of Directors and Officers
The total direct cash compensation that we accrued for our directors and executive officers as a group was approximately
$2.6 million for the year ended December 31, 2016. These amounts include $0.16 million that were set aside or accrued to provide for
severance and retirement insurance policies in 2016. These amounts do not include amounts accrued for expenses related to business
travel, professional and business association dues and other business expenses reimbursed to officers. We do not have any agreements
with our directors who are also officers that provide for benefits upon termination of employment, except for severance payments
mandated by Israeli law for all employees employed in Israel.
Following is a summary of the salary and benefits paid to our five most highly compensated executive officers in 2016 (in
thousands of U.S dollars) (referred to as the “Covered Executives”):
Mr. Gil Shwed, Chief Executive Officer and Director. Cash compensation expenses recorded in 2016 consisted of $14.8 in salary
expenses, and $12.9 in benefit costs. Mr. Shwed requested to forego his salary and bonus for 2016, as he has done for the past several
years. Following consideration of Mr. Shwed’s request, our compensation committee and board of directors have determined that
Mr. Shwed will not receive a bonus for 2016, and will not receive any cash compensation for 2016 except for an amount equal to the
minimum wage required under Israeli law.
40
Mr. Amnon Bar-Lev, President. Compensation expenses recorded in 2016 included $393.2 in salary expenses and $89.4 in benefit
costs.
Dr. Dorit Dor, Vice President, Products. Compensation expenses recorded in 2016 included $325.1 in salary expenses and $76.2
in benefit costs.
Ms. Tal Payne, Chief Financial Officer. Compensation expenses recorded in 2016 included $387.5 in salary expenses and $90.5 in
benefit costs.
Ms. Miryam Steinitz, Head of Human Resources. Compensation expenses recorded in 2016 included $213.3 in salary expenses and
$53.4 in benefit costs.
The salary expenses summarized above include the gross salary paid to the Covered Executives, and the benefit costs include the
social benefits paid by us on behalf of the Covered Executives, including convalescence pay, contributions made by the company to an
insurance policy or a pension fund, work disability insurance, severance, educational fund and payments for social security. We do not
lease vehicles for our Covered Executives.
In accordance with the company’s executive compensation policy, we also paid cash bonuses to our Covered Executives (other
than the Chief Executive Officer) upon compliance with predetermined 2016 performance parameters set by the Compensation
Committee and the Board of Directors. The 2016 cash bonus expenses for Mr. Bar-Lev, Dr. Dor, Ms. Payne and Ms. Steinitz were
$394.0, $240.3, $329.5 and $117.0, respectively. The cash compensation amounts were denominated in Israeli Shekels and converted
into U.S. Dollars at the exchange rate as of year-end.
We currently pay each of our non-executive directors an annual cash retainer of $40,000 for the services provided to our board of
directors and an annual cash retainer of $7,500 for each committee membership. In addition, we pay the chair of our audit committee an
annual cash retainer of $7,500 and the chair of each of our nominating committee and compensation committee an annual cash retainer
of $2,500. Only directors who are not officers receive compensation for serving as directors.
From time to time, we grant options and other awards under our equity incentive plans (described below) to our executive officers
and directors. See Item 10 “Additional Information – Compensation of Executive Officers and Directors; Executive Compensation
Policy” for a detailed description of the approval procedures we follow in compensating our directors and executive officers.
Our non-employee directors receive an automatic option grant and are also eligible for discretionary awards under the plans. Each
non-employee director who is first elected or appointed to the board of directors is granted an option to purchase 50,000 ordinary shares
on the date of the initial election or appointment, vesting in equal annual installments over a four-year period. On the date of each
annual general meeting of shareholders, each non-employee director who is to continue to serve as a non-employee director after the
annual meeting is granted an option to purchase an additional 25,000 ordinary shares, of which 50% vest six months after the grant date,
25% vest nine months after the grant date, and another 25% vest a year after the grant date, provided that the director has served as a
non-employee director for at least six months prior to the date of the annual meeting. The directors in office immediately prior to the
date of initial appointment or election, or of the annual meeting, as applicable, may determine to reduce the initial or annual grant to all
non-employee directors or specific non-employee directors.
All options to directors are granted at an exercise price equal to 100% of the closing price of the ordinary shares on the NASDAQ
Global Select Market on the date of grant.
In line with our goal of aligning the compensation of Mr. Gil Shwed, our Chief Executive Officer and Director, with the objectives
of our shareholders, on June 7, 2016, we granted Mr. Shwed options to purchase 1.3 million ordinary shares at an exercise price equal to
100% of the closing price of the ordinary shares on the NASDAQ Global Select Market on the date of the grant, vesting over a period
of 4 years.
As of December 31, 2016, our executive officers and directors held options to purchase an aggregate of approximately
11.86 million shares and held 104,416 restricted stock units under our stock option and equity incentive plans. The exercise prices of
these options range between $29.49 and $84.77, and their expiration dates range between June 2017 and June 2023. During 2016, we
granted our executive officers and directors options to purchase an aggregate of approximately 2.25 million shares and approximately
38.48 thousand RSUs under our equity incentive plans. The exercise price of these options was $72.76-$84.77, and their expiration is
January 2023-June 2023. Other than as specified in the share ownership table under the caption “Share ownership” below, none of our
directors and executive officers holds more than 1% of our outstanding shares.
41
We recorded equity-based compensation expenses in our financial statements for the year ended December 31, 2016 for
Mr. Shwed, Mr. Bar-Lev, Dr. Dor, Ms. Payne and Ms. Steinitz, of $35,531.8, $4,786.1, $3,550.0, $3,196.0 and $877.8, respectively.
Assumptions and key variables used in the calculation of such amounts are described in Note 2 u. to our audited consolidated financial
statements included in Item 18 of this Annual Report. All equity-based compensation grants to our Covered Executives were made in
accordance with the parameters of our company’s executive compensation policy and were approved by the company’s Compensation
Committee and Board of Directors, and, in the case of the equity-based compensation granted to the Chief Executive Officer, also by
the company’s shareholders in accordance with Israel’s Companies Law.
Our board of directors currently consists of ten members, including two outside directors in accordance with the requirements of
the Israeli Companies Law. See “—Outside and Independent Directors.” Under our articles of association, the number of directors on
our board is to be no less than six and no more than twelve. Each director (other than an outside director as described below) is elected
to serve until the next annual general meeting of shareholders and until his or her successor has been elected. Each executive officer is
elected by the board of directors and serves at the discretion of the board. All of our executive officers and directors, other than
non-employee directors, devote substantially all of their working time to our business. There are no family relationships among any of
our directors, officers or key employees.
As permitted under the Israeli Companies Law, our articles of association provide that any director may, by written notice to us,
appoint another person to serve as an alternate director or may cancel the appointment of an alternate director. Any person eligible to
serve as a director, other than a person who is already a director or an alternate director, may act as an alternate director. The term of
appointment of an alternate director may be for one meeting of the board, for a specified period of time, a specified meeting or action of
the board or until notice is given of the cancellation of the appointment. No director has appointed, and, to our knowledge, no director
currently intends to appoint, any other person as an alternate director. We do not have any service contracts with our directors providing
for benefits upon termination of service.
Outside and Independent Directors
Outside directors. In accordance with the Israeli Companies Law and the relevant regulations, we must have at least two outside
directors who meet the Israeli statutory requirements of independence. At least one of the outside directors is required to have “financial
and accounting expertise” and the other outside director or directors are required to have “professional expertise,” all as defined under
the Israeli Companies Law. Our board of directors has determined that each of Yoav Chelouche, Irwin Federman, Guy Gecht and Ray
Rothrock has “financial and accounting expertise,” and each of Guy Gecht and Ray Rothrock has “professional expertise”.
An outside director serves for a term of three years, which may be extended for additional three-year terms. An outside director
can be removed from office only under very limited circumstances. All of the outside directors must serve on the company’s audit
committee and compensation committee (including one outside director serving as the chair of the audit committee and the
compensation committee), and at least one outside director must serve on each committee of the board of directors. As of December 31,
2016, Yoav Chelouche, Irwin Federman, Guy Gecht and Ray Rothrock are our outside directors under the Israeli Companies Law.
Yoav Chelouche’s and Guy Gecht’s term of office will expire in 2018, and Irwin Federman’s and Ray Rothrock’s term of office will
expire in 2017.
Independent directors. The Sarbanes-Oxley Act of 2002, as well as related rules subsequently implemented by the Securities and
Exchange Commission and the NASDAQ Global Select Market, requires issuers to comply with various corporate governance
practices. Under the rules applicable to us as a foreign private issuer, we are required to have a majority of independent directors within
the meaning of the applicable NASDAQ regulations. Our board of directors complies with these requirements by including a majority
of members who are independent directors within the meaning of the applicable NASDAQ regulations.
Pursuant to the Israeli Companies Law, an Israeli company whose shares are publicly traded may elect to adopt a provision in its
articles of association pursuant to which a majority of its board of directors (or a third of its board of directors in case the company has a
controlling shareholder) will consist of individuals complying with certain independence criteria prescribed by the Israeli Companies
Law, as well as certain other recommended corporate governance provisions. Although we have not included these provisions in our
articles of association because our board of directors already complies with the independence requirements and the corporate
governance rules of the NASDAQ Global Select Market, as described below, a majority of our board of directors and all the members
of our audit committee, compensation committee and nominating committee are directors who comply with the independence criteria
prescribed by the Israeli Companies Law.
42
As of December 31, 2016, our board of directors has determined that each of Yoav Chelouche, Irwin Federman, Guy Gecht, Dan
Propper, Ray Rothrock, David Rubner and Tal Shavit is an independent director under the applicable NASDAQ regulations and the
Israeli Companies Law. Our independent directors have regularly held meetings at which only independent directors are present.
Committees of the Board of Directors
Our articles of association provide that the board of directors may delegate all of its powers to committees of the board as it deems
appropriate, subject to the provisions of Israeli law. Our board of directors has established an audit committee, a compensation
committee and a nominating committee.
Audit committee. Under the Israeli Companies Law, the board of directors of any public company must establish an audit
committee. The audit committee must consist of at least three directors, must include all of the outside directors (including one outside
director serving as the chair of the audit committee), and a majority of the committee members must comply with the director
independence requirements prescribed by the Israeli Companies Law.
The audit committee may not include the chairman of the board, or any director employed by us, by a controlling shareholder or
by any entity controlled by a controlling shareholder, or any director providing services to us, to a controlling shareholder or to any
entity controlled by a controlling shareholder on a regular basis, or any director whose income is primarily dependent on a controlling
shareholder, and may not include a controlling shareholder or any relatives of a controlling shareholder. Individuals who are not
permitted to be audit committee members may not participate in the committee’s meetings other than to present a particular issue at the
request of the chair of the committee. However, an employee who is not a controlling shareholder or relative may participate in the
committee’s discussions but not in any vote, and the company’s legal counsel and corporate secretary (if they are not a controlling
shareholder or relative) may participate in the committee’s discussions and votes if requested by the committee.
In addition, the NASDAQ regulations also require us to maintain an audit committee consisting of at least three directors, all of
whom must be independent under the NASDAQ regulations applicable to audit committee members and each of whom is financially
literate and one of whom has accounting or related financial management expertise. Irwin Federman is the chairman of the audit
committee. Yoav Chelouche, Guy Gecht and Ray Rothrock serve as the other members of our audit committee. The audit committee
has adopted a written audit committee charter as required by the NASDAQ regulations.
The audit committee’s duties include providing assistance to the board of directors in fulfilling its legal and fiduciary obligations
in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions. In this respect the
audit committee approves the services performed by our independent accountants and reviews their reports regarding our accounting
practices and systems of internal accounting controls. The audit committee also oversees the audits conducted by our independent
accountants and takes those actions, as it deems necessary to satisfy itself that the accountants are independent of management. Under
the Israeli Companies Law, the audit committee also is required to monitor whether there are any deficiencies in the administration of
our company, including by consulting with the internal auditor and independent accountant, to review, classify and approve related
party transactions and extraordinary transactions, to review the internal auditor’s audit plan and to establish and monitor whistleblower
procedures.
Under the Israeli Companies Law, a meeting of the audit committee is properly convened if a majority of the committee members
attend the meeting and, in addition, a majority of the attending committee members are independent directors within the meaning of the
Israeli Companies Law and include at least one outside director.
Compensation committee. Under the Israeli Companies Law, the board of directors of any public company must establish a
compensation committee. The compensation committee must consist of at least three directors, include all of the outside directors
(including one outside director serving as the chair of the compensation committee), and a majority of the committee members must
comply with the director independence requirements prescribed by the Israeli Companies Law.
Similar to the rules that apply to the audit committee, the compensation committee may not include the chairman of the board, or
any director employed by us, by a controlling shareholder or by any entity controlled by a controlling shareholder, or any director
providing services to us, to a controlling shareholder or to any entity controlled by a controlling shareholder on a regular basis, or any
director whose primary income is dependent on a controlling shareholder, and may not include a controlling shareholder or any of its
relatives. Individuals who are not permitted to be compensation committee members may not participate in the committee’s meetings
other than to present a particular issue; provided, however, that an employee that is not a controlling shareholder or relative may
participate in the committee’s discussions but not in any vote, and the company’s legal counsel and corporate secretary may participate
in the committee’s discussions and votes if requested by the committee.
43
In addition, the NASDAQ rules also require us to maintain a compensation committee consisting of at least two independent
directors. Each of the members of the compensation committee is required to be independent under NASDAQ rules relating to
compensation committee members, which are different from the general test for independence of board and committee members. Each
of the members of our compensation committee satisfies those requirements. Ray Rothrock is the chairman of the compensation
committee. Yoav Chelouche, Irwin Federman and Guy Gecht serve as the other members of our compensation committee. The
compensation committee has adopted a written compensation committee charter.
The compensation committee’s duties include recommending to the board of directors a compensation policy for executives and
monitor its implementation, approve compensation terms of executive officers, directors and employees affiliated with controlling
shareholders, make recommendations to the board of directors regarding the issuance of equity incentive awards under our equity
incentive plans and exempt certain compensation arrangements from the requirement to obtain shareholder approval under the Israeli
Companies Law.
Nominating committee. The nominating committee identifies prospective board candidates, recommends nominees for election to
our board of directors, develops and recommends board member selection criteria, considers committee member qualification,
supervises the selection and composition of committees of our board of directors, and provides oversight in the evaluation of our board
of directors and each committee. David Rubner is the chairman of the nominating committee. Irwin Federman, Ray Rothrock and Tal
Shavit serve as the other members of our nominating committee. The nominating committee has adopted a written nominating
committee charter.
New Israeli Regulations
On March 30, 2016, the Israeli Companies Law Regulations were amended to reduce certain duplicative regulatory burden to
which Israeli companies publicly-traded on NASDAQ, such as Check Point, are subject to.
Generally, pursuant to the new regulations, an Israeli company traded on NASDAQ that does not have a “controlling
shareholder” (as defined in the Israeli Companies Law) will be able to elect not to appoint Outside Directors to its Board of Directors
and not to comply with the Audit Committee and Compensation Committee composition and chairman requirements of the Israeli
Companies Law (as described above under the headings “—Outside and Independent Directors” and “—Committees of our Board of
Directors”); provided, the company complies with the applicable NASDAQ independent director requirements and the NASDAQ Audit
Committee and Compensation Committee composition requirements.
Accordingly, Check Point will be eligible to benefit from the relief provided by the new amended Israeli regulations.
We are currently evaluating the effect the new regulations will have on our Board of Directors and Board committees. At this
time, we do not expect any changes to the composition of the Audit Committee and Compensation Committee and we expect that our
four Outside Directors (Yoav Chelouche, Irwin Federman, Guy Gecht and Ray Rothrock) will transition in due course to become
regular independent directors.
44
Employees
As of December 31, 2016, we had 4,281 employees.
Over the past three years, the number of our employees by function was as follows:
Function
Research, development and quality assurance
Marketing, sales and business development
Customer support
Information systems, administration, finance and operation
Total
As of December 31,
2015
1,296
1,650
558
394
3,898
2016
1,324
1,936
599
422
4,281
2014
1,048
1,252
504
354
3,158
From time to time, we also engage a limited number of subcontractors. As of December 31, 2016, we had 60 contractors.
Over the past three years, the number of our employees by geographic area was as follows:
Function
Israel
United States
Rest of the World
Total
As of December 31,
2015
1,803
926
1,169
3,898
2016
1,898
1,040
1,343
4,281
2014
1,486
776
896
3,158
We are subject to Israeli labor laws and regulations with respect to our Israeli employees. The Israeli labor laws differ materially
from U.S. labor laws and, in some cases, impose material obligations on us (such as severance pay and mandatory cost of living
increases). We are also subject to the labor laws and regulations of other jurisdictions in the world where we have employees.
Share Ownership
The following table shows information regarding beneficial ownership by our directors and executive officers as of February 29,
2016. Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission.
All information with respect to the beneficial ownership of any principal shareholder has been furnished by such shareholder and,
unless otherwise indicated below, we believe that persons named in the table have sole voting and sole investment power with respect to
all of the shares shown as beneficially owned, subject to community property laws, where applicable. All shares shown as beneficially
owned have identical rights in all respects. The shares beneficially owned by the directors include the shares owned by their family
members to which such directors disclaim beneficial ownership.
45
The share numbers and percentages listed below are based on shares outstanding as of February 28, 2017.
Name
Gil Shwed
Marius Nacht
All directors and officers as a
group (13 persons
including Messrs. Shwed
and Nacht) (4)
Number of
shares
beneficially
owned (1)
30,503,912
11,214,986
% of
class of
shares (2)
Title of securities
covered by the
options
Number of
options
and RSUs (3)
Exercise price of
options
17.9% Ordinary shares
6.8% Ordinary shares
5,540,000 $49.50 - $84.77
—
—
Date of expiration of
options
05/23/2018-06/06/2023
—
43,919,685
25.5% Ordinary shares
7,610,000 $ 49.50 - $84.77
04/12/2018-06/06/2023
(1) The number of ordinary shares shown includes shares that each shareholder has the right to acquire pursuant to stock options that
(2)
are exercisable and restricted share units that vest within 60 days after February 28, 2017.
If a shareholder has the right to acquire shares by exercising stock options (as determined in accordance with footnote (1)), these
shares are deemed outstanding for the purpose of computing the percentage owned by the specific shareholder (that is, they are
included in both the numerator and the denominator), but they are disregarded for the purpose of computing the percentage owned
by any other shareholder.
(3) Number of options immediately exercisable or exercisable and restricted share units that vest within 60 days from February 28,
2017.
(4) Each of Messrs./Mmes. Ungerman, Bar-Lev, Payne, Dor, Chelouche, Federman, Gecht, Propper, Rothrock, Rubner and Dr. Shavit
beneficially owns less than one percent of our outstanding ordinary shares.
Equity Incentive Plans
The following table summarizes our equity incentive plans, which have outstanding awards as of December 31, 2016:
Plan
2005 United States Equity Incentive Plan
2005 Israel Equity Incentive Plan
Employee Stock Purchase Plan
Outstanding
options, RSUs &
ESPP Shares
1,321,836
12,387,847
1,326,720
Options
outstanding
exercise price
$29.49-$84.77
$29.49-$84.77
Date of expiration
06/28/2017-11/01/2023
06/28/2017-11/01/2023
Options
exercisable
667,250
6,658,500
Total shares reserved for outstanding options, RSU and for future grants under the amended equity incentive plans is 16,597,520,
which is 9.2% of (i) our total outstanding ordinary shares, plus (ii) our ordinary shares reserved for issuance under our amended equity
incentive plans, in each case as of December 31, 2016.
In 2005, we adopted our 2005 United States Equity Incentive Plan and our 2005 Israel Equity Incentive Plan, which were
subsequently amended in January 2014. We refer to the plans, as amended in January 2014, as the U.S. Equity Plan and the Israel
Equity Plan, and, together, as the Equity Plans.
Number of Ordinary Shares Reserved for Future Grants under the Equity Plans
Following the amendment of the U.S. Equity Plan and the Israel Equity Plan in January 2014, we reserved a total of 19,000,000
ordinary shares under the two Equity Plans together. Commencing December 31, 2014, on December 31st of each year, the number of
Reserved and Authorized Shares (as defined below) under both Equity Plans together shall be automatically reset on such date to equal
10% of the number of ordinary shares issued and outstanding on such date (provided that the number shall not be less than the number
of outstanding awards granted under the Equity Plans as of such date). The number of “Reserved and Authorized Shares” under the
Equity Plans shall equal the sum of (i) the number of ordinary shares reserved and authorized under the Equity Plans for outstanding
awards granted under the Equity Plans as of such date, and (ii) the number of ordinary shares reserved, authorized and available for
issuance under the Equity Plans on such date.
As of December 31, 2016, we had granted options to purchase an aggregate of 27,256,690 ordinary shares under the Equity Plans
combined, of which options to purchase 12,577,750 ordinary shares were outstanding on that date. The option exercise prices of the
outstanding options as of December 31, 2016 range between $29.49 and $84.77 per share. As of December 31, 2016, we had granted an
aggregate of 6,115,569 RSUs and PSUs under the equity plans combined, of which 1,131,933 RSUs and PSUs were outstanding on that
date.
46
Administration
Both Equity Plans are administered by our board of directors or a committee of our board. The compensation committee of our
board of directors currently operates as the administrator of the Equity Plans. The administrator has full power to determine the persons
to whom awards shall be granted and the other terms of the awards granted, including (a) the number of shares subject to each award,
(b) the duration of the related award agreement, (c) the time, manner and form of payment upon the exercise of an award, and (d) other
terms and provisions governing the awards. The administrator also establishes the vesting schedule of awards that are granted.
2005 United States Equity Incentive Plan, as Amended
Awards. The U.S. Equity Plan provides for the following kinds of awards, which we refer to generically as awards: (i) Incentive
Stock Options (ISOs), (ii) Non-statutory Stock Options (NSOs), (iii) Restricted Stock, (iv) Restricted Stock Units (RSUs),
(v) Performance Shares, (vi) Performance RSUs (“PSUs”) and (vii) Deferred Stock Units. All of these awards can vest based on time or
performance milestones.
Granting of options, price and duration. Our U.S. Equity Plan provides that each option will expire on the date stated in the notice
of grant, which will not be more than seven years from its date of grant (or five years, in the case of an ISO granted to a person who on
the date of grant owns 10% or more of our voting power). The exercise price of an option cannot be less than 100% of the fair market
value per share on the date of grant (or 110% of the fair market value, in the case of an ISO granted to a person who on the date of grant
owns 10% or more of our voting power). The administrator will fix the period within which the award can be exercised and the exercise
price. No option award can vest until at least six months after the grant date.
Granting of awards, other than options, and price. The administrator can determine the conditions that must be satisfied, which
typically will be based principally or solely on the recipient’s continuing to provide services to us, but conditions may also include a
performance-based component. We can issue ordinary shares under grants of Restricted Stock, RSUs, Performance Shares and PSUs
upon payment of their nominal value. No such award can vest until at least one year after the grant date. Deferred Stock Units consist of
Restricted Stock, RSUs, Performance Shares, or PSUs that the administrator permits to be paid out in installments or on a deferred
basis.
2005 Israel Equity Incentive Plan, as Amended
Awards. The Israel Equity Plan provides for the following kinds of awards, which we refer to generically as awards: (i) “Approved
102 Options/Shares,” which are grants to directors, employees and officers that are eligible for favorable tax treatment in Israel and
which must be held by a trustee for a minimum period as prescribed by Israeli law; (ii) “Non-approved 102 Options/Shares,” which are
grants of options or shares that are not eligible for favorable tax treatment in Israel and which may be held directly by the participants;
(iii) Restricted Stock; (iv) RSUs; (v) Performance Shares; (vi) PSUs; and (vii) Deferred Stock Units. All of these awards can vest based
on time or performance milestones.
Trustee. A trustee designated by our board of directors and approved by the Israel Tax Authority must hold any shares allocated or
issued upon exercise of Approved 102 Options or other shares subsequently received following any realization of rights, including
bonus shares (stock dividends), for at least the period of time specified by Section 102 of Israel’s Income Tax Ordinance.
Granting of options, price and duration. Our Israel Equity Plan provides that each option will expire on the date stated in the
option agreement, which will not be more than seven years from its date of grant. The exercise price of an option cannot be less than
100% of the fair market value per share on the date of grant. The administrator will fix the period within which the award can be
exercised and the exercise price. No option award can vest until at least six months after the grant date.
Granting of awards, other than options, and price. The administrator can determine the conditions that must be satisfied, which
typically will be based principally or solely on the recipient’s continuing to provide services to us, but conditions may also include a
performance-based component. We can issue ordinary shares under grants of Restricted Stock, RSUs, Performance Shares and PSUs
upon payment of their nominal value. No such award can vest until at least one year after the grant date. Deferred Stock Units consist of
Restricted Stock, RSUs, Performance Shares, or PSUs that the administrator permits to be paid out in installments or on a deferred
basis.
47
Change of control arrangements. Upon a change of control of us, if the acquirer refuses to assume or provide substitute awards,
then the administrator of the equity plans, which is currently the compensation committee of our board of directors, can either terminate
all unvested awards or accelerate the vesting period of any award under our Equity Plans. The administrator also has the authority to
accelerate the vesting of the ordinary shares subject to outstanding awards held by our directors, officers and employees in connection
with the subsequent termination of some officers’ employment following a change of control event.
Employee Stock Purchase Plans
In 1996, we adopted an Employee Stock Purchase Plan, which was subsequently amended and restated in 2015. We refer to the
Employee Stock Purchase Plan, as amended and restated, as the US ESPP, and the Employee Stock Purchase Plan (Non-U.S.
Employees), as the ROW ESPP, and together with the US ESPP, as the “ESPPs”. The ESPPs permit full time employees and employees
employed on a part-time employment basis of 80% or more (as well as employees of some of our subsidiaries) to purchase ordinary
shares through payroll deductions.
According to the amendments, commencing the purchase period that begins February 1, 2016, 500,000 ordinary shares are
authorized for issuance under the US ESPP (out of which 54,696 ordinary shares had been issued through December 31, 2016) and
1,000,000 ordinary shares are authorized for issuance under the rest of the world (ROW) ESPP (out of which 118,584 ordinary shares
had been issued through December 31, 2016).
Each ESPP has six-month offering periods, with purchases occurring in January and July. Each of the ESPPs will terminate on the
earliest of (i) the last business day in January 2036, (ii) when no more shares are available for issuance under the applicable ESPP, or
(iii) when all purchase rights under the applicable ESPP are granted or exercised in connection with a “Corporate Transaction” as
defined in the applicable ESPP.
An eligible employee can purchase ordinary shares at a price of 85% of the fair market value of the ordinary shares at the
beginning of the six-month offering period (or 85% of the fair market value of the ordinary shares on the semi-annual purchase date, if
that is lower). Each eligible employee can elect to purchase ordinary shares under the ESPP in an amount of up to 15% of the
employee’s compensation, but not more than 1,250 shares per participant on any purchase date. Employees may terminate their
participation in the ESPP at any time during the offering period, and participation ends automatically on termination of employment
with us. Each outstanding purchase right will be exercised immediately prior to our merger or consolidation with another company. Our
board of directors may amend or terminate each of the ESPPs immediately after the close of any purchase date.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The following table shows information as of December 31, 2016, 2015 and 2014, for each person who, to the best of our
knowledge, beneficially owned more than 5% of our outstanding ordinary shares as December 31, 2016:
Name of Five Percent Shareholders
Gil Shwed
Massachusetts Financial Services Company(3)
Marius Nacht
% of
No. of shares
class of
beneficially
shares
held (1)
(2)
December 31, 2016
% of
No. of shares
class of
beneficially
shares
held (1)
(2)
December 31, 2015
% of
No. of shares
class of
beneficially
shares
held (1)
(2)
December 31, 2014
30,503,895
12,716,114
11,214,986
17.8%
7.7%
6.8%
31,263,862
N/A
21,214,986
17.35%
—
12.1%
31,385,828
N/A
21,214,986
16.5%
—
11.5%
(1) The amount includes ordinary shares owned by each of the individuals, directly or indirectly, and options immediately exercisable
(2)
or that are exercisable within 60 days from December 31st, of each of the years shown in this table.
If a shareholder has the right to acquire ordinary shares by exercising stock options exercisable within 60 days from December
31st, of each of the years shown in this table, these Ordinary shares are deemed outstanding for the purpose of computing the
percentage owned by the specific shareholder (that is, they are included in both the numerator and the denominator), but they are
disregarded for the purpose of computing the percentage owned by any other shareholder.
(3) As of December 31, 2016, based on information contained in a Schedule 13G filed by Massachusetts Financial Services Company
with the Securities and Exchange Commission on February 7, 2017. Based on information available to us, as of December 31,
2014 and 2015, Massachusetts Financial Services Company did not beneficially own more than 5% of our outstanding ordinary
shares. The address for Massachusetts Financial Services Company is 111 Huntington Avenue, Boston, Massachusetts 02199.
48
Our major shareholders do not have different voting rights from other shareholders with respect to our ordinary shares.
According to our transfer agent, as of December 31, 2016, there were 147 holders of record of our ordinary shares in the United
States, representing approximately 84.81% of our outstanding shares. The number of record holders in the United States is not
representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since many of
these ordinary shares were held by brokers or other nominees.
We are not controlled by another corporation or by any foreign government, directly or through any other entity. Each of our
outstanding ordinary shares has identical rights in all respects.
As of December 31, 2015, we had employee and payroll accrual for related parties in total of $2.6 million, for the years 2002
through 2007. As of December 31, 2016, the accrual amounted to a total of $1.8 million for the years 2002 through 2007.
ITEM 8. FINANCIAL INFORMATION
Consolidated Financial Statements
You can find our financial statements in “Item 18 – Financial Statements.”
Dividend policy
We currently do not intend to distribute any amounts as dividend in the near-term. During 2013, we entered into a settlement
agreement with the Israel Tax Authority, resulting in the full release of the profits we generated under the Israeli Law for the
Encouragement of Capital Investments (the “Investment Law”) through the year ended December 31, 2011 (known in Israel as “trapped
profits”), provided that in accordance with the Investment Law and the regulations thereunder, during the five years commencing 2013,
we are obligated to invest approximately $111 million in (i) production assets (as defined therein), (ii) research and development
activities in Israel and (iii) employment payments for certain new employees (other than office holders) added after 2011. For amounts
distributed as dividends from earnings from 2012 onwards, we are exempt from additional taxes.
Legal Proceedings
We operate our business in various countries, and accordingly attempt to utilize an efficient operating model to structure our tax
payments based on the laws in the countries in which we operate. This can cause disputes between the Company and various tax
authorities in different parts of the world.
We are the defendant in various other lawsuits, including employment-related litigation claims, lease termination claims and other
legal proceedings in the normal course of our business. Litigation and governmental proceedings can be expensive, lengthy and
disruptive to normal business operations, and can require extensive management attention and resources, regardless of their merit.
While we currently intend to defend the aforementioned matters vigorously, we cannot predict the results of complex legal proceedings,
and an unfavorable resolution of a lawsuit or proceeding could materially adversely affect our business, results of operations and
financial condition.
ITEM 9. THE OFFER AND LISTING
Our ordinary shares are traded publicly on the NASDAQ Global Select Market under the symbol “CHKP” and on the Frankfurt
Stock Exchange under the symbol “CPW.”
49
The following table lists the high and low prices of the ordinary shares on the NASDAQ Global Select Market for the periods
indicated:
Year
2012
2013
2014
2015
2016
2015
First quarter
Second quarter
Third quarter
Fourth quarter
2016
First quarter
Second quarter
Third quarter
Fourth quarter
Most recent six months
September 2016
October 2016
November 2016
December 2016
January 2017
February 2017
March 2017
High
Low
65.00
64.95
80.82
88.49
89.98
86.00
88.49
86.71
87.98
87.98
89.98
84.00
86.70
79.00
84.98
85.85
86.70
99.74
101.77
104.34
40.60
44.41
60.50
65.09
71.64
75.35
78.12
65.09
77.74
71.64
76.52
74.38
74.34
74.54
74.34
81.39
80.78
84.00
97.26
98.25
On April 26, 2017, the last reported sale price of our ordinary shares on the NASDAQ Global Select Market was $104.22 per
share.
ITEM 10. ADDITIONAL INFORMATION
We were incorporated in Israel in July 1993, and we are registered with the Israeli Registrar of Companies as public company
number 52-004282-1.
The objectives and purposes stated in our memorandum of association are to engage in any lawful activity. We develop, market
and support a wide range of products and services for IT security, and offer our customers an extensive portfolio of network security,
endpoint security, data security and management solutions. A broad range of our network security solutions operate under a unified
security architecture, with central management and enforcement of security policy, and with centralized real-time security updates. Our
products and services are sold to enterprises, service providers, small and medium-sized businesses and consumers.
Articles of Association and Israeli Companies Law
The following is a summary of the material provisions of our articles of association and related provisions of Israeli corporate law.
For the complete text of our articles of association, see “Item 19 – Exhibits.”
Description of shares
Our authorized share capital consists of the following: (i) 500,000,000 ordinary shares, NIS 0.01 nominal value; (ii) 5,000,000
preferred shares, NIS 0.01 nominal value; and (iii) 10 deferred shares, NIS 1.00 nominal value.
50
Description of ordinary shares
All of the issued and outstanding ordinary shares are validly issued, fully paid, and non-assessable. The ordinary shares do not
have pre-emptive rights. Our memorandum of association, our articles of association and Israeli law do not restrict in any way the
ownership or voting of our ordinary shares by non-residents of Israel, except with respect to citizens of countries that are in a state of
war with Israel.
Dividend and liquidation rights. The holders of our ordinary shares will be entitled to their proportionate share of any cash
dividend, share dividend, or dividend in kind distributed with respect to our ordinary shares. This right may be changed if shares with
special dividend rights are authorized in the future. Under the Israeli Companies Law, we may declare dividends out of the higher of
retained earnings and earnings generated over the two most recent years (the profits test), in either case, provided that our board of
directors reasonably believes that the dividend will not render us unable to meet our current or foreseeable obligations when due (the
solvency test). Even if we do not comply with the profits test, a court may allow us to distribute a dividend as long as the court is
convinced that the solvency test is fulfilled.
Our articles of association provide that the board of directors may declare and distribute interim dividends without the approval of
the shareholders. Shareholder approval is required for the payment of a final dividend proposed by the board of directors, but
shareholders cannot approve a final dividend that is greater than the board’s proposal. In addition, once an interim dividend has been
declared and paid, it cannot be affected by any subsequent resolution of the shareholders or the shareholders’ failure to approve a final
dividend.
In the event of our liquidation, holders of our ordinary shares have the equal right to participate in the distribution of assets
remaining after payment of liabilities. This right may be changed if shares with special liquidation or dividend rights are issued in the
future.
Voting, shareholder meetings and resolutions. Holders of ordinary shares have one vote for each ordinary share held on all matters
submitted to a vote of shareholders. This right may be changed if shares with special voting rights are issued in the future.
Under the Israeli Companies Law, we must hold an annual meeting of our shareholders once every calendar year and not more
than 15 months from the date of the previous annual shareholders’ meeting. The board of directors determines the location of the
meeting, which can be in Israel or elsewhere. In addition, our board of directors may, in its discretion, convene additional meetings as
“special shareholders’ meetings.” The board of directors is also required to convene a special shareholders’ meeting upon the demand of
any of the following: (i) two directors; (ii) one quarter of the directors in office; (iii) the holder or holders of 5% of our outstanding
share capital and 1% of our voting power; or (iv) the holder or holders of 5% of our voting power. Our articles of association provide
that each shareholder of record is entitled to receive prior notice of any shareholders’ meeting in accordance with the requirements of
the Israeli Companies Law. The law currently provides for at least 21 days’ notice, with certain specified matters requiring at least 35
days’ notice. For purposes of determining the shareholders entitled to notice and to vote at such meeting, the board of directors may fix
a record date, which shall be between 4 and 40 days prior to the date of the meeting.
The quorum required for a meeting of shareholders consists of at least two shareholders present in person or by proxy and holding
more than 50% of the voting power. The chairman of the board of directors presides at each of our shareholders’ meetings. The
chairman of the meeting does not have an additional or casting vote. A meeting adjourned for lack of a quorum will be adjourned to the
same day in the following week, at the same time and place, or to the day, time and place that the chairman determines, with the consent
of the holders of a majority of the shares present in person or by proxy and voting on the question of adjournment. At the reconvened
meeting, the required quorum consists of any two shareholders, regardless of the number of shares they hold or represent.
The Israeli Companies Law requires that shareholders approve certain transactions, actions and arrangements, as described below
under the caption “Approval of certain transactions; obligations of directors, officers and shareholders.”
Shareholders’ resolutions will be deemed adopted if approved by the holders of a majority of the voting power voting at a
shareholders’ meeting, except for the following decisions which require a different majority:
(1) A special or extraordinary resolution (such as a resolution amending our memorandum of association or articles of
association). A majority of at least 75% of the shares voting on the matter is needed.
(2) A voluntary liquidation process or a merger. A majority of at least 75% of the shares voting on the matter is needed.
51
shareholders’ meeting, as long as either:
(i)
(ii)
The majority of shares includes a majority of the shares of non-controlling shareholders and shareholders who have no
personal interest in the election of the outside directors (excluding a personal interest that is not related to a
relationship with the controlling shareholders) voted at the meeting, or
The total number of shares of non-controlling shareholders and disinterested shareholders voted against the proposal
does not exceed 2% of our aggregate voting rights.
(5) Extraordinary transactions with a controlling shareholder (i.e., any shareholder that has the ability to direct our actions,
including any shareholder who holds 25% or more of our voting rights if no other shareholder owns more than 50% of our
voting rights), with another person in which the controlling shareholder has a personal interest; or a transaction with a
controlling shareholder (or a relative of such controlling shareholder) concerning terms of compensation for service as an
office holder, or as a service provider to the company, including through a company controlled by a controlling shareholder.
Following audit committee (or, alternatively, compensation committee if it relates to terms of compensation for service as an
office holder or as a service provider) and board of directors approval, these transactions must be approved by a majority
vote at a shareholders’ meeting, as long as either:
(i)
(ii)
The majority of shares includes at least a majority of the shares of the voting shareholders who have no personal
interest in the transaction, or
The total shareholdings of those who have no personal interest in the transaction and who vote against the transaction
does not exceed 2% of our aggregate voting rights.
Generally, the approval of such a transaction may not extend for more than three years, except that in the case of an
extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest that
does not concern terms of compensation for service as an office holder, or as a service provider to the company, the
transaction may be approved for a longer period if the audit committee determines that the approval of the transaction for a
period longer than three years is reasonable under the circumstances.
(6) The adoption of an executive compensation policy. Following compensation committee and board of directors approval, the
policy must be approved by a majority vote at a shareholders’ meeting, as long as either:
(i)
(ii)
The majority of shares includes a majority of the shares of non-controlling shareholders and shareholders who have no
personal interest in the adoption of the policy voted at the meeting, or
The total number of shares of non-controlling shareholders and disinterested shareholders voted against the proposal
does not exceed 2% of our aggregate voting rights.
(7) The approval of a compensation arrangement with the chief executive officer or the approval of a compensation arrangement
with an executive officer or director that is not in compliance with the company’s executive compensation policy. Following
compensation committee and board of directors approval specifying the special circumstances requiring the arrangement of
such arrangement (in the case of an arrangement that is not in compliance with the executive compensation policy), the
compensation arrangement must be approved by a majority vote at a shareholders’ meeting, as long as either:
(i)
(ii)
The majority of shares includes a majority of the shares of non-controlling shareholders and shareholders who have no
personal interest in the adoption of the compensation arrangement voted at the meeting, or
The total number of shares of non-controlling shareholders and disinterested shareholders voted against the proposal
does not exceed 2% of our aggregate voting rights.
Transfer of shares. Fully paid ordinary shares are issued in registered form and, subject to applicable securities laws, may be
transferred freely.
Election of directors. Our ordinary shares do not have cumulative voting rights in the election of directors. Therefore, the holders
of shares representing more than 50% of the voting rights at the shareholders’ meeting, voting in person or by proxy, have the power to
elect any or all of the directors whose positions are being filled at that meeting, subject to the special approval requirements for outside
directors described above.
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Chairman of the Board. Under the Israeli Companies Law, the general manager of a company (or a relative of the general
manager) may not serve as the chairman of the board of directors, and the chairman of the board of directors (or a relative of the
chairman of the board of directors) may not serve as the general manager, unless approved by the shareholders by a special majority
vote prescribed by the Israeli Companies Law. In any event, the shareholder vote cannot authorize the appointment for a period longer
than three years, which period may be extended from time to time by the shareholders with a similar special majority vote. The
chairman of the board of directors shall not hold any other position with the company (except as general manager if approved in
accordance with the above procedure) or in any entity controlled by the company, other than as chairman of the board of directors of a
controlled entity, and the company shall not delegate to the chairman duties that, directly or indirectly, make him or her subordinate to
the general manager.
Transfer agent and registrar. The transfer agent and registrar for our ordinary shares is American Stock Transfer & Trust
Company, 59 Maiden Lane, Plaza Level, New York, NY 10038 U.S.A., Tel.: 718-921-8124.
Description of preferred shares
We have 5,000,000 preferred shares authorized. Our articles of association provide that the board of directors has the authority to
issue the preferred shares in one or more series and to fix the rights, preferences, privileges and restrictions of the preferred shares,
including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series, without further vote or action by the shareholders. If this provision
withstands judicial scrutiny under the Israeli Companies Law, the issuance of preferred shares may have the effect of delaying,
deferring or preventing a change in control of us without further action by the shareholders. For example, the board of directors could
issue preferred shares with voting and conversion rights that may adversely affect the voting power of the holders of ordinary shares,
including the loss of voting control to others.
Anti-takeover measures
Some of the provisions of our articles of association and Israeli law could, together or separately:
• Discourage potential acquisition proposals,
• Delay or prevent a change in control,
•
Limit the price that investors might be willing to pay in the future for our ordinary shares.
Israeli corporate law regulates acquisitions of shares through tender offers and mergers; requires special approvals for transactions
involving directors, officers or significant shareholders; and regulates other matters that may be relevant to these types of transactions.
Under the Israeli Companies Law, in the case of a merger, the shareholders and board of directors of each of the merging
companies generally need to approve the merger. Shares held in one of the merging companies by the other merging company (or
certain of its affiliates) are not counted toward the required approval. If a merging company has different classes of shares, the approval
of each class may be required. Under the Israeli Companies Law, a merger of our company requires the approval of a supermajority of
at least 75% of our shares that are voted on the merger. A merger cannot be completed until 30 days have passed after shareholder
approval of each of the merging companies, all approvals have been submitted to the Israeli Registrar of Companies and 50 days have
passed from the time that a proposal for approval of the merger is filed with the Registrar of Companies. In addition, a creditor can seek
to block a merger on the ground that the surviving company will not be able to meet its obligations.
The Israeli Companies Law also provides that an acquisition of shares in a public company, such as our company, must be done
by means of a tender offer, if as a result of the acquisition, the purchaser would become the holder of 25% or more of the voting rights
in the company (unless there is another 25% shareholder of the company, or the shares are acquired from another 25% shareholder).
Similarly, the Israeli Companies Law provides that an acquisition of shares in a public company, such as our company, must be done by
means of a tender offer, if as a result of the acquisition the purchaser would hold more than 45% of the shares of the company (unless
there is another holder of more than 45% of the shares of the company, or the shares are acquired from another holder of more than 45%
of the shares of the company). These rules do not apply if the acquisition takes the form of a merger.
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Regulations promulgated under the Israeli Companies Law provide that these tender offer requirements do not apply to companies
whose shares are listed for trading outside of Israel if, according to the law in the country in which the shares are traded or the rules and
regulations of the stock exchange on which the shares are traded:
•
•
There is a limitation on acquisition of any level of control of the company, or
The acquisition of any level of control requires the purchaser to make a tender offer to the public.
The Israeli Companies Law provides specific rules and procedures for the acquisition of shares held by minority shareholders if
the majority shareholder holds more than 90% of the outstanding shares. Israeli tax law treats specified acquisitions, including a
stock-for-stock swap between an Israeli company and a foreign company, less favorably than does U.S. tax law.
In addition, our articles of association contain certain provisions that may make it more difficult to acquire us, such as the ability
of our board of directors to issue preferred shares, as described above under the caption “Description of preferred shares.”
Our articles of association provide that we may not engage in any business combination with an interested shareholder for a period
of three years after the date that the shareholder became an interested shareholder, unless:
•
Prior to that date, the board of directors approved either the business combination or the transaction that resulted in the
shareholder becoming an interested shareholder; or
• Upon consummation of the transaction that resulted in the shareholder becoming an interested shareholder, the interested
shareholder owned at least 75% of our voting shares outstanding at the time the transaction commenced.
A business combination includes:
• Any merger or consolidation between the interested shareholder and us;
• Any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 10% or more of our assets in a transaction
involving the interested shareholder;
•
Subject to certain exceptions, any transaction that results in our issuance or transfer of any of our shares to the interested
shareholder;
• Any transaction in which we are involved that has an effect of increasing the proportionate share of our shares, of any class
or series, beneficially owned by the interested shareholder; or
•
The receipt by the interested shareholder of the benefit of any loans, advances, guarantees, pledges, or other financial
benefits provided by or through us.
In general, the articles of association define an interested shareholder as any entity or person that beneficially owns 15% or more
of our outstanding voting shares and any entity or person affiliated with, controlling or controlled by such entity or person.
In addition, our shareholders are not able to cumulate votes at a meeting, which may require the acquirer to hold more shares to
gain representation on the board of directors than if cumulative voting were permitted.
Approval of certain transactions; obligations of directors, officers and shareholders
Officers and directors. The Israeli Companies Law codifies the fiduciary duties that office holders, which under the law, includes
our directors and executive officers, owe to a company.
Fiduciary duties. An office holder’s fiduciary duties consist of a duty of loyalty and a duty of care.
The duty of loyalty requires an office holder to act in good faith and for the benefit of the company, including to avoid any conflict
of interest between the office holder’s position in the company and personal affairs, and proscribes any competition with the company
or the exploitation of any business opportunity of the company in order to receive personal advantage for himself or herself or for
others. This duty also requires an office holder to reveal to the company any information or documents relating to the company’s affairs
that the office holder has received due to his or her position as an office holder. A company may approve any of the acts mentioned
above; provided, however, that all the following conditions apply: the office holder acted in good faith; neither the act nor the approval
of the act prejudices the good of the company; and the office holder disclosed the essence of his or her personal interest in the act,
including any substantial fact or document, in a reasonable time before the date for discussion of the approval. A director is required to
exercise independent discretion in fulfilling his or her duties and may not be party to a voting agreement with respect to his or her vote
as a director. A violation of these requirements is deemed a breach of the director’s duty of loyalty.
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The duty of care requires an office holder to act with a level of care that a reasonable office holder in the same position would
employ under the same circumstances. This includes the duty to use reasonable means to obtain information regarding the advisability
of a given action submitted for his or her approval or performed by virtue of his or her position and all other relevant information
material to these actions.
Disclosure of personal interest. The Israeli Companies Law requires that an office holder promptly disclose to the company any
personal interest that he or she may have and all related material information or documents known to him or her, in connection with any
existing or proposed transaction by the company. “Personal interest,” as defined by the Israeli Companies Law, includes a personal
interest of any person in an act or transaction of the company, including a personal interest of his relative or of a corporation (i) in
which that person or a relative of that person is a 5% or greater shareholder, a holder of 5% or more of the voting rights, or a director or
general manager, or (ii) in which he or she has the right to appoint at least one director or the general manager, and includes shares for
which the person has the right to vote pursuant to a power-of-attorney. “Personal interest” does not apply to a personal interest
stemming merely from holding shares in the company.
The office holder must immediately make the disclosure of his or her personal interest and no later than the first meeting of the
company’s board of directors that discusses the particular transaction. This duty does not apply to the personal interest of a relative of
the office holder in a transaction unless it is an “extraordinary transaction.” The Israeli Companies Law defines an “extraordinary
transaction” as a transaction that is not in the ordinary course of business of a company, or that is not on market terms, or which is likely
to have a material impact on the company’s profitability, assets or liabilities. The Israeli Companies Law defines a “relative” as a
spouse, sibling, parent, grandparent, descendant and the descendant, sibling or parent of a spouse, as well as the spouse of any of the
foregoing.
Approvals . The Israeli Companies Law provides that a transaction with an office holder or a transaction in which an office holder
has a personal interest requires board approval, unless the transaction is an extraordinary transaction or the articles of association
provide otherwise. The transaction may not be approved if it is adverse to the company’s interest. If the transaction is an extraordinary
transaction, or if it concerns exculpation, indemnification, insurance or compensation of an office holder, then the approval of the
company’s compensation committee and the board of directors is required, except if the compensation arrangement is an immaterial
amendment to an existing compensation arrangement of an officer who is not a director (in which case the approval of the
compensation committee is sufficient). Exculpation, indemnification, insurance or compensation of a director or the Chief Executive
Officer also requires shareholder approval.
A person who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee
generally may not attend that meeting or vote on that matter, unless a majority of the board of directors or the audit committee also has
a personal interest in the matter or if such person is invited by the chairman of the board of directors or audit committee, as applicable,
to present the matter being considered. If a majority of the board of directors has a personal interest in the transaction, all directors may
attend that meeting and vote, and a shareholder approval also would be required.
Shareholders . The Israeli Companies Law imposes the same disclosure requirements described above on a controlling
shareholder of a public company that it imposes on an office holder. For this purpose, a “controlling shareholder” is any shareholder
who has the ability to direct the company’s actions, including any shareholder holding 25% or more of the voting rights, if no other
shareholder owns more than 50% of the voting rights in the company. Two or more shareholders with a personal interest in the approval
of the same transaction are deemed to be one shareholder.
Under the Israeli Companies Law, a shareholder has a duty to act in good faith toward the company and other shareholders and
refrain from abusing his or her power in the company, including, among other things, voting in the general meeting of shareholders on
the following matters:
• Any amendment to the articles of association,
• An increase of the company’s authorized share capital,
• A merger, or
• Approval of interested party transactions that require shareholder approval.
In addition, any controlling shareholder, any shareholder who can determine the outcome of a shareholder vote, and any
shareholder who under the company’s articles of association can appoint or prevent the appointment of an office holder, is under a duty
to act with fairness towards the company. The Israeli Companies Law provides that a breach of the duty of fairness will be governed by
the laws governing breach of contract. The Israeli Companies Law does not describe the substance of this duty.
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Compensation of Executive Officers and Directors; Executive Compensation Policy
In accordance with the Israeli Companies Law, we have adopted a compensation policy for our executive officers and directors.
The purpose of the policy is to describe our overall compensation strategy for our executive officers and directors and to provide
guidelines for setting their compensation, as prescribed by the Israeli Companies Law. In accordance with the Israeli Companies Law,
the policy must be reviewed and readopted at least once every three years.
Approval of the compensation committee, the board of directors and our shareholders, in that order, is required for the adoption of
the compensation policy. The shareholder’s approval must include the majority of shares voted at the meeting. In addition to the
majority vote, the shareholder approval must satisfy either of two additional tests:
•
•
the majority includes at least a majority of the shares voted by shareholders other than our controlling shareholders or
shareholders who have a personal interest in the adoption of the compensation policies; or
the total number of shares held by non-controlling shareholders and disinterested shareholders that voted against the adoption
of the compensation policies, does not exceed 2% of the aggregate voting rights of our company.
In accordance with the Israeli Companies Law, our policy was readopted in June 2016 by the compensation committee, the board
of directors and our shareholders.
Under the Israeli Companies Law, the compensation arrangements for officers (other than the Chief Executive Officer) who are
not directors require the approval of the compensation committee and the board of directors; provided, however, that if the
compensation arrangement is not in compliance with our executive compensation policy, the arrangement may only be approved by the
compensation committee and the board of directors for special reasons to be noted, and the compensation arrangement shall also require
a special shareholder approval. If the compensation arrangement is an immaterial amendment to an existing compensation arrangement
of an officer who is not a director and is in compliance with our executive compensation policy, the approval of the compensation
committee is sufficient.
Arrangements regarding the compensation of the Chief Executive Officer and directors require the approval of the compensation
committee, the board and the shareholders, in that order. In certain limited cases, the compensation of a new Chief Executive Officer
who is not a director may be approved without approval of the shareholders.
Indemnification and insurance of directors and officers; limitations on liability
Our articles of association allow us to indemnify, exculpate and insure our office holders to the fullest extent permitted under the
Israeli Companies Law.
Under the Israeli Companies Law, we may indemnify an office holder for any of the following liabilities or expenses that they
may incur due to an act performed or failure to act in his or her capacity as our office holder:
• Monetary liability imposed on the office holder in favor of a third party in a judgment, including a settlement or an arbitral
award confirmed by a court.
• Reasonable legal costs, including attorneys’ fees, expended by an office holder as a result of an investigation or proceeding
instituted against the office holder by a competent authority, provided that such investigation or proceeding concludes
without the filing of an indictment against the office holder, and either:
•
•
No financial liability was imposed on the office holder in lieu of criminal proceedings, or
Financial liability was imposed on the office holder in lieu of criminal proceedings, but the alleged criminal offense
does not require proof of criminal intent.
• Reasonable legal costs, including attorneys’ fees, expended by the office holder or for which the office holder is charged by a
court:
•
•
•
In an action brought against the office holder by us, on our behalf or on behalf of a third party,
In a criminal action in which the office holder is found innocent, or
In a criminal action in which the office holder is convicted, but in which proof of criminal intent is not required.
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A company may indemnify an office holder in respect of these liabilities either in advance of an event or following an event. If a
company undertakes to indemnify an office holder in advance of an event, the indemnification, other than litigation expenses, must be
limited to foreseeable events in light of the company’s actual activities when the company undertook such indemnification, and
reasonable amounts or standards, as determined by the board of directors.
A company may obtain insurance for an office holder against liabilities incurred in his or her capacity as an office holder. These
liabilities include a breach of duty of care to the company or a third party including a breach arising out of negligent conduct of the
office holder, a breach of duty of loyalty and any monetary liability imposed on the office holder in favor of a third party. A company
may also exculpate an office holder from a breach of duty of care in advance of that breach. Our articles of association provide for
exculpation both in advance or retroactively, to the extent permitted under Israeli law. A company may not exculpate an office holder
from a breach of duty of loyalty towards the company or from a breach of duty of care concerning dividend distribution or a purchase of
the company’s shares by the company or other entities controlled by the company.
Under the Israeli Companies Law, a company may indemnify or insure an office holder against a breach of duty of loyalty only to
the extent that the office holder acted in good faith and had reasonable grounds to assume that the action would not prejudice the
company. In addition, a company may not indemnify, insure or exculpate an office holder against a breach of duty of care if committed
intentionally or recklessly (excluding mere negligence), or committed with the intent to derive an unlawful personal gain, or for a fine
or forfeit levied against the office holder in connection with a criminal offense.
We have resolved to indemnify our directors and officers, to the extent permitted by law and by our articles of association, for
liabilities not covered by insurance, that are of certain enumerated types of events, and subject to limitations as to amount.
We have also entered into indemnification, insurance and exculpation agreements with our directors and officers undertaking to
indemnify, insure and exculpate them to the full extent permitted by the Israeli Companies Law.
Charitable Contributions
Our articles of association authorize the company to contribute reasonable amounts to worthy causes. In accordance with our
charitable contribution policy, we contribute from time to time to various worthy causes.
During 2016, the list of entities to which we contributed included the Tel Aviv University, Youth University of Tel Aviv
University and the Yeholot Association. Gil Shwed, our founder, Chief Executive Officer and Director, is a member of the Board of
Trustees of Tel Aviv University, the Chairman of the Board of Trustees of the Youth University of Tel Aviv University and the
Chairman of the Board of Directors of Yeholot Association Founded by the Rashi Foundation whose charter is, among other things, to
reduce the dropout rates in high schools.
Borrowing power: amendment of rights of ordinary shares
Our articles of association grant broad powers to the board of directors to have us borrow, repay borrowings, make guarantees and
grant security interests in borrowings. The rights and provisions of the ordinary shares may be cancelled, added to, restricted, amended,
or otherwise altered with a vote of the holders of at least 75% of the outstanding ordinary shares voting at a duly convened
shareholders’ meeting.
Availability of Annual Report on Form 20-F
In accordance with our articles of association and NASDAQ rules, we post our Annual Report on Form 20-F on our Web site
(www.checkpoint.com), rather than mail it to shareholders.
Material Contracts
None.
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Israeli Taxation, Foreign Exchange Regulation and Investment Programs
The following is a summary of the principal Israeli tax laws applicable to us, the Israeli Government programs from which we
benefit, and Israeli foreign exchange regulations. This section also contains a discussion of material Israeli tax consequences to our
shareholders who are not residents or citizens of Israel. This summary does not discuss all aspects of Israeli tax law that may be relevant
to a particular investor in light of his or her personal investment circumstances, or to some types of investors subject to special
treatment under Israeli law. Examples of investors subject to special treatment under Israeli law include residents of Israel, traders in
securities, or persons who own, directly or indirectly, 10% or more of our outstanding voting capital, all of whom are subject to special
tax regimes not covered in this discussion. Some parts of this discussion are based on new tax legislation that has not been subject to
judicial or administrative interpretation. The discussion should not be construed as legal or professional tax advice and does not cover
all possible tax consequences.
You are urged to consult your own tax advisor as to the Israeli and other tax consequences of the purchase, ownership and
disposition of our ordinary shares, including, in particular, the effect of any non-Israeli, state or local taxes.
General corporate tax structure in Israel
Taxable income of Israeli companies was subject to tax at the rate of 26.5% in 2014 and 2015 and 25% in 2016, and will be
subject to tax at the rate of 24% in 2017 and 23% in 2018 and thereafter.
However, as discussed below, the rate is effectively reduced for income derived from our Preferred Enterprise plan.
Law for the Encouragement of Capital Investments, 1959 (“Investment Law”)
The Company elected to apply the Preferred Enterprise regime under the Law for the Encouragement of Capital Investment (the
“Investment Law”). Under the Preferred Enterprise regime, the Company’s entire preferred income is subject to tax rates as follows:
2013—12.5% and 2014 and thereafter—16%. The election is irrevocable.
We have derived, and expect to continue to derive, a substantial portion of our operating income from our Preferred Enterprise
facilities. We are, therefore, eligible for reduced tax rates for an unlimited period.
The benefits available to a Preferred Enterprise are conditioned upon terms stipulated in the Investment Law and the related
regulations. If we do not fulfill these conditions, in whole or in part, the benefits can be cancelled, and we may be required to refund the
benefits in an amount linked to the Israeli consumer price index plus interest. We believe that our Preferred Enterprise program
currently operates, in compliance with all applicable conditions and criteria, but we cannot assure you that they will continue to do so.
In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the
Economic Policy for the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%)
effective from January 1, 2017 and to 23% effective from January 1, 2018.
Among other changes, the new Law includes, Amendment 73 to the Investment Law (“Amendment 73”). Amendment 73
prescribes special tax tracks for technological enterprises. One of the tracks is for Technological preferred enterprise—an enterprise for
which total consolidated revenues of its parent company and all subsidiaries are less than NIS 10 billion. A technological preferred
enterprise, as defined in the Law, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from
intellectual property. The special tax tracks under Amendment 73 are subject to rules that are expected to be issued by the Minister of
Finance. As of April 28, 2017, the rules have not been issued.
Prior to 2012, most of the Company’s income was exempt from tax or subject to reduced tax rates under the Investment Law.
Upon distribution of exempt income, the distributing company will be subject to corporate reduced tax rates ordinarily applicable to
such income under the Investment Law.
Reduced income under the Investment Law including the Preferred Enterprise Regime will be freely distributable as dividends,
subject to a 15%-20% withholding tax (or lower, under an applicable tax treaty). However, upon the distribution of a dividend from
Preferred Income to an Israeli company, no withholding tax will be remitted.
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Pursuant to a temporary tax relief initiated by the Israeli government, a company that elected by November 11, 2013, to pay a
reduced corporate tax rate as set forth in the temporary tax relief with respect to undistributed exempt income generated under the
Investment Law accumulated by the company until December 31, 2011 (“Trapped Earnings”) is entitled to distribute a dividend from
such income without being required to pay additional corporate tax with respect to such dividend. A company that has so elected must
make certain qualified investments in Israel over five-year period. A company that has elected to apply the temporary tax relief cannot
withdraw from its election.
On November 11, 2013, Check Point Ltd. reached a settlement agreement with the ITA which provided (i) the full settlement of
all disputes with the ITA with respect to the tax years 2002 through 2011, and (ii) the release of all the Company’s Trapped Earnings
through the year ended December 31, 2011. In accordance with the Investments Law and the temporary tax relief, the Company is
obligated to invest approximately $111,000 during five years period in the following forms (i) production assets (as defined therein),
(ii) research and development activities in Israel and/or (iii) employment payments for new employees (other than office holders) added
after 2011. Any amount not invested in the five years period, should be paid at the end of the 5 years, linked to the Israeli CPI and bears
4% annual interest since the election date.
In December 2016, Check Point Ltd. reached a settlement agreement with the ITA for tax years 2012 through 2015.
Foreign Exchange Regulations
Under the Foreign Exchange Regulations, an Israeli company calculates its tax liability in U.S. dollars according to certain orders.
The tax liability, as calculated in U.S. dollars is translated into NIS according to the exchange rate as of December 31st of each year.
Dividends, if any, paid to the holders of our ordinary shares, and any amounts payable upon our dissolution, liquidation or
winding up, as well as the proceeds of any sale in Israel of our ordinary shares to an Israeli resident, may be paid in non-Israeli
currency. If these amounts are paid in Israeli currency, they may be converted into freely repatriable U.S. dollars at the rate of exchange
prevailing at the time of conversion. In addition, the statutory framework for the potential imposition of exchange controls has not been
eliminated, and may be restored at any time by administrative action.
Equity Based Compensation
Effective from January 1, 2003, the Tax Reform Legislation enables a company to grant options/shares through one of three tax
tracks:
(a) the income tax track through a trustee pursuant to which the employee pays income tax rate (according to the marginal tax rate
of the employee, up to 48% tax in 2016 and 47% in 2017 and thereafter, plus payments to the National Insurance Institute and health tax
on the profit gained upon the earlier to occur of the transfer of the options/shares or the underlying shares from the trustee to the
employee or the sale of the options/shares or the underlying shares by the trustee, and the company may recognize expenses pertaining
to the options/shares for tax purposes. The shares/options (or upon their exercise, the underlying shares), must be held by a trustee for a
period of 12 months commencing from the date of which the options/shares were issued and deposited with the trustee. As of January 1,
2013, an additional tax was imposed (“the surtax”). Accordingly, the marginal tax rate of an individual was increased by 2% if the
employee’s taxable income in 2016 exceeded NIS810,720 and, as of January 1, 2017, the marginal tax rate of an individual is increased
by 3% if the employee’s taxable income in 2017 exceeds NIS640,000 (as updated from time to time). Hence, the employee’s marginal
tax rate can reach 50%.
(b) the capital gains tax track through a trustee pursuant to which the employee pays capital gains tax at a rate of 25% on the
capital profit portion and marginal tax rate (including payments to the National Insurance Institute and health tax) on the income portion
(in general, the income portion is the profit derived from the difference between the average market value of the share 30 days before
the allotment date and the exercise price of the option/share) upon the earlier to occur of the transfer of the options/shares or the
underlying shares from the trustee to the employee or the sale of the options/shares or the underlying shares by the trustee. (On the
capital profit, the employee is not required to make payments to the National Insurance Institute and health tax). In this track, on the
capital profit, the Company may not recognize expenses pertaining to the options/shares for tax purposes but may do so on the income
portion. The shares/options (or upon their exercise, the underlying shares), must be held by a trustee for a period of 24 months
commencing from the date of which the options/shares were issued and deposited with the trustee (with respect to options/shares
granted before January 1, 2006, a period of 30 months commencing from the date of which the options/shares were granted or a period
of 24 months commencing from the date of which the options/shares were issued and deposited with the trustee). As of January 1, 2013,
the surtax was imposed. Accordingly, the capital gain tax rate percentage increased by 2% if the employee’s taxable income in 2016
exceeded NIS810,720, and, as of January 1, 2017, the capital gain tax rate percentage is increased by 3% if the employee’s taxable
income 2017exceeds NIS640,000 (as updated from time to time). Hence, the employee’s marginal tax rate can reach 50%.
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(c) the income tax track without a trustee pursuant to which the employee pays income tax rate (according to the marginal tax rate
of the employee up to 48% tax in 2016 and 47% in 2017 and thereafter, plus payments to the National Insurance Institute and health tax
on the profit at the allotment date, and pays capital gains tax at a rate of 25% or 30% (pursuant to 2011 tax reform legislation, the
capital tax rate increased from 20% or 25% in 2011 to 25% or 30% in 2012 and thereafter) on the capital profit upon the sale of the
underlying shares/shares, and the company may not recognize expenses pertaining to the capital gain for tax purposes but may
recognize expenses pertaining to the profit at the allotment date. As of January 1, 2013, the surtax is imposed. Accordingly, the
marginal tax rate of an individual or the capital gain tax rate percentage, as applicable, increased by 2% if the employee’s taxable
income in 2016 exceeded NIS810,720, and, as of January 1, 2017, the marginal tax rate of an individual is increased by 3% if the
employee’s taxable income in 2017 exceeds NIS640,000 (as updated from time to time). Hence, the employee’s marginal tax rate can
reach 50%.
In accordance with the provisions of the Israeli Tax Ordinance, if a company has selected the capital gains track, the company
must continue granting options/shares under the selected capital gains track until the end of the year following the year in which the first
grant of options/shares under that trustee track will be made.
We implement the capital gain track on RSUs, PSUs and stock options granted to our employees and directors and the income tax
track without a trustee on our ESPP.
Notwithstanding the above, the company may at any time also grant options/shares under the provisions of the income tax track
without a trustee.
The above rules apply only to employees, including officeholders but excluding controlling shareholders.
Controlling shareholders will be taxable under section 3(i) to the tax ordinance, according to which, the individual pays income
tax rate (according to the marginal tax rate of the individual, up to 48% in 2016 and 47% in 2017 and thereafter) on the profit upon the
sale of the underlying shares/shares. As of January 1, 2013, the surtax is imposed. Accordingly, the marginal tax rate of an individual
increased by 2% if the employee’s taxable income in 2016 exceeded NIS810,720, and, as of January 1, 2017, the marginal tax rate of an
individual is increased by 3% if the employee’s taxable income in 2017 exceeds NIS640,000 (as updated from time to time). Hence, the
employee’s marginal tax rate can reach 50%.
Taxation of Non-Israeli Subsidiaries
Non-Israeli subsidiaries are generally taxed based upon tax laws applicable in their countries of residence. In accordance with the
provisions of Israeli-controlled foreign corporation rules, certain income of a non-Israeli subsidiary, if the subsidiary’s primary source
of income is passive income (such as interest, dividends, royalties, rental income or income from capital gains), may be deemed
distributed as a dividend to the Israeli parent company and consequently is subject to Israeli taxation. An Israeli company that is subject
to Israeli taxes on such deemed dividend income of its non-Israeli subsidiaries may generally receive a credit for non-Israeli income
taxes paid by the subsidiary in its country of residence or are to be withheld from the actual dividend distributions.
Taxation of Non-Israeli Shareholders on Receipt of Dividends
Under Israeli tax law, a distribution of dividends from income attributable to an Approved Enterprise, Privileged Enterprise or
Preferred Enterprise will be subject to tax in Israel at the rate of 15%-20%, which is withheld and paid by the company paying the
dividend, if the dividend is distributed during the benefits period or within the following 12 years (this limitation does not apply to a
Foreign Investors Company or to a Preferred Enterprise). However, if the dividend is attributable partly to income derived from an
Approved and Privileged Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the
relative portions of the two types of income. Any distribution of dividends from income that is not attributable to an Approved
Enterprise, Privileged Enterprise or Preferred Enterprise will be subject to tax in Israel at the rate of 25%, except that dividends
distributed to an individual who is deemed “a substantial shareholder” will be subject to tax at the rate of 30%.
Under the United States-Israel tax treaty, the maximum tax on dividends paid to a holder of ordinary shares who is a United States
resident is 25%. Dividends received by a United States company that holds at least 10% of our voting rights, will be subject to
withholding tax at the rate of 12.5%, provided that certain other conditions in the tax treaty are met. Dividends distributed to other
foreign shareholders may be subject to different withholding tax rates based on the applicable tax treaty.
60
A non-resident of Israel who has interest or dividend income derived from or accrued in Israel, from which tax was withheld at the
source, is generally exempt from the duty to file tax returns in Israel in respect of such income, provided such income was not derived
from a business conducted in Israel by the taxpayer.
Capital Gains Taxes Applicable to Non-Israeli Shareholders
Capital gains from the sale of our ordinary shares by non-Israeli shareholders are exempt from Israeli taxation under the Israeli
domestic tax law, provided that the capital gain is not derived from a permanent establishment in Israel. In addition, the United States-
Israel tax treaty exempts United States residents who hold less than 10% of our voting rights, and who held less than 10% of our voting
rights during the 12 months prior to a sale of their shares, from Israeli capital gains tax in connection with such sale under certain
circumstances.
United States Federal Income Tax Considerations
The following discussion describes the material U.S. federal income tax considerations relating to the ownership or disposition of
our ordinary shares to a holder who is:
• A citizen or resident (as defined for U.S. federal income tax purposes) of the United States;
• A corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any
of its states;
• An estate, if the estates income is subject to U.S. federal income taxation; or
• A trust, if a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons (e.g., a
U.S. citizen, resident, or corporation) have the authority to control all of its substantial decisions or the trust has a valid
election in effect under U.S. Treasury Regulations to be treated as a “United States person”.
We refer to any of the above as a “U.S. Shareholder”. If a partnership owns the ordinary shares, the U.S. federal income tax
consequences relating to an investment in the ordinary shares will depend in part upon the status of the partner and the activities of the
partnership. Such a partner or partnership should consult its tax advisor regarding the U.S. federal income tax considerations of owning
and disposing of the ordinary shares in its particular circumstances.
This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended, referred to as the “Code”, U.S.
Treasury Regulations promulgated under the Code and administrative and judicial interpretations of the Code, all as in effect as of the
date of this Annual Report. This discussion generally considers only U.S. Shareholders who will hold the ordinary shares as capital
assets.
This summary discussion does not address tax considerations applicable to a U.S. Shareholder that may be subject to special tax
rules including, without limitation, the following:
• Aspects of U.S. federal income taxation relevant to U.S. Shareholders by reason of their particular circumstances (including
potential application of the alternative minimum tax).
• U.S. Shareholders subject to special treatment under the U.S. federal income tax laws, such as banks, financial institutions,
insurance companies, broker-dealers or traders in securities.
• U.S. Shareholders that are tax-exempt organizations and pension funds.
• U.S. Shareholders that are former citizens or long-term residents of the United States.
• U.S. Shareholders that are partnerships or entities treated as partnerships or other pass-through entities and persons who own
the ordinary shares through such entities, and non-U.S. individuals or entities.
• U.S. Shareholders that are real estate investment trusts or regulated investment companies.
• U.S. Shareholders who own 10% or more of our outstanding voting shares, either directly or by attribution.
• U.S. Shareholders who hold our ordinary shares as part of a hedging, straddle, integrated, or conversion transaction.
• U.S. Shareholders who acquire their ordinary shares in a “compensatory transaction”.
• U.S. Shareholders whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar.
• Any aspect of U.S. estate, gift, state, or local tax law, or any non-U.S. tax law.
61
The following summary does not address all of the tax consequences of owning or disposing of our ordinary shares to you
based on your individual tax circumstances. Accordingly, you should consult your own tax advisor as to the particular tax
consequences to you of owning or disposing of our ordinary shares, including the effects of applicable state, local, or non-U.S.
tax laws and possible changes in the tax laws.
Dividends Paid on the Ordinary Shares
Subject to the discussion below under “Passive Foreign Investment Company Status,” a U.S. Shareholder, as defined above, will
generally be required to include in gross income the amount of any distributions paid in respect of the ordinary shares to the extent that
the distributions are paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes.
We do not expect to maintain calculations of our earnings and profits under United States federal income tax principles. Therefore, if
you are a U.S. Shareholder you should expect that the entire amount of any distribution generally will be reported as dividend income to
you. The amount of the distribution would include any Israeli taxes withheld as part of the distributions.
Non-corporate U.S. Shareholders may qualify for preferential rates of taxation with respect to dividends on our ordinary stock if
the dividends are “qualified dividend income”. Qualified dividend income generally includes dividends paid by a U.S. corporation or a
“qualified foreign corporation.” A non-U.S. corporation, such as ours, generally will be considered to be a qualified foreign corporation
if (i) our shares are readily tradable on an established securities market in the United States, or (ii) we are eligible for the benefits of a
comprehensive U.S. income tax treaty determined to be satisfactory to the U.S. Department of the Treasury for purposes of this
provision and which includes an exchange of information provision. The U.S. Department of the Treasury and the Internal Revenue
Service have determined that the United States-Israel tax treaty is satisfactory for this purpose. In addition, the U.S. Department of the
Treasury and the Internal Revenue Service have determined that ordinary shares are considered readily tradable on an established
securities market if they are listed on an established securities market in the United States, such as the NASDAQ Global Select Market.
The information returns, reporting the dividends paid to U.S. Shareholders, will identify the amount of dividends eligible for the
reduced rates.
Limitation of Benefits rule may apply from the income tax treaty.
Any distributions in excess of earnings and profits will be treated first as non-taxable return of capital, reducing a U.S.
Shareholder’s tax basis in the ordinary shares to the extent of the distributions, and then as capital gain from a sale or exchange of the
ordinary shares. Any capital gain so realized will generally be taxable to the U.S. Shareholder as either long-term or short-term capital
gain depending upon whether the U.S. Shareholder has held the ordinary shares for more than one year as of the time such distribution
is received. Our dividends will generally not qualify for the dividends received deduction available to corporations. Any cash
distribution paid in Israeli Shekels will equal the U.S. dollar value of the distribution, calculated based on the spot exchange rate in
effect on the date of the distribution, regardless of whether the foreign currency is converted into U.S. dollars at that time. Any foreign
currency gain or loss a U.S. Shareholder realizes on a subsequent conversion of foreign currency into U.S. dollars will be U.S. source
ordinary income or loss. A 10% or more U.S. shareholder may have additional concerns not noted here.
Credit for Israeli Taxes
Subject to certain conditions and limitations, a U.S. Shareholder of an Israeli corporation maybe eligible for a foreign tax credit to
offset a portion of the U.S. tax liability assessed on Israeli sourced income when repatriated to the U.S. The U.S. Internal Revenue
Code provides a foreign tax credit limitation on the amount of foreign tax credits that maybe used during each taxable year. This
limitation requires detailed knowledge of the mechanics of the rules proscribed in the code and support regulations. Under no
circumstances, can foreign tax credits be used to offset a U.S. tax assessment on U.S. source income, and the credit may not exceed the
U.S. tax assessment on foreign income.
A U.S. Shareholder may elect to claim a foreign tax credit on its U.S. federal income tax return for foreign taxes paid or accrued,
alternatively, the U.S. Shareholder may elect to claim a deduction for Israeli income tax withheld or paid, but only if the shareholder
elects to do so for all foreign income taxes in that year. Special rules for determining a U.S. Shareholder’s foreign tax credit limitation
apply in the case of qualified dividend income. Rules similar to those concerning adjustments to the foreign tax credit limitation to
reflect any capital gain rate differential also apply to any qualified dividend income. The rules relating to foreign tax credits are
complex and each U.S. Shareholder should consult his, her, or its own tax advisor to determine whether and if the specific shareholder
would be entitled to this credit.
62
Sale, Exchange, or Other Disposition of the Ordinary Shares
The sale or exchange of ordinary shares may result in the recognition of capital gain or loss for the U.S. Shareholder. The amount
of gain or loss is the difference between the U.S. dollar value of the amount realized on the sale or exchange and the tax basis in the
ordinary shares. If a U.S. Shareholder’s holding period for the ordinary shares exceeds one year at the time of the disposition, the
amount of the shareholder’s gain or loss generally will be long-term capital gain or loss. Long-term capital gains of non-corporate U.S.
Shareholders realized upon a sale or exchange of ordinary shares generally will be eligible for a preferential rate of taxation. The
deductibility of capital losses may be subject to limitation. Gain or loss recognized by a U.S. Shareholder on a sale or exchange of
ordinary shares generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes.
Additional Tax on Investment Income
U.S. Shareholders that are individuals, estates or trusts and whose income exceeds certain thresholds may be subject to a 3.8% tax
on all or a portion of their “net investment income”, including, among other things, dividends on and capital gains from the sale or other
disposition of our ordinary shares, subject to certain limitations and exceptions.
Passive Foreign Investment Company Status
Based upon our income, assets and activities, we believe that we are not currently, and have not been in prior years, a passive
foreign investment company (PFIC) for U.S. federal income tax purposes. We do not currently anticipate that we will be a PFIC for any
subsequent year. We would be classified as a PFIC if, for any taxable year, either:
•
•
75% or more of our gross income in the taxable year is passive income, or
50% or more of the average percentage of our assets held during the taxable year produce or are held for the production of
passive income.
For this purpose, passive income includes dividends, interest, royalties, rents, annuities and the excess of gain over losses from the
disposition of assets that produce passive income.
If we were a PFIC for any taxable year during which you held shares as a U.S. Shareholder and you did not timely elect to treat us
as a “qualified electing fund” under Section 1295 of the Code or elect to mark the ordinary shares to market, you would be subject to
special tax rules that have a penalizing effect on the receipt of an “excess distribution” on the ordinary shares. Generally, a distribution
is considered an excess distribution to the extent it exceeds 125% of the average annual distributions in the prior three years (or, if
shorter, your holding period of the ordinary shares before the taxable year). You would also be subject to special tax rules that have a
penalizing effect on the gain from the disposition of the ordinary shares, including the treatment if any such gain as ordinary income,
not capital gain.
A U.S. Shareholder may be able to mitigate certain adverse tax consequences of holding shares in a PFIC by making a “qualified
electing fund,” “deemed sale” or “mark-to-market” election. However, these elections require specific conditions to be met, for
example, as a U.S. Shareholder you may make a qualified electing fund election only if we agree to furnish certain tax information
annually. We do not presently prepare or provide this information, and this information may not be available to you if we are
subsequently determined to be a PFIC. A number of specific rules and requirements apply to a U.S. Shareholder under any of the
elections available to owners of a PFIC. You are advised to consult your tax advisor concerning these elections.
Information Reporting and Back up Withholding
Dividend payments and proceeds from the sale or disposal of ordinary shares may be subject to information reporting to the
Internal Revenue Service and possible U.S. federal withholding tax. However, withholding taxes may not apply to a holder, in the event
they furnish a valid taxpayer identification number or certificate of foreign status and makes any other required certification, or who is
otherwise exempt from withholding (for example, a corporation). Amounts withheld as withholding taxes may be credited against a
U.S. Shareholder’s federal income tax liability.
Other Reporting Requirements
Certain U.S. Shareholders who are individuals are required to report information relating to an interest in our ordinary shares,
subject to certain exceptions (including an exception for shares held in accounts maintained by U.S. financial institutions) by filing IRS
Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. U.S. Shareholders are urged to
consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and disposition of our
ordinary shares.
63
Documents on Display
This report and other information filed or to be filed by us can be inspected and copied at the public reference facilities maintained
by the Securities and Exchange Commission at:
Securities and Exchange Commission
100 F Street, NE
Public Reference Room
Washington, D.C. 20549
For further information on the operation of the public reference room and copy charges, the Securities and Exchange Commission
may be contacted at 1-800-SEC-0330.
The Securities and Exchange Commission maintains a Web site at www.sec.gov that contains reports, proxy and information
statements, and other information regarding registrants that make electronic filings with the Securities and Exchange Commission using
its EDGAR system. We intend to post our Annual Report on our website (www.checkpoint.com) promptly following the filing of our
Annual Report with the Securities and Exchange Commission.
Additionally, documents referred to in this Annual Report may be inspected at our principal executive offices located at 5
Ha’Solelim Street, Tel Aviv 6789705, Israel.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks that result primarily from weak economic conditions in the markets in which we sell our products,
and from changes in exchange rates or in interest rates.
As of December 31, 2016, securities representing 5.7% of our investments portfolios are rated as AAA; securities representing
53% of the portfolio are rated as AA; securities representing 41.3% of the portfolio are rated as A.
The table below provides information regarding our investments in cash, cash equivalents, short-term bank deposits and
marketable securities, as of December 31, 2016:
2017
2018
Maturity
2019
(in thousands)
2020
2021
Total
Amortized
cost
Fair
Value at
Dec. 31, 2016
$ 915,302
149,972
$724,408
147,558
$591,471
203,001
$332,255
132,746
$122,507
37,364
$2,685,943
670,641
$2,676,687
666,909
13,247
9,005
2,592
6,013
—
30,857
30,941
294,488
$1,373,009
—
$880,971
—
$797,064
—
$471,014
—
$159,871
294,488
$3,681,929
294,488
$3,669,025
Government and corporate
debentures—fixed interest rates
U.S. Agencies
Government and corporate
debentures—floating interest rates
Short-term deposits, money market
instruments & cash
Total
Foreign Currency Risk
Most of our sales are denominated in U.S. dollars, and we incur most of our expenses in U.S. dollars, Euros, Swedish Krona,
British Pounds and Israeli Shekels. According to the factors indicated in ASC 830, “Foreign Currency Matters,” our cash flow, sale
price, sales market, expense, financing and inter-company transactions, and arrangement indicators, are predominantly denominated in
U.S. dollars. In addition, the U.S. dollar is the primary currency of the economic environment in which we operate, and thus, the U.S.
dollar is our functional and reporting currency.
64
On our balance sheet, we convert into U.S. dollars all monetary accounts (principally liabilities) that are maintained in other
currencies. For this conversion, we use the relevant foreign exchange rate at the balance sheet date. Any gain or loss that results from
this conversion is reflected in the statement of income as financial income or financial expense, as appropriate.
We measure and record non-monetary accounts in our balance sheet in U.S. dollars. For this measurement, we use the U.S. dollar
value in effect at the date that the asset or liability was initially recorded in our balance sheet (the date of the transaction).
We entered into forward contracts to hedge the exchange impacts on assets and liabilities denominated in the following currencies:
the Israeli Shekel, the Euro, the British Pound, the Swedish Krona, the Japanese Yen, the Czech Koruna, the Norwegian Krone, the
Singapore Dollar and the Canadian Dollar. As of December 31, 2016, we had outstanding forward contracts that did not meet the
requirement for hedge accounting, in the amount of $153 million. These contracts were for a period of up to twelve months. The net
gains recognized in “financial income, net” during 2016 were $1.8 million.
During 2016, we entered into forward contracts to hedge against the risk of overall changes in exchange rates on future cash flow
from payments of payroll and related expenses denominated in Israeli Shekel and in Euro. These contracts met the requirement for cash
flow hedge accounting and as such gains in the amount of $0.1 million were recognized when the related expense were incurred and
classified in operating expenses during 2016. As of December 31, 2016, we had outstanding forward contracts in the notional amount of
$52 million and their fair value amounted to $0.05 million.
The Company’s operating expenses may be affected by fluctuations in the value of the U.S dollar as it relates to foreign
currencies; with Israel and Europe having the greatest potential impact. In managing our foreign exchange risk we periodically enter
into foreign exchange hedging contracts. Our goal is to mitigate the potential exposure with these contracts. By way of example, a 10%
weakening in the value of the dollar relative to the currencies in which the Company’s operating expenses are denominated in 2016
would result in an increase in operating expenses of $38 million for the year ended December 31, 2016. This calculation assumes that
each exchange rate would change in the same direction relative to the U.S. dollar.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment in marketable securities. Our
marketable securities portfolio includes government and government agencies debt instruments (U.S., European and other) and
corporate debt instruments. By policy, we limit the amount of credit exposure to any one issuer.
Investments in both fixed rate and floating rate interest bearing securities carry a degree of interest rate risk. Fixed rate securities
may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less
income than predicted if interest rates fall. Due in part to these factors, our income from investments may decrease in the future in the
event that interest rates fluctuate.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
There are no defaults, dividend arrearages, or delinquencies that are required to be disclosed.
PART II
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.
65
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of December 31, 2016, we performed an evaluation under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)). Our management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective as of December 31, 2016, to provide reasonable assurance
that the information required to be disclosed in filings and submissions under the Exchange Act, is recorded, processed, summarized
and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information
related to us and our consolidated subsidiaries is accumulated and communicated to management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions about required disclosure.
Management’s report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and
procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets,
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors, and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial statements.
Our management recognizes that there are inherent limitations in the effectiveness of any system of internal control over financial
reporting, including the possibility of human error and the circumvention or override of internal control. Accordingly, even effective
internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation, and may
not prevent or detect all misstatements. Further, because of changes in conditions, the effectiveness of internal control over financial
reporting may vary over time.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In
conducting its assessment of internal control over financial reporting, management used the framework and criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) (the 2013 Framework) as of the end of the period covered by this report. Based on that evaluation, our management has
concluded that our internal control over financial reporting was effective as of December 31, 2016.
Our financial statements and internal control over financial reporting have been audited by Kost, Forer, Gabbay & Kasierer (A
Member of EY Global), an independent registered public accounting firm which has issued an attestation report on the Company’s
internal control over financial reporting included elsewhere in this Annual Report.
Changes in Internal Control over Financial Reporting
During the period covered by this Annual Report, no changes in our internal control over financial reporting have occurred that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
66
ITEM 16. Reserved.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Messrs. Yoav Chelouche and Irwin Federman are “audit committee financial experts”
and that they are independent under the applicable Securities and Exchange Commission and NASDAQ Global Select Market rules.
ITEM 16B. CODE OF ETHICS
In March 2004, our board of directors adopted a Code of Ethics that applies to all of our employees, directors and officers,
including the Chief Executive Officer, Chief Financial Officer, principal accounting officer or controller and other individuals who
perform similar functions. The Code of Ethics is updated from time to time and was last updated in 2014. You can obtain a copy of our
Code of Ethics without charge, by sending a written request to our investor relations department at Check Point Software Technologies,
Inc., Attn: Investor Relations, 959 Skyway Road, Suite 300, San Carlos, California 94070 U.S.A; Tel: 650-628-2000; Email:
ir@us.checkpoint.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees and Services
The following table sets forth the aggregate fees for the audit and other services provided by Kost, Forer, Gabbay & Kasierer, a
member of EY Global and other members of EY Global during the years ended December 31, 2016 and 2015 (in thousands):
Audit fees (1)
Tax fees (2)
Total
$
$
Year Ended December 31, 2016
Percentage
Amount
(in thousands, except percentages)
742
180
922
78%
22%
100%
742
208
950
$
$
Year Ended December 31, 2015
Percentage
Amount
80%
20%
100%
(1)
(2)
“Audit fees” are fees for audit services for each of the years shown in this table, including fees associated with the annual audit
(including audit of our internal control over financial reporting) and reviews of our quarterly financial results submitted on Form
6-K, consultations on various accounting issues and audit services provided in connection with other statutory or regulatory
filings.
“Tax fees” are fees for professional services rendered by our auditors for tax compliance, tax planning and tax advice on actual or
contemplated transactions, tax consulting associated with international transfer prices and employee benefits.
Audit committee’s pre-approval policies and procedures
Our audit committee chooses and engages our independent auditors to audit our financial statements, with the approval of our
shareholders as required by Israeli law. Our audit committee adopted a policy requiring our management to obtain the audit committee’s
approval before engaging our independent auditors to provide any audit or permitted non-audit services to us or our subsidiaries. This
policy, which is designed to assure that such engagements do not impair the independence of our auditors, requires pre-approval from
the audit committee on an annual basis for the various audit and non-audit services that may be performed by our auditors. In addition,
the audit committee limited the aggregate amount of fees our auditors may have received during 2016 and 2015, and will receive during
2017 for non-audit services in certain categories.
Our Chief Financial Officer reviews all management requests to engage our auditors to provide services and approves a request if
the requested services are of those that have received pre-approval from our audit committee. We inform our audit committee of these
approvals at least quarterly and prior to the commencement of the related services. If the services are not included in those categories
that were pre-approved by our audit committee, then specific approval is needed from our audit committee before these services are
commenced. Our audit committee is not permitted to approve the engagement of our auditors for any services that would be
inconsistent with maintaining the auditors’ independence or that are not permitted by applicable law.
67
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
As of December 31, 2016, the Company repurchased ordinary shares for an aggregate amount of $5,811 million. On May 4, 2016,
the Company’s board of directors approved and authorized the repurchase of up to additional $1,500 million of the Company’s ordinary
shares and not more than $250 million per quarter. Under the repurchase programs, share purchases may be made from time to time
depending on market conditions, share price, trading volume and other factors and will be funded from available working capital.
During 2016, we used $988 million to repurchase approximately 12.3 million ordinary shares which were repurchased under our
eleventh program. The table below provides detailed information.
Period
January 1 – January 31
February 1 – February 28
March 1 – March 31
April 1 – April 30
May 1 – May 31
June 1 – June 30
July 1 – July 31
August 1 – August 31
September 1 – September 30
October 1 – October 31
November 1 – November 30
December 1 – December 31
Total
(a) Total Number
of Ordinary
Shares
Purchased
(b) Average Price
per Ordinary
Share
1,308,794
1,249,748
576,237
970,895
1,241,632
718,711
741,357
1,720,249
746,587
1,029,240
1,195,914
799,070
12,298,434
$
$
$
$
$
$
$
$
$
$
$
$
$
77
80
83
86
83
83
81
76
76
78
84
85
81
(c) Total Number of
Ordinary Shares
Purchased as
Part of Publicly
Announced Plans
or Programs
1,308,794
1,249,748
576,237
970,895
1,241,632
718,711
741,357
1,720,249
746,587
1,029,240
1,195,914
799,070
12,298,434
(d) Approximate
Dollar Amount
Available for
Repurchase
under the Plans
or Programs
414,265,301
314,999,250
266,999,585
1,417,097,584
1,314,329,962
1,254,329,414
1,194,329,710
1,064,328,239
1,007,329,155
927,332,342
833,335,399
759,369,398
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
As a foreign private issuer whose shares are listed on the NASDAQ Global Select Market, we are permitted to follow certain
home country corporate governance practices instead of certain requirements of the NASDAQ Marketplace Rules.
We do not comply with the NASDAQ requirement that an issuer listed on the NASDAQ Global Select Market have a quorum
requirement that in no case be less than 33 1/3% of the outstanding shares of the company’s common voting stock. Our articles of
association, consistent with the Israeli Companies Law, provide that the quorum requirements for an adjourned meeting are the presence
of a minimum of two shareholders present in person. As such, our quorum requirements for an adjourned meeting do not comply with
the NASDAQ requirements and we instead follow our home country practice.
68
In addition, we follow our home country law, instead of the NASDAQ Marketplace Rules, which require that we obtain
shareholder approval for the establishment or amendment of certain equity based compensation plans and arrangements. Under Israeli
law and practice, in general, the approval of the board of directors is required for the establishment or amendment of equity based
compensation plans and arrangements, unless the arrangement is for the benefit of a director or a controlling shareholder, in which case
compensation committee or audit committee and shareholder approval are also required.
As a foreign private issuer listed on the NASDAQ Global Select Market, we may also follow home country practice with regard
to, among other things, composition of the board of directors, compensation practices and compensation committee practices, director
nomination process and regularly scheduled meetings at which only independent directors are present. In addition, we may follow our
home country practice, instead of the NASDAQ Global Select Market rules, which require that we obtain shareholder approval for
certain dilutive events, such as for an issuance 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. A foreign private issuer that elects to follow a home country practice instead of NASDAQ rules must submit to NASDAQ in
advance a written statement from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not
prohibited by the home country’s laws. In addition, a foreign private issuer must disclose in its annual reports filed with the Securities
and Exchange Commission or on its website each such requirement that it does not follow and describe the home country practice
followed by the issuer instead of any such requirement. Accordingly, our shareholders may not be afforded the same protection as
provided under NASDAQ’s corporate governance rules.
See Item 3.D. “Key Information – Risk factors – Risks relating to our operations in Israel – As a foreign private issuer whose
shares are listed on the NASDAQ Global Select Market, etc.,” Item 6 “Directors, Senior Management and Employees – Board
Practices” and Item 10 “Additional Information – Articles of Association and Israeli Companies Law” for a detailed description of the
significant ways in which the registrant’s corporate governance practices differ from those followed by U.S. companies under the listing
standards of the NASDAQ Global Select Market.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 17. FINANCIAL STATEMENTS
Check Point has responded to Item 18.
ITEM 18. FINANCIAL STATEMENTS
See pages F-1 to F-44 below.
PART III
69
ITEM 19. EXHIBITS
1
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
8
12.1
12.2
13
15
101
Articles of Association of Check Point Software Technologies Ltd. (1)
Form of Director Insurance, Indemnification and Exculpation Agreement between Check Point Software Technologies Ltd. and
its directors (2)
Check Point Software Technologies Ltd. 2005 Israel Equity Incentive Plan (3)
Check Point Software Technologies Ltd. 2005 United States Equity Incentive Plan (4)
Check Point Software Technologies Ltd. Employee Stock Purchase Plan, as Amended and Restated (5)
Check Point Software Technologies Ltd. Employee Stock Purchase Plan (Non-U.S. Employees)
A translation of an agreement between Tzlil Ad Ltd. and Check Point Software Technologies Ltd., for the purchase of the
leasing rights of a building in Tel Aviv, Israel, dated as of March 19, 2006 (6)
Amendment to Check Point Software Technologies Ltd. 2005 Israel Equity Incentive Plan, dated January 22, 2014 (7)
Amendment to Check Point Software Technologies Ltd. 2005 United States Equity Incentive Plan, dated January 22, 2014 (8)
Check Point Software Technologies Ltd. Executive Compensation Plan (9)
List of subsidiaries (10)
Certification of the Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
Consent of Kost, Forer, Gabbay & Kasierer, a Member of EY Global
XBRL (Extensible Business Reporting Language) The following materials from Check Point Software Technologies Ltd.’s
Annual Report on Form 20-F for the fiscal year-ended December 31, 2015, formatted in XBRL: (i) Consolidated Statements of
Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Shareholders’ Equity/(Deficit) and
Comprehensive Income/(Loss) (iv) Consolidated Statements of Cash Flows, (v) Notes to the Consolidated Financial
Statements, and (vi) Schedule II — Valuation and Qualifying Accounts and Reserves.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Incorporated by reference to Exhibit 1 of Check Point’s Annual Report on Form 20-F for the year ended December 31, 2005.
Incorporated by reference to Exhibit 4.1 of Check Point’s Annual Report on Form 20-F for the year ended December 31, 2005.
Incorporated by reference to Exhibit 4.7 of Check Point’s Annual Report on Form 20-F for the year ended December 31, 2005.
Incorporated by reference to Exhibit 4.8 of Check Point’s Annual Report on Form 20-F for the year ended December 31, 2005.
Incorporated by reference to Exhibit 4.1 of Check Point’s Registration Statement on Form S-8 (No. 333-207355) filed with the
Securities and Exchange Commission on October 8, 2015.
Incorporated by reference to Exhibit 4.11 of Check Point’s Annual Report on Form 20-F for the year ended December 31, 2006.
Incorporated by reference to Exhibit 4.7 of Check Point’s Annual Report on Form 20-F for the year ended December 31, 2013.
Incorporated by reference to Exhibit 4.8 of Check Point’s Annual Report on Form 20-F for the year ended December 31, 2013.
Incorporated by reference to Annex A of Check Point’s Report on Form 6-K filed with the Securities and Exchange Commission
on May 25, 2016.
(10) Incorporated by reference to “Item 4 – Information on Check Point – Organizational Structure” in this Annual Report on Form
20-F.
70
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2016
IN U.S. DOLLARS
INDEX
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
Page
F-2 - F-4
F-5 - F-6
F-7
F-8
F-9
F-10 - F-11
F-12 - F-44
Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 6706703, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
We have audited the accompanying consolidated balance sheets of Check Point Software Technologies Ltd. and subsidiaries
(collectively, the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive
income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2016. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 financial statements referred to above present fairly, in all material respects, the consolidated financial position
of the Company and subsidiaries as of December 31, 2016 and 2015, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our
report dated April 28, 2017, expressed an unqualified opinion thereon.
Tel-Aviv, Israel
April 28, 2017
KOST FORER GABBAY & KASIERER
A Member of EY Global
F-2
Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 6706703, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Shareholders and Board of Directors of
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
We have audited Check Point Software Technologies Ltd. and subsidiaries’ (collectively, the “Company”) internal control over
financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). The Company’s
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting included in the accompanying management’s report on internal control over financial
reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
F-3
Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 6706703, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
In our opinion, the Company maintained in all material respects, effective internal control over financial reporting as of
December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company and subsidiaries as of December 31, 2016 and 2015, and the related consolidated
statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period
ended December 31, 2016, and our report dated April 28, 2017, expressed an unqualified opinion thereon.
Tel-Aviv, Israel
April 28, 2017
KOST FORER GABBAY & KASIERER
A Member of EY Global
F-4
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Short-term bank deposits
Marketable securities
Trade receivables (net of allowances for doubtful accounts and sales reserves of $14,832 and $ 16,231
at December 31, 2016 and 2015, respectively)
Prepaid expenses and other current assets
Total current assets
LONG-TERM ASSETS:
Marketable securities
Property and equipment, net
Severance pay fund
Deferred tax asset, net
Other intangible assets, net
Goodwill
Other assets
Total long - term assets
Total assets
The accompanying notes are an integral part of the consolidated financial statements.
F-5
December 31,
2016
2015
$ 187,428
107,059
1,078,440
$ 192,312
7,034
1,084,881
478,507
41,021
1,892,455
410,763
40,844
1,735,834
2,296,097
61,859
4,617
94,608
22,155
812,012
33,833
3,325,181
$5,217,636
2,331,187
48,692
5,262
65,711
26,008
812,012
45,174
3,334,046
$5,069,880
CONSOLIDATED BALANCE SHEETS (CONT’D)
U.S. dollars in thousands (except share data)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables
Employee compensation accruals
Deferred revenues
Accrued expenses and other current liabilities
Total current liabilities
LONG-TERM LIABILITIES:
Deferred revenues
Income tax accrual
Deferred tax liability, net
Accrued severance pay
Total long-term liabilities
Total liabilities
SHAREHOLDERS’ EQUITY:
Share capital -
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
December 31,
2016
2015
$
20,017
155,848
814,418
175,575
1,165,858
$
17,833
134,505
717,528
186,987
1,056,853
251,166
300,536
—
8,953
560,655
1,726,513
188,255
283,215
240
9,451
481,161
1,538,014
Preferred shares, NIS 0.01 par value, 5,000,000 shares authorized at December 31, 2016
and 2015; no shares issued and outstanding at December 31, 2016 and 2015
—
—
Ordinary shares, NIS 0.01 par value, 500,000,000 shares authorized at December 31, 2016
and 2015; 261,223,970 shares issued at December 31, 2016 and 2015; 165,975,204 and
174,901,523 shares outstanding at December 31, 2016 and 2015, respectively
Additional paid-in capital
Treasury shares at cost – 95,248,766 and 86,322,447 ordinary shares at December 31, 2016 and
2015, respectively
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
774
1,139,642
774
987,331
(4,956,172)
(9,250)
7,316,129
3,491,123
$ 5,217,636
(4,043,271)
(4,250)
6,591,282
3,531,866
$ 5,069,880
The accompanying notes are an integral part of the consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands (except per share data)
Revenues:
Products and licenses
Subscriptions
Software updates and maintenance
Total revenues
Operating expenses:
Cost of products and licenses *)
Cost of subscriptions *)
Cost of software updates and maintenance*)
Amortization of technology
Total cost of revenues
Research and development
Selling and marketing
General and administrative
Total operating expenses
Operating income
Financial income, net
Income before taxes on income
Taxes on income
Net income
Basic earnings per ordinary share
Diluted earnings per ordinary share
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
2016
$ 572,964
389,885
778,452
1,741,301
105,967
10,841
83,011
2,184
202,003
178,372
420,526
88,130
889,031
852,270
44,402
896,672
171,825
$ 724,847
4.26
$
4.18
$
Year ended
December 31,
2015
$ 555,792
318,624
755,422
1,629,838
101,158
7,623
78,468
1,808
189,057
149,279
359,804
91,981
790,121
839,717
34,073
873,790
187,924
$ 685,866
3.83
$
3.74
$
2014
$ 520,312
265,021
710,483
1,495,816
95,868
5,626
74,807
240
176,541
133,300
306,363
78,558
694,762
801,054
28,762
829,816
170,245
$ 659,571
3.50
$
3.43
$
*) Not including amortization of technology shown separately below.
The accompanying notes are an integral part of the consolidated financial statements.
F-7
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
U.S. dollars in thousands
Net income
Other comprehensive loss
Change in unrealized losses on marketable securities:
Unrealized losses arising during the period, net of tax benefit of $1,075, $2,032 and $271,
respectively
Gains reclassified into earnings, net of tax (benefits) expense of $728, $(3) and $84,
respectively
Change in unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period, net of tax (expense) benefit of $(30),
$(136) and $882, respectively
Losses (gains) reclassified into earnings, net of tax (benefit) expense of $(19), $254 and
$471, respectively
Other comprehensive loss, net of tax
Comprehensive income
The accompanying notes are an integral part of the consolidated financial statements.
F-8
Year ended
December 31,
2015
$685,866
2014
$659,571
2016
$724,847
(2,793)
(5,209)
(604)
(2,265)
(5,058)
(19)
(5,228)
(204)
(808)
159
716
(4,629)
(101)
58
(5,000)
1,332
2,048
(3,180)
2,528
(2,101)
(2,909)
$719,847
$682,686
$656,662
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
U.S. dollars in thousands (except share amounts)
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
Share
capital
Balance as of January 1, 2014
$ 774
Excess Tax benefit from stock-based compensation —
Issuance of treasury shares under stock purchase
plans, upon exercise of options and vesting of
restricted stock units (2,735,516 ordinary shares,
net of 33,748 shares for taxes)
—
Treasury shares at cost (11,207,320 ordinary
shares)
—
—
Stock-based compensation
—
Other comprehensive loss, net of tax
—
Net income
Balance as of December 31, 2014
774
Excess Tax benefit from stock-based compensation —
Issuance of treasury shares under stock purchase
plans, upon exercise of options and vesting of
restricted stock units (3,143,469 ordinary shares,
net of 34,660 shares for taxes)
—
Treasury shares at cost (12,032,899 ordinary
shares)
Stock-based compensation
Replacement of restricted share units upon
—
—
acquisitions
—
—
Other comprehensive loss, net of tax
—
Net income
Balance as of December 31, 2015
774
Excess Tax benefit from stock-based compensation —
Issuance of treasury shares under stock purchase
plans, upon exercise of options and vesting of
restricted stock units (3,372,115 ordinary shares,
net of 37,310 shares for taxes)
—
Additional
paid-in
capital
$ 774,917
11,669
Treasury
shares
at cost
$(2,421,278) $
—
Accumulated
other
comprehensive
income (loss)
1,839
—
Retained
earnings
$5,245,845
—
Total
shareholders’
equity
$ 3,602,097
11,669
11,130
59,136
—
—
61,408
—
—
859,124
19,376
(764,543)
—
—
—
(3,126,685)
—
33,703
69,149
—
74,005
1,123
—
—
987,331
17,380
(985,735)
—
—
—
—
(4,043,271)
—
—
—
—
659,571
5,905,416
—
—
—
—
—
—
(2,909)
—
(1,070)
—
—
—
—
—
(3,180)
—
(4,250)
—
—
—
685,866
6,591,282
—
70,266
(764,543)
61,408
(2,909)
659,571
3,637,559
19,376
102,852
(985,735)
74,005
1,123
(3,180)
685,866
3,531,866
17,380
54,200
74,996
—
—
129,196
Treasury shares at cost (12,298,434 ordinary
shares)
Stock-based compensation
Other comprehensive loss, net of tax
Net income
Balance as of December 31, 2016
—
—
—
$ 774
—
80,731
—
—
$1,139,642
(987,897)
—
—
—
$(4,956,172) $
—
—
(5,000)
—
—
—
—
724,847
(9,250) $7,316,129
(987,897)
80,731
(5,000)
724,847
$ 3,491,123
The accompanying notes are an integral part of the consolidated financial statements.
F-9
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Cash flows from operating activities:
Net income
Adjustments required to reconcile net income to net cash provided by operating
activities:
Depreciation of property and equipment
Amortization of premium and accretion of discount on marketable securities,
net and revaluation of short-term bank deposits
Realized gain on sale of marketable securities, net
Amortization of intangible assets
Stock-based compensation
Deferred income tax benefit
Excess tax benefit from stock-based compensation
Decrease (increase) in accrued severance pay, net
Decrease (increase) in trade receivables, net
Decrease (increase) in prepaid expenses and other current assets and other
assets
Increase in trade payables
Increase in employees and payroll accruals
Increase (decrease) in income tax accrual and accrued expenses and other
current liabilities
Increase in deferred revenues
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from maturity of marketable securities
Proceeds from sale of marketable securities
Proceeds from short-term bank deposits
Investment in marketable securities
Investment in short-term bank deposits
Cash paid in conjunction with acquisitions, net of acquired cash
Purchase of property and equipment
Net cash used in investing activities
The accompanying notes are an integral part of the consolidated financial statements.
F-10
Year ended
December 31,
2015
2016
2014
$
724,847
$
685,866
$
659,571
10,883
10,358
9,178
23,388
(2,993)
3,853
82,732
(32,594)
(17,380)
147
(67,744)
11,234
2,184
19,345
28,534
159,801
946,237
29,611
(16)
3,612
76,302
(15,847)
(19,376)
197
(43,384)
(21,404)
5,183
13,835
101,235
120,559
946,731
33,021
(288)
2,106
63,169
(12,292)
(11,669)
(407)
12,948
(8,613)
1,879
2,698
(77,809)
112,390
785,882
1,525,929
235,252
—
(1,746,931)
(100,000)
—
(24,050)
$ (109,800)
1,479,241
109,735
321
(1,628,287)
—
(96,544)
(17,348)
$ (152,882)
1,233,866
75,910
—
(1,535,800)
(7,343)
—
(12,736)
$ (246,103)
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT’D)
U.S. dollars in thousands
Cash flows from financing activities:
Proceeds from issuance of treasury shares upon exercise of options
Purchase of treasury shares at cost
Excess tax benefit from stock-based compensation
Net cash used in financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Supplemental disclosure of cash flow information:
Cash paid during the year for taxes on income
Supplemental disclosure of non-cash activities:
Replacement of restricted share units upon acquisitions
The accompanying notes are an integral part of the consolidated financial statements.
F-11
Year ended
December 31,
2015
2016
2014
$ 129,196
(987,897)
17,380
(841,321)
(4,884)
192,312
$ 187,428
$ 102,852
(985,735)
19,376
(863,507)
(69,658)
261,970
$ 192,312
$ 70,266
(768,176)
11,669
(686,241)
(146,462)
408,432
$ 261,970
$ 180,071
$ 123,944
$ 239,245
$
—
$
1,123
$
—
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1:- GENERAL
a.
b.
Check Point Software Technologies Ltd. (“Check Point Ltd.”), an Israeli corporation, and subsidiaries (collectively,
the “Company” or “Check Point”), develop, market and support wide range of products and services for IT security,
by offering an extensive portfolio of network and gateway security solutions, management solutions and data and
endpoint security solutions.
The Company operates in one operating and reportable segment and its revenues are mainly derived from the sales of
its network and data security products, including licenses, related software updates, maintenance and subscriptions.
The Company sells its products worldwide primarily through multiple distribution channels (“channel partners”),
including distributors, resellers, system integrators, Original Equipment Manufacturers (“OEMs”) and Managed
Security Service Providers (“MSPs”).
During 2016, 2015 and 2014, approximately 37%, 38% and 37% of the Company’s revenues were derived from two
channel partners. Revenues derived from one channel partner were 19%, 20% and 21% and from the other channel
partner were 18%, 18% and 16%, respectively. Trade receivable balances from these two channel partners aggregated
to $ 200,479 and $ 181,368 as of December 31, 2016 and 2015, respectively.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in conformity with United States generally accepted accounting principles
(“U.S. GAAP”).
a.
Use of estimates:
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make
estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and
assumptions used are reasonable based upon information available at the time they are made. These estimates,
judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
b.
Financial statements in United States dollars:
Most of the Company’s revenues and costs are denominated in United States dollar (“dollar”). 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 the Company’s functional and reporting currency.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
Accordingly, non-dollar denominated transactions and balances have been re-measured into the functional currency in
accordance with Accounting Standard Code (“ASC”) No. 830, “Foreign Currency Matters”. All transaction gains and
losses from the re-measured 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 subsidiaries. Intercompany
transactions and balances have been eliminated upon consolidation.
d.
Cash equivalents:
Cash equivalents are short-term unrestricted highly liquid investments that are readily convertible to cash and with
original maturities of three months or less at acquisition.
e.
Short-term bank deposits:
Bank deposits with maturities of more than three months at acquisition but less than one year are included in short-
term bank deposits. Such deposits are stated at cost which approximates fair values.
f.
Investments in marketable securities:
The Company accounts for investments in marketable securities in accordance with ASC No. 320,
“Investments—Debt and Equity Securities”.
Management determines the appropriate classification of its investments at the time of purchase and reevaluates such
determinations at each balance sheet date.
The Company classifies all of its marketable securities as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, reported in accumulated other comprehensive income (loss)
in shareholders’ equity. Realized gains and losses on sale of investments are included in financial income, net and are
derived using the specific identification method for determining the cost of securities sold.
The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization together with interest on securities is included in financial income, net.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
The Company’s securities are reviewed for impairment in accordance with ASC 320-10-35. If such assets are
considered to be impaired, the impairment charge is recognized in earnings when a decline in the fair value of its
investments below the cost basis is judged to be other-than-temporary. Factors considered in making such a
determination include the duration and severity of the impairment, the reason for the decline in value, the potential
recovery period and the Company’s intent to sell, including whether it is more likely than not that the Company will
be required to sell the investment before recovery of cost basis. For securities with an unrealized loss that the
Company intends to sell, or it is more likely than not that the Company will be required to sell before recovery of their
amortized cost basis, the entire difference between amortized cost and fair value is recognized in earnings. For
securities that do not meet these criteria, the amount of impairment recognized in earnings is limited to the amount
related to credit losses, while declines in fair value related to other factors are recognized in other comprehensive
income (loss).
g.
Property and equipment, net:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets at the following annual rates:
Computers and peripheral equipment
Office furniture and equipment
Building
Leasehold improvements
h.
Goodwill:
%
33 - 50
10 - 20
4
The shorter of term of the lease or the
useful life of the asset
Goodwill has been recorded as a result of acquisitions. Goodwill represents the excess of the purchase price in a
business combination over the fair value of identifiable net tangible and intangible assets acquired. Goodwill is not
amortized, but rather is subject to an impairment test.
ASC No. 350, “Intangibles—Goodwill and other” (“ASC No. 350”) requires goodwill to be tested for impairment at
the reporting unit level at least annually or between annual tests in certain circumstances, and written down when
impaired.
ASC No. 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the
two-step quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely than not
indication of impairment, no further impairment testing is required. If it does result in a more likely than not
indication of impairment, the two-step impairment test is performed. Alternatively, ASC No. 350 permits an entity to
bypass the qualitative assessment for any reporting unit and proceed directly to performing the first step of the
goodwill impairment test.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
The Company operates in one operating segment, and this segment comprises its only reporting unit. The Company
performs the first step of the quantitative goodwill impairment test during the fourth quarter of each fiscal year, or
more frequently if impairment indicators are present and compares the fair value of the reporting unit with its carrying
value.
During the years 2016, 2015 and 2014, no impairment losses have been identified.
i.
Other intangible assets, net:
Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful
lives, which range from 5 to 20 years. These intangible assets consist of core technology, trademarks and trade names
which are amortized over their estimated useful lives on a straight-line basis and customer relationships which are
amortized either over their estimated useful lives in proportion to the economic benefits realized or on a straight-line
basis.
j.
Impairment of long-lived assets:
The Company’s long-lived assets are reviewed for impairment in accordance with ASC No. 360, “Property, Plant and
Equipment,” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the
assets to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. During the years 2016, 2015 and 2014, no impairment indicators have been
identified.
k.
Research and development costs:
Research and development costs are charged to the statements of income as incurred. ASC No. 985-20,
“Software—Costs of Software to Be Sold, Leased, or Marketed”, 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 are
expensed as incurred.
F-15
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
l.
Revenue recognition:
The Company derives its revenues mainly from sales of products and licenses, subscriptions and software updates and
maintenance. The Company’s products are generally integrated with software that is essential to the functionality of
the product. The Company sells its products primarily through channel partners including distributors, resellers,
OEMs (Original Equipment Manufacturers), system integrators and MSPs (Managed Service Providers), all of whom
are considered end-users.
The Company’s subscriptions provide customers with access to its suite of security solutions and are either sold as a
service or an annuity.
The Company’s software updates and maintenance provide customers with rights to unspecified software product
upgrades released during the term of the agreement and include maintenance services to end-user customers, through
primarily telephone access to technical support personnel as well as hardware support services.
Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services are
rendered, the amounts are fixed or determinable and collection of the amount is considered probable. Revenues from
sales of products and licenses are recognized upon shipment or when the customer has been provided access through
delivery of the Certificate Key. Revenues from subscriptions and from software updates and maintenance are
recognized ratably over the term of the agreement. Revenues from arrangements with payment terms extending
beyond customary payment terms are considered not to be fixed or determinable, and therefore revenue is deferred
and recognized when payments become due, provided that all other revenue recognition criteria have been met.
The Company’s products and services generally qualify as separate units of accounting. As such, revenues from
multiple element arrangement that include products, subscriptions and software updates and maintenance are
separated into their various elements using the relative selling price method. The estimated selling price for each
deliverable is based on its vendor specific objective evidence (“VSOE”), if available, third party evidence (“TPE”) if
VSOE is not available, or best estimate of selling price (“BESP”) if neither VSOE nor TPE is available.
The Company establishes VSOE of fair value based on the renewal prices. If VSOE cannot be established for a
deliverable, the Company uses BESP. The Company determines fair value based on BESP by reviewing historical
transactions, and considering several other external and internal factors including, but not limited to, its pricing
practices.
Deferred revenues represent mainly the unrecognized revenue billed for subscriptions and for software updates and
maintenance. Such revenues are recognized ratably over the term of the related agreement.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
The Company records a provision for estimated sales returns, rebates, stock rotations and other rights provided to
customers on product and service related sales in the same period the related revenues are recorded. These estimates
are based on historical sales returns, analysis of credit memo data, rebate plans, stock rotation arrangements and other
known factors. Such provisions amounted to $ 16,104 and $ 14,130 as of December 31, 2016 and 2015, respectively.
m.
Cost of revenues:
Cost of products and licenses is comprised of cost of software and hardware production, manuals, packaging and
shipping.
Cost of subscriptions is comprised of license fees paid to third parties.
Cost of software updates and maintenance is mainly comprised of cost of post-sale customer support.
Amortization of technology is comprised of amortization of core technology assets which are used in the Company’s
operations, and is presented separately as part of cost of revenues.
n.
Severance pay:
The Company’s liability for severance pay for periods prior to January 1, 2007, 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 recorded as expenses the increase in the severance liability, net of earnings
(losses) from the related investment fund. Employees were entitled to one month’s salary for each year of
employment, or a portion thereof. Until January 1, 2007, the Company’s liability was partially funded by monthly
payments deposited with insurers; any unfunded amounts are covered by a provision established by the Company.
The carrying value of deposited funds in respect to the severance liability for services prior to January 1, 2007,
includes profits (losses) 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.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
Effective January 1, 2007, the Company’s agreements with employees in Israel, are under Section 14 of the Severance
Pay Law, 1963. The Company’s contributions for severance pay have extinguished its severance obligation. Upon
contribution of the full amount based on the employee’s monthly salary for each year of service, no additional
obligation exists regarding the matter of severance pay and no additional payments is made by the Company to the
employee. Further, the related obligation and amounts deposited on behalf of the employee for such obligation are not
stated on the balance sheet, as the Company is legally released from the obligation to employees once the required
deposit amounts have been paid.
Severance expenses for the years ended December 31, 2016, 2015 and 2014, were $ 8,165, $ 7,140 and $ 6,726,
respectively.
o.
Employee benefit plan:
The Company has a 401(K) defined contribution plan covering certain employees in the U.S. In 2016, all eligible
employees may elect to contribute up to 50%, but generally not greater than $ 18 per year (and an additional amount
of $ 6 for employees aged 50 and over), of their annual compensation to the plan through salary deferrals, subject to
statutory limits. The Company matches 50% of employee contributions to the plan up to a limit of 4.5% of their
eligible compensation. In 2016, 2015 and 2014, the Company’s matching contribution to the plan amounted to $
2,290, $ 1,397 and $ 1,148, respectively.
p.
Income taxes:
The Company accounts for income taxes in accordance with ASC No. 740, “Income Taxes” (“ASC No. 740”). ASC
No. 740 prescribes the use of the liability method whereby deferred tax asset and liability account balances are
determined for temporary 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 amounts more likely than not
to be realized.
ASC No. 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The
first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of
available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax
position will be sustained on audit, including resolution of any related appeals or litigation processes.
The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative basis) likely to
be realized upon ultimate settlement. The Company classifies interest related to unrecognized tax benefits in taxes on
income.
F-18
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
q.
Advertising costs:
Advertising costs are expensed as incurred. Advertising expenses for the years ended December 31, 2016, 2015 and
2014, were $ 3,127, $ 2,311 and $ 2,837, respectively.
r.
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 foreign currency
derivative contracts.
The majority of the Company’s cash and cash equivalents and short-term bank deposits are deposited in major banks
in the U.S., Israel and Europe. Deposits in the U.S. may be in excess of insured limits and are not insured in other
jurisdictions. Generally, these deposits may be withdrawn upon demand and therefore bear low risk. Marketable
securities are held mainly by Check Point Ltd., the Company’s Singaporean subsidiary and the U.S. subsidiary, and
are invested in securities denominated in U.S. dollar.
The Company’s marketable securities consist of investments in government, corporate and government sponsored
enterprises debentures. The Company’s investment policy, approved by the Board of Directors, limits the amount that
the Company may invest in any one type of investment or issuer, thereby reducing credit risk concentrations.
The Company’s trade receivables are geographically dispersed and derived from sales to channel partners mainly in
the United States, Europe and Asia. Concentration of credit risk with respect to trade receivables is limited by credit
limits, ongoing credit evaluation and account monitoring procedures. The Company performs ongoing credit
evaluations of its channel partners and establishes an allowance for doubtful accounts based on factors that may affect
a customers’ ability to pay, such as known disputes, age of the receivable balance and past experience. Allowance for
doubtful accounts amounted to $ 2,255 and $ 2,101 as of December 31, 2016 and 2015, respectively. The Company
writes off receivables when they are deemed uncollectible, having exhausted all collection efforts. Actual collection
experience may not meet expectations and may result in increased bad debt expense. Bad debt expense (income)
amounted to $ 154, $ (1,834) and $ (1,932) in 2016, 2015 and 2014, respectively. Total write offs during 2016, 2015
and 2014 amounted to $ 0, $ 123 and $ 1,537, respectively.
The Company utilizes foreign currency forward contracts to protect against the risk of overall changes in exchange
rates. The derivative instruments hedge a portion of the Company’s non-dollar currency exposure. The Company’s
exposure is limited to the amount of any asset resulting from the forward contracts.
F-19
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
s.
Derivatives and hedging:
The Company accounts for derivatives and hedging based on ASC No. 815, “Derivatives and Hedging” (“ASC
No. 815”). ASC No. 815 requires the Company to recognize all derivatives on the balance sheet at fair value. The
accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship, as well as the type of hedging relationship. For those
derivative instruments that are designated and qualify as hedging instruments, the Company must designate the
hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net
investment in a foreign operation. If the derivatives meet the definition of a hedge and are designated as such,
depending on the nature of the hedge, changes in the fair value of such 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 financial income, net.
The Company entered into forward contracts to hedge the fair value of assets and liabilities denominated in the
following currencies: the New Israeli Shekel, the Euro, the British Pound, the Swedish Krona, the Japanese Yen, the
Czech Koruna, the Norwegian Krone, the Singapore Dollar and the Canadian Dollar. As of December 31, 2016 and
2015, the Company had outstanding forward contracts that did not meet the requirement for hedge accounting, in the
notional amount of $ 153,318 and $ 319,380, respectively. The Company measured the fair value of the contracts in
accordance with ASC No. 820, “Fair Value Measurement” (“ASC No. 820”) (classified as level 2 of the fair value
hierarchy). The net gains (losses) resulting from these forward contracts recognized in financial income, net during
2016, 2015 and 2014 were $ 1,822, $ 378 and $ (21,970), respectively. The fair value of the Company’s outstanding
forward contracts at December 31, 2016 and 2015 amounted to liabilities of $ 10 and $ 52, respectively.
The Company entered into forward contracts to hedge against the risk of overall changes in future cash flow from
payments of payroll and related expenses denominated in New Israeli Shekel and in Euro. As of December 31, 2016
and 2015, the Company had outstanding forward contracts in the notional amount of $ 51,970 and $ 25,732,
respectively. These contracts were for a period of up to twelve months. The Company measured the fair value of the
contracts in accordance with ASC No. 820 (classified as level 2 of the fair value hierarchy). These contracts met the
requirement for cash flow hedge accounting and, as such, gains (losses) on the contracts are recognized initially in
OCI and reclassified to the statement of income in the period the related hedged items affect earnings. During 2016,
2015 and 2014 gains (losses) in the amount of $ 120, $ (1,585) and $ (3,009), respectively, were reclassified when the
related expenses were incurred and recognized in operating expenses. The fair value of the Company’s outstanding
forward contracts at December 31, 2016 and 2015 amounted to assets of $ 53 and $ 8, respectively.
F-20
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
t.
Basic and diluted earnings per share:
Basic earnings per share are computed based on the weighted average number of ordinary shares outstanding during
each year. Diluted earnings per share are computed based on the weighted average number of ordinary shares
outstanding during each year, plus dilutive potential ordinary shares outstanding during the year, in accordance with
ASC No. 260, “Earnings Per Share”.
The total weighted average number of shares related to the outstanding options excluded from the calculations of
diluted earnings per share, since it would have an anti-dilutive effect, was 4,232,063, 1,594,082 and 1,746,613 for
2016, 2015 and 2014, respectively.
u.
Accounting for stock-based compensation:
The Company accounts for stock-based compensation in accordance with ASC No. 718, “Compensation-Stock
Compensation” (“ASC No. 718”). ASC No. 718 requires companies to estimate the fair value of equity-based
payment awards on the grant date using an option-pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s
consolidated statements of income.
The Company recognizes compensation expenses for the value of awards granted, based on the straight line method
for service based awards and based on the accelerated method for performance-based awards. Compensation expense
is recognized over the requisite service period of the awards, net of estimated forfeitures. ASC No. 718 requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures.
The Company selected the Black-Scholes-Merton option pricing model as the most appropriate model for determining
the fair value for its stock options awards and Employee Stock Purchase Plan, whereas the fair value of restricted
stock units is based on the closing market value of the underlying shares at the date of grant. The option-pricing model
requires a number of assumptions, the most significant of which are the expected stock price volatility and the
expected option term. Expected volatility was calculated based upon actual historical stock price movements over the
most recent periods ending on the grant date, equal to the expected term of the options. The expected term of options
granted is based upon historical experience and represents the period of time between when the options are granted
and when they are expected to be exercised. The risk-free interest rate is based on the yield from U.S. treasury bonds
with an equivalent term to the expected term of the options. The Company has historically not paid dividends and has
no plans to pay dividends in the foreseeable future.
F-21
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The fair value of options granted and Employee Stock Purchase Plan in 2016, 2015 and 2014 is estimated at the date
of grant using the following weighted average assumptions:
Employee Stock Options
Expected volatility
Risk-free interest rate
Dividend yield
Expected term (years)
Employee Stock Purchase Plan
Expected volatility
Risk-free interest rate
Dividend yield
Expected term (years)
v.
Fair value of financial instruments:
Year ended December 31,
2015
25.14%
1.59%
0.0%
2014
29.30%
1.48%
0.0%
2016
22.23%
1.07%
0.0%
4.65
5.59
5.51
23.24%
0.16%
0.0%
0.5
21.89%
0.07%
0.0%
0.5
21.47%
0.06%
0.0%
0.5
The Company measures its investments in money market funds (classified as cash equivalents), marketable securities
and its foreign currency derivative contracts at fair value. Fair value is an exit price, representing the amount that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the
valuation methodologies in measuring fair value:
Level 1 -
Valuations based on quoted prices in active markets for identical assets that the Company has the ability
to access. Since valuations are based on quoted prices that are readily and regularly available in an active
market, valuation of these products does not entail a significant degree of judgment.
Level 2 -
Valuations based on one or more quoted prices in markets that are not active or for which all significant
inputs are observable, either directly or indirectly.
Level 3 -
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value.
F-22
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
w.
Comprehensive income:
The Company accounts for comprehensive income in accordance with ASC No. 220, “Comprehensive Income”.
Comprehensive income generally represents all changes in shareholders’ equity during the period except those
resulting from investments by, or distributions to, shareholders. The Company determined that its items of other
comprehensive income relate to gains and losses on hedging derivative instruments and unrealized gains and losses on
available-for-sale marketable securities.
The following table shows the components of accumulated other comprehensive income (loss), net of taxes, for the
year ended December 31, 2016:
Beginning balance
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other
comprehensive income
Net current-period other comprehensive income (loss)
Ending balance
Year ended December 31, 2016
Unrealized
gains (losses)
on marketable
securities
$
(4,259)
(2,793)
*) (2,265)
(5,058)
(9,317)
$
Unrealized
gains (losses)
on cash flow
hedges
$
9
159
**) (101)
58
67
$
Total
$(4,250)
(2,634)
(2,366)
(5,000)
$(9,250)
*)
**)
The reclassification out of accumulated other comprehensive income during the year ended December 31, 2016 for
realized gains on marketable securities are included within financial income, net.
The reclassification out of accumulated other comprehensive income during the year ended December 31, 2016 for
realized gains on cash flow hedges are included mostly within research and development expenses as well as other
operating expenses.
x.
Treasury shares:
The Company repurchases its ordinary shares from time to time on the open market and holds such shares as treasury
shares. The Company presents the cost to repurchase treasury stock as a separate component of shareholders’ equity.
The Company reissues treasury shares under the stock purchase plan, upon exercise of options and upon vesting of
restricted stock units. Reissuance of treasury shares is accounted for in accordance with ASC No. 505-30 whereby
gains are credited to additional paid-in capital and losses are charged to additional paid-in capital to the extent that
previous net gains are included therein; otherwise to retained earnings.
F-23
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
y.
Legal contingencies:
The Company is currently involved in various claims and legal proceedings. The Company reviews the status of each
matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is
considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated
loss.
z.
Impact of recently issued accounting standards:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an ASU No. 2014-09 on revenue from
contracts with customers, which outlines a single comprehensive model for entities to use in accounting for revenue
arising from contracts with customers and supersedes most current revenue recognition guidance. In 2015, the FASB
issued guidance to defer the effective date to fiscal years beginning after December 15, 2017 with early adoption for
fiscal years beginning after December 15, 2016.
In March, April, May and December 2016, the FASB issued additional updates regarding certain principal versus
agent considerations, identifying performance obligations and licensing, various narrow scope improvements and
technical corrections and improvements based on practical questions raised by users.
The standard requires revenue to be recognized when control of promised goods or services is transferred to
customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those
goods or services. The standard also provides guidance on the recognition of costs related to obtaining customer
contracts. The two permitted transition methods under the new standard are the full retrospective method, in which
case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in
which case the standard is applied only to the period of adoption and the cumulative effect of applying the standard
would be recognized at the beginning of that period.
The Company anticipates adopting the new standard at the effective date of January 1, 2018. The Company believes
that an impact may be on accounting for costs related to obtaining contracts with customers. The Company is
continuing to assess all the potential impacts this standard will have, and as such the Company cannot reasonably
estimate quantitative information related to the impact of this standard on its consolidated financial statements at this
time.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), whereby, lessees will be required to
recognize for all leases at the commencement date a lease liability, which is a lessee‘s obligation to make lease
payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that
represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance,
lessor accounting is largely unchanged. A modified retrospective transition approach for leases existing at, or entered
into after, the beginning of the earliest comparative period presented in the financial statements must be applied. The
modified retrospective approach would not require any transition accounting for leases that expired before the earliest
comparative period presented. Companies may not apply a full retrospective transition approach. ASU 2016-02 is
effective for annual and interim periods beginning after December 15, 2018. Early application is permitted. The
Company is evaluating the potential impact of this pronouncement.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, “Compensation — Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09
simplifies several aspects of the accounting for share-based payment transactions, including the income tax
consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.
For public entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods
within those fiscal years. The standard became effective for the Company on January 1, 2017. The Company adopted
ASU 2016-09 in the first quarter of 2017 using a modified retrospective transition method. As a result, the Company
expects to increase its deferred tax asset in the amount of $86 million.
Under the new guidance, the Company has elected to change its policy and has started to recognize forfeitures of
awards as they occur. The change in forfeiture policy was adopted using a modified retrospective transition method.
The Company expects to record a total cumulative-effect adjustment in retained earnings as of January 1, 2017 for the
revision of the forfeiture fair value that have not previously been recognized in an amount of approximately $3
million upon transition.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments” (“ASU 2016-13”). The standard changes the methodology for measuring
credit losses on financial instruments and the timing of when such losses are recorded. ASU 2016-13 is effective for
fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted
for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company does not
expect that this new guidance will have a material impact on the Company’s Consolidated Financial Statements.
F-25
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment.” The standard eliminates the requirement to measure the implied fair value of goodwill
by assigning the fair value of a reporting unit to all assets and liabilities within that unit (“the Step 2 test”) from the
goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss
is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit. The standard
will become effective for the Company beginning January 1, 2020 and must be applied to any annual or interim
goodwill impairment assessments after that date. Early adoption is permitted. The Company is currently evaluating
the effect that the adoption of this ASU will have on its consolidated financial statements.
NOTE 3:- ACQUISITIONS
On February 17, 2015, the Company completed the acquisition of Hyperwise Ltd, a privately-held Israeli-based company.
Under the acquisition method of accounting, the purchase price was allocated to tangible and intangible assets acquired and
liabilities assumed based on their respective fair values. In addition, the transaction included additional consideration related
to compensation for post combination services which was recorded as prepaid expenses and will be recognized over the
requisite service period.
On April 2, 2015, the Company completed the acquisition of Lacoon Mobile Security Ltd, a privately held Israeli based
company. Under the acquisition method of accounting, the purchase price was allocated to tangible and intangible assets
acquired and liabilities assumed based on their respective fair values. In addition, the transaction included additional
consideration related to compensation for post combination services which was recorded as prepaid expenses and will be
recognized over the requisite service period.
These acquisitions were not significant individually or in the aggregate.
NOTE 4:- MARKETABLE SECURITIES
Marketable securities with contractual maturities of up to one year are as follows:
2016
Gross
unrealized
gains
Gross
unrealized
losses
Amortized
cost
December 31,
Fair
value
Amortized
cost
2015
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Government and corporate
debentures - fixed interest rate
$ 915,302 $
311 $
(446) $ 915,167
$ 994,600
$ 3,088 $
(752) $ 996,936
Government-sponsored
enterprises debentures
Government and corporate
debentures - floating interest
rate
149,972
99
(61)
150,010
46,230
13,247
$1,078,521 $
16
426 $
—
13,263
(507) $1,078,440
41,690
$1,082,520
F-26
25
24
$ 3,137 $
(17)
46,238
(7)
41,707
(776) $1,084,881
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 4:- MARKETABLE SECURITIES (Cont.)
Marketable securities with contractual maturities of over one year through five years are as follows:
2016
Gross
unrealized
gains
Gross
unrealized
losses
Amortized
cost
December 31,
Fair
value
Amortized
cost
2015
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Government and corporate
debentures - fixed interest rate
$1,770,641 $ 1,903 $(11,024) $1,761,520 $1,947,588 $ 1,439 $ (8,654) $1,940,373
Government-sponsored
enterprises debentures
Government and corporate
debentures - floating interest
rate
520,669
282
(4,052)
516,899
366,700
109
(1,243)
365,566
17,610
25,248
$2,308,920 $ 2,255 $(15,078) $2,296,097 $2,339,591 $ 1,559 $ (9,963) $2,331,187
17,678
25,303
(66)
(2)
70
11
Investments with continuous unrealized losses for less than 12 months and 12 months or greater and their related fair values
were as follows:
Government and corporate debentures - fixed interest rate
Government-sponsored enterprises debentures
Government and corporate debentures - floating interest
rate
Government and corporate debentures—fixed interest rate
Government-sponsored enterprises debentures
Government and corporate debentures—floating interest
rate
Investments with
continuous unrealized
losses for less than 12
months
Unrealized
losses
Fair
value
$1,717,212
464,080
December 31, 2016
Investments with
continuous unrealized
losses for 12 months or
greater
Fair
value
Unrealized
losses
$ (11,440) $40,465
4,999
(4,112)
(30) $1,757,677
469,079
(1)
Total Investments with
continuous unrealized
losses
Fair
value
Unrealized
losses
$ (11,470)
(4,113)
3,000
$2,184,292
(2)
—
$ (15,554) $45,464
—
3,000
(31) $2,229,756
(2)
$ (15,585)
Investments with
continuous unrealized
losses for less than 12
months
Unrealized
losses
Fair
value
$2,138,546
308,026
December 31, 2015
Investments with
continuous unrealized
losses for 12 months or
greater
Fair
value
Unrealized
losses
$ (9,027) $68,084
5,992
(1,252)
(379) $2,206,630
314,018
(8)
Total Investments with
continuous unrealized
losses
Fair
value
Unrealized
losses
$ (9,406)
(1,260)
26,688
$2,473,260
(73)
—
$ (10,352) $74,076
F-27
26,688
—
(387) $2,547,336
(73)
$ (10,739)
$
$
$
$
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 4:- MARKETABLE SECURITIES (Cont.)
As of December 31, 2016 and 2015, interest receivable amounted to $ 17,057 and $ 17,754 respectively, and is included
within other current assets in the balance sheets.
NOTE 5:- FAIR VALUE MEASUREMENTS
In accordance with ASC No. 820, the Company measures its money market funds, marketable securities and foreign
currency derivative contracts at fair value. Money market funds and marketable securities are classified within Level 1 or
Level 2. This is because these assets are valued using quoted market prices or alternative pricing sources and models
utilizing market observable inputs. Foreign currency derivative contracts are classified within Level 2 as the valuation inputs
are based on quoted prices and market observable data of similar instruments.
The Company’s financial assets measured at fair value on a recurring basis, excluding accrued interest components,
consisted of the following types of instruments as of the following dates:
Cash equivalents:
Money market funds
Marketable securities:
Government and corporate debentures - fixed interest rate
Government-sponsored enterprises debentures
Government and corporate debentures - floating interest rate
Foreign currency derivative contracts
Total financial assets
December 31, 2016
Fair value measurements using input type
Level 1
Level 2
Total
$38,072
$
—
$
38,072
—
—
—
—
$38,072
2,676,687
666,909
30,941
43
$3,374,580
2,676,687
666,909
30,941
43
$3,412,652
December 31, 2015
Fair value measurements using input type
Total
Level 2
Level 1
Cash equivalents:
Money market funds
Marketable securities:
Government and corporate debentures - fixed interest rate
Government-sponsored enterprises debentures
Government and corporate debentures - floating interest rate
Foreign currency derivative contracts
Total financial assets
F-28
$21,085
$
—
$
21,085
—
—
—
—
$21,085
2,937,309
411,804
66,955
2,937,309
411,804
66,955
(44)
(44)
$3,416,024
$3,437,109
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 6:- PROPERTY AND EQUIPMENT, NET
Cost:
Computers and peripheral equipment
Office furniture and equipment
Building
Leasehold improvements
Accumulated depreciation
Property and equipment, net
NOTE 7:- GOODWILL AND OTHER INTANGIBLE ASSETS, NET
a.
Goodwill:
Goodwill, beginning of the year
Acquisitions
Goodwill, end of the year
b.
Other intangible assets, net:
Net other intangible assets consisted of the following:
Original amount:
Core technology
Trademarks and trade names
Customer relationships
Accumulated amortization:
Core technology
Trademarks and trade names
Customer relationships
Other intangible assets, net:
Core technology
Trademarks and trade names
Customer relationships
F-29
December 31,
2016
2015
$ 58,995
7,742
60,180
10,554
137,471
75,612
$ 61,859
$ 53,937
7,332
46,707
8,769
116,745
68,053
$ 48,692
December 31,
2016
$812,012
—
$812,012
2015
$727,875
84,137
$812,012
Useful
Life
8
15 – 20
5 – 6
December 31,
2016
2015
$17,464
25,520
2,097
45,081
4,743
16,086
2,097
22,926
12,721
9,434
—
$22,155
$17,464
25,520
2,097
45,081
2,560
14,510
2,003
19,073
14,904
11,010
94
$26,008
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 7:- GOODWILL AND OTHER INTANGIBLE ASSETS, NET (Cont.)
The estimated future amortization expense of other intangible assets as of December 31, 2016 is as follows:
2017
2018
2019
2020
2021
Thereafter
$ 3,759
3,759
3,734
3,518
3,518
3,867
$22,155
NOTE 8:- EMPLOYEES AND PAYROLL ACCRUALS
As of December 31, 2016 and 2015, employees and payroll accruals include a total amount of $ 1,842 and $ 2,568,
respectively, related to payroll accrued for the benefit of certain related parties since 2002 until 2007.
NOTE 9:- DEFERRED REVENUES
Deferred revenues consisted of the following:
Subscriptions
Software updates and maintenance
Other
December 31,
2016
$ 401,764
652,156
11,664
$1,065,584
2015
$285,998
607,153
12,632
$905,783
The majority of the deferred revenues are recognized within one year or less and presented as current deferred
revenues in the balance sheet. The remaining deferred revenues which are recognized for a period above one year and
up to five years are shown as long term deferred revenues.
NOTE 10:- ACCRUED EXPENSES AND OTHER LIABILITIES
Income taxes payable
Accrued products and licenses costs
Marketing expenses payable
Legal accrual
Other accrued expenses
F-30
December 31,
2016
$ 5,464
54,364
20,771
55,530
39,446
$175,575
2015
$ 17,388
44,417
19,208
57,970
48,004
$186,987
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES
a.
Lease commitments:
Certain facilities of the Company are rented under operating lease agreements, which expire on various dates, the
latest of which is in 2022. The Company recognizes rent expense under such arrangements on a straight-line basis.
Aggregate minimum lease commitments under non-cancelable operating leases as of December 31, 2016, were as
follows:
2017
2018
2019
2020
2021
Thereafter
$ 7,963
5,555
2,512
1,203
1,044
36
$18,313
Rent expenses for the years ended December 31, 2016, 2015 and 2014, were $ 10,097, $ 8,287 and $ 6,570
respectively.
b.
Litigations:
The Company operates its business in various countries, and accordingly attempts to utilize an efficient operating
model to structure its tax payments based on the laws in the countries in which the Company operates. This can cause
disputes between the Company and various tax authorities in different parts of the world.
Further, the Company is the defendant in various lawsuits, including employment-related litigation claims,
construction claims and other legal proceedings in the normal course of its business. Litigation and governmental
proceedings can be expensive, lengthy and disruptive to normal business operations, and can require extensive
management attention and resources, regardless of their merit. While the Company intends to defend the
aforementioned matters vigorously, it believes that a loss in excess of its accrued liability with respect to these claims
is not probable.
F-31
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:- TAXES ON INCOME
a.
Israeli taxation:
1.
Corporate tax:
The Company elected to apply the Preferred Enterprise regime under the Law for the Encouragement of Capital
Investment (the “Investment Law”). Under the Preferred Enterprise regime, the Company’s entire preferred
income is subject to tax rate of 16% from 2014 and thereafter. The election is irrevocable.
Income not eligible for Preferred Enterprise benefits are taxed at a regular rate, as follows: 2016 – 25% and for
2015 and 2014 – 26.5%.
In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for
Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which reduces the corporate income
tax rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018.
Among other changes, the new Law includes, Amendment 73 to the Investment Law (“Amendment 73”).
Amendment 73 prescribes special tax tracks for technological enterprises. One of the tracks is for Technological
preferred enterprise—an enterprise for which total consolidated revenues of its parent company and all
subsidiaries are less than NIS 10 billion. A technological preferred enterprise, as defined in the Law, which is
located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property.
The special tax tracks under Amendment 73 are subject to rules that are expected to be issued by the Minister of
Finance. As of April 28, 2017, the rules have not been issued.
Since definitive criteria to determine the tax benefits had not yet been established as of December 31, 2016, it
cannot be concluded that the legislation in respect of technological enterprises had been enacted as of that date.
Accordingly, the above changes in the tax rates relating to technological enterprises were not taken into account
in the computation of deferred taxes as of December 31, 2016.
Prior to 2012, most of the Company’s income was exempt from tax or subject to reduced tax rates under the
Investment Law. Upon distribution of exempt income, the distributing company will be subject to corporate
reduced tax rates ordinarily applicable to such income under the Investment Law.
Reduced income under the Investment Law including the Preferred Enterprise Regime will be freely
distributable as dividends, subject to a 15%-20% withholding tax (or lower, under an applicable tax treaty).
However, upon the distribution of a dividend from Preferred Income to an Israeli company, no withholding tax
will be remitted.
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:- TAXES ON INCOME (Cont.)
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
Pursuant to a temporary tax relief initiated by the Israeli government, a company that elected by November 11,
2013 to pay a reduced corporate tax rate as set forth in the temporary tax relief with respect to undistributed
exempt income generated under the Investment Law accumulated by the company until December 31, 2011
(“Trapped Earnings”) is entitled to distribute a dividend from such income without being required to pay
additional corporate tax with respect to such dividend. A company that has so elected must make certain
qualified investments in Israel over five-year period. A company that has elected to apply the temporary tax
relief cannot withdraw from its election.
On November 11, 2013, Check Point Ltd. reached a settlement agreement with the Israeli Tax Authorities
(“ITA”) which provided (i) the full settlement of all disputes with the ITA with respect to the for tax years 2002
through 2011, and (ii) the release of all the Company’s Trapped Earnings through the year ended December 31,
2011. In accordance with the Investments Law and the temporary tax relief, the Company is obligated to invest
approximately $ 111,000 during five years period in the following forms (i) production assets (as defined
therein), (ii) research and development activities in Israel and/or (iii) employment payments for new employees
(other than office holders) added after 2011. Any amount not invested in the five years period, should be paid at
the end of the 5 years, linked to the Israeli CPI and bears 4% annual interest since the election date.
In December 2016, Check Point Ltd. reached a settlement agreement with the ITA for tax years 2012 through
2015.
2.
Foreign Exchange Regulations:
Under the Foreign Exchange Regulations, Check Point Ltd. calculates its tax liability in U.S. Dollars according
to certain orders. The tax liability, as calculated in U.S. Dollars is translated into New Israeli Shekels according
to the exchange rate as of December 31st of each year.
b.
Income taxes of non-Israeli subsidiaries:
Non-Israeli subsidiaries are taxed according to the tax laws in their respective countries of residence.
The Company does not provide deferred tax liabilities when it intends to reinvest earnings of foreign subsidiaries
indefinitely. Undistributed earnings of foreign subsidiaries that are considered to be permanently reinvested amounted
to $ 217,045 and unrecognized deferred tax liability related to such earning amounted to $ 37,282 as of December 31,
2016.
F-33
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:- TAXES ON INCOME (Cont.)
c.
Deferred tax assets and liabilities:
Deferred taxes 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, 2016
and 2015, the Company’s deferred taxes were in respect of the following:
Carry forward tax losses
Employee stock based compensation
Other
Deferred tax assets before valuation allowance
Valuation allowance
Deferred tax asset
Intangible assets
Undistributed earnings of subsidiary
Other
Deferred tax liability
Deferred tax asset, net
December 31,
2016
$ 188,301
30,835
81,959
301,095
(181,947)
119,148
(8,461)
(9,925)
(13)
(18,399)
$ 100,749
2015
$ 191,561
27,517
60,887
279,965
(192,332)
87,633
(8,045)
(11,435)
(2,682)
(22,162)
$ 65,471
The Company’s subsidiaries in the U.S. have provided valuation allowance in respect of deferred tax assets resulting
from carry forward of net operating loss related to excess tax benefits from options exercised prior to the adoption of
ASC No. 718.
Through December 31, 2016, the U.S. subsidiaries had a U.S. federal loss carry-forward of approximately $501,047
expiring beginning 2020, mainly resulting from tax benefits related to employees’ stock option exercises that can be
carried forward and offset against taxable income. Excess tax benefits related to employee stock option exercises for
which no compensation expense was recognized will be credited to additional paid-in capital when realized. Through
December 31, 2016, the U.S. subsidiaries had a U.S. state net loss carry forward of approximately $139,768, which
expire between fiscal 2017 and fiscal 2034, and are subject to limitations on their utilization. Through December 31,
2016, the U.S. subsidiaries had research and development tax credits of approximately $18,764, which expire between
fiscal 2019 and fiscal 2035 and are subject to limitations on their utilization. Also refer to Note 2z.—Impact of
recently issued accounting standards.
F-34
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:- TAXES ON INCOME (Cont.)
d.
Income before taxes on income is comprised as follows:
Domestic
Foreign
e.
Taxes on income are comprised of the following:
Current
Deferred
Domestic
Foreign
Domestic taxes:
Current
Deferred
Foreign taxes:
Current
Deferred
Taxes on income
F-35
Year ended
December 31,
2015
$817,164
56,626
$873,790
2016
$862,554
34,118
$896,672
2014
$784,710
45,106
$829,816
Year ended
December 31,
2015
$203,771
2014
$182,537
2016
$194,149
(22,324)
(15,847)
(12,292)
$171,825
$166,152
5,673
$171,825
$187,924
$170,883
17,041
$187,924
$170,245
$154,921
15,324
$170,245
Year ended
December 31,
2015
2014
2016
$175,522
$175,828
$165,476
(9,370)
(4,945)
166,152
170,883
(10,555)
154,921
18,627
(12,954)
5,673
$171,825
27,943
(10,902)
17,041
$187,924
17,061
(1,737)
15,324
$170,245
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:- TAXES ON INCOME (Cont.)
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
f.
A reconciliation of the beginning and ending amount of unrecognized tax benefits related to uncertain tax positions is
as follows:
Beginning balance
Increases related to tax positions taken during prior years
Decreases related to settlement agreements
Decreases related to expiration of statute of limitations
Increases related to tax positions taken during the current year
Ending balance
December 31,
2016
$284,108
25,654
(19,871)
(5,356)
22,142
$306,677*)
2015
$235,705
12,051
—
—
36,352
$284,108*)
*) As of December 31, 2016 and 2015 unrecognized tax benefit in an amounts of $6,141 and $893 were presented
net from deferred tax asset.
Substantially all the balance of unrecognized tax benefits, if recognized, would reduce the Company’s annual
effective tax rate.
We adjust our unrecognized tax benefit liability and income tax expense in the period in which the uncertain tax
position is effectively settled, the statute of limitations expires or when new information is available. There is a
reasonable possibility that $ 43,661 out of our unrecognized tax benefit liability will be adjusted within 12 months due
to the expiration of a statute of limitations.
During the years ended December 31, 2016, 2015 and 2014, the Company recorded $ 6,025, $ 7,534 and $ 6,214,
respectively for interest expense related to uncertain tax positions. As of December 31, 2016 and 2015, the Company
had accrued interest liability related to uncertain tax positions in the amounts of $ 21,051 and $ 17,413, respectively,
which is included within income tax accrual on the balance sheets.
The Company’s U.S. subsidiaries file federal and state income tax returns in the U.S. All of the U.S subsidiaries’ tax
years are subject to examination by the U.S. federal and most U.S. state tax authorities due to their carry-forward tax
losses and overall credit carry-forward position, except for Check Point Inc. that the assessment statue period for tax
years 2005 through 2011 have expired.
The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to tax audits
and settlement. The final tax outcome of its tax audits could be different from that which is reflected in the
Company’s income tax provisions and accruals. Such differences could have a material effect on the Company’s
income tax provision and net income in the period in which such determination is made.
F-36
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:- TAXES ON INCOME (Cont.)
g.
Reconciliation of the theoretical tax expenses:
Reconciliation between the theoretical tax expenses, assuming all income is taxed at the statutory rate in Israel and the
actual income tax as reported in the statements of income is as follows:
Income before taxes as reported in the statements of income
Statutory tax rate in Israel
Decrease in taxes resulting from:
Effect of “Preferred Enterprise” status *)
Others, net
Effective tax rate
*) Basic earnings per share amounts of the benefit
2016
$896,672
25%
Year ended December 31,
2015
$873,790
26.5%
2014
$829,816
26.5%
(5%)
(1%)
19.0%
(7%)
2%
21.5%
(5%)
(1%)
20.5%
resulting from the “Preferred Enterprise” status
Diluted earnings per share amounts of the benefit
resulting from the “Preferred Enterprise” status
$
$
0.26
0.26
$
$
0.31
0.30
$
$
0.22
0.22
NOTE 13:- SHAREHOLDERS’ EQUITY
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 New Israeli Shekels. 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.
F-37
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- SHAREHOLDERS’ EQUITY (Cont.)
b.
Share repurchase:
On May 4, 2016, the Company’s board of directors approved and authorized the repurchase of up to additional
$ 1,500,000 of the Company’s ordinary shares and not more than $250,000 per quarter. Under the share repurchase
programs, share purchases may be made from time to time depending on market conditions, share price, trading
volume and other factors and will be funded by available working capital. As of December 31, 2016, the Company
repurchased ordinary shares for an aggregate amount of $ 5,810,702. During 2016, 2015 and 2014 the Company
repurchased 12,298,434, 12,032,899 and 11,207,320 shares for an aggregate amount of $ 987,897, $ 985,735 and
$ 764,543, respectively.
c.
Stock Options, RSU’s and PSU’s:
In 2005, the Company adopted two new equity incentive plans, which were subsequently amended in January 2014:
the 2005 United States Equity Incentive Plan and the 2005 Israel Equity Incentive Plan together are referred to as the
Equity Incentive Plans.
Under the Equity Incentive Plans, the Company may grant options to employees, officers and directors at an exercise
price equal to at least the fair market value of the ordinary shares at the date of grant and are granted for periods not to
exceed seven years. The Company grants under the Equity Incentive Plans options, Restricted Stock Units (“RSUs”)
and Performance RSUs (“PSUs”) and can also grant a variety of other equity incentives. Options granted under the
Equity Incentive Plans generally vest over a period of four years of employment. Options, RSUs and PSUs that are
cancelled or forfeited before expiration become available for future grants. The number of PSUs granted to sales
employees is equal to the amount of compensation earned (based on the employee’s level) divided by the fair value of
the ordinary share at the grant date. RSUs and PSUs vest over a four year period of employment from the grant date.
PSUs are subject to certain performance criteria; accordingly, compensation expense is recognized for such awards
when it becomes probable that the related performance condition will be satisfied.
Under the Equity Incentive Plans, the Company’s non-employee directors receive an automatic annual option grant.
Following the amendments to the Equity Incentive Plans in January 2014, commencing December 31, 2014, on
December 31st of each year, the number of Reserved and Authorized Shares (as defined below) under both Equity
Incentive Plans together shall be automatically reset on such date to equal 10% of the number of ordinary shares
issued and outstanding on such date (provided that the number shall not be less than the number of outstanding awards
granted under the Equity Incentive Plans as of such date).
F-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- SHAREHOLDERS’ EQUITY (Cont.)
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
The number of “Reserved and Authorized Shares” under the Equity Plans shall equal the sum of (i) the number of
ordinary shares reserved and authorized under the Equity Incentive Plans for outstanding options, RSUs, PSUs and
other awards granted under the Equity Incentive Plans as of such date, and (ii) the number of ordinary shares reserved,
authorized and available for issuance under the Equity Incentive Plans on such date.
As of December 31, 2016, the number of Reserved and Authorized Shares under the Equity Incentive Plans is as
detailed below:
Stock Options outstanding
RSU outstanding
PSU outstanding
Ordinary shares available for issuance under the Equity Incentive Plans
Total Reserved and Authorized Shares as of December 31, 2016
2016
12,578
937
195
2,887
16,597
A summary of the Company’s stock option activity and related information is as follows:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Options in
thousands
12,739
2,710
(2,781)
(90)
*)12,578
7,326
Weighted
average
exercise
price
2016
$ 57.69
$ 80.74
$ 40.16
$ 57.15
$ 66.54
$ 60.27
Aggregate
intrinsic
value
$305,810
$225,384
$177,235
*)
As of December 31, 2016, approximately 12.5 million options are vested and expected to vest. Options expected to
vest reflect an estimated forfeiture rate for purposes of determining related compensation expense.
The total intrinsic value of options exercised during the years 2016, 2015 and 2014 was $ 112,989, $ 131,603
and $ 89,957, respectively.
The weighted average fair values at grant date of options granted for the years ended December 31, 2016, 2015 and
2014; with an exercise price equal to the market value at the date of grant were $ 17.14, $ 22.39 and $ 19.55,
respectively.
F-39
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- SHAREHOLDERS’ EQUITY (Cont.)
The options outstanding as of December 31, 2016, have been separated into ranges of exercise price, as follows:
Exercise price
$
29.49
43.95-49.50
51.98-55.95
64.03-74.51
80.67-84.77
29.49-84.77
Outstanding
Weighted
average
remaining
contractual
life
(years)
0.49
3.44
2.11
4.76
5.83
4.23
Number of
options
(in
thousands)
84
1,799
3,219
3,180
4,295
12,577
Exercisable
Weighted
average
remaining
contractual
life
(years)
Number of
options
(in thousands)
84
1,469
3,048
1,371
1,353
7,325
0.49
3.43
2.09
4.35
5.66
3.42
Weighted
average
exercise
price
$
29.49
49.39
53.71
65.35
83.60
60.27
Weighted
average
exercise
price
$
29.49
49.40
53.82
67.18
83.50
66.54
A summary of the Company’s RSUs activity is as follows:
Outstanding at beginning of year
Granted
Vested
Forfeited
Outstanding as of December 31,
Year ended
December 31,
2016
Number in thousands
812
528
(280)
(123)
937
The weighted average fair values at grant date of RSUs granted for the years ended December 31, 2016, 2015 and
2014 were $ 80.73, $ 83.23 and $ 65.08, respectively.
The total fair value of shares vested during the years 2016, 2015 and 2014 was $ 22,772, $ 22,485 and $ 18,414,
respectively.
A summary of the Company’s PSUs activity is as follows:
Outstanding at beginning of year
Granted
Vested
Forfeited
Outstanding as of December 31,
F-40
Year ended
December 31,
2016
Number in thousands
156
102
(37)
(26)
195
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- SHAREHOLDERS’ EQUITY (Cont.)
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
The weighted average fair values at grant date of PSUs granted for the year ended December 31, 2016 and 2015 were
$ 82.01 and $ 83.48, respectively.
The total fair value of shares vested during 2016 was $3,056, during 2015 was $ 1,523 and during 2014 no PSUs were
vested.
As of December 31, 2016 the Company had a commitment to grants PSU’s at the value of up to $32,963.
As of December 31, 2016, the Company had approximately $ 130,966 of unrecognized compensation expense related
to non-vested stock options and non-vested RSU’s and PSU’s, expected to be recognized over a weighted average
period of 1.83 years and $ 14,605 of unrecognized compensation expense related to PSU’s that will be fixed in
number during 2017.
d.
Employee Stock Purchase Plan (“ESPP”):
In 1996, the Company adopted an ESPP, which was subsequently amended in 2015. According to the amendments,
commencing the purchase period that begins February 1, 2016, 500,000 ordinary shares are authorized for issuance
under the US ESPP and 1,000,000 ordinary shares are authorized for issuance under the rest of the world (ROW)
ESPP. As of December 31, 2016, 173,280 ordinary shares had been issued under the amended ESPP plan.
Eligible employees may 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 ESPP is implemented through an offering every six months. The price of an
ordinary share purchased under the ESPP 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 2016, 2015 and 2014, employees purchased 311,257, 277,571 and 312,588 ordinary shares at average prices of
$ 66.08, $ 60.99 and $ 51.48 per share, respectively.
In accordance with ASC No. 718, the ESPP is compensatory and as such results in recognition of compensation cost.
For the years ended December 31, 2016, 2015 and 2014, the Company recognized $ 5,432, $ 4,517 and $ 4,187,
respectively, of compensation expense in connection with the ESPP.
F-41
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- SHAREHOLDERS’ EQUITY (Cont.)
e.
Stock-Based Compensation
Stock-based compensation expense related to stock options, RSUs and PSUs is included in the consolidated
statements of operations as follows (in thousands):
Cost of revenues
Research and development
Selling and marketing
General and administrative
Year ended
December 31,
2015
$ 1,585
11,544
16,351
46,822
$76,302
2016
$ 2,153
12,718
19,168
48,693
$82,732
2014
$ 1,090
9,284
13,339
39,456
$63,169
NOTE 14:- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
Net income
Weighted average ordinary shares outstanding (in thousands)
Dilutive effect:
Employee stock options, RSUs and PSUs (in thousands)
Diluted weighted average ordinary shares outstanding (in
thousands)
Basic earnings per ordinary share
Diluted earnings per ordinary share
F-42
2016
$724,847
170,155
Year ended December 31,
2015
$685,866
179,218
2014
$659,571
188,487
3,141
4,401
3,813
173,296
4.26
$
4.18
$
183,619
3.83
$
3.74
$
192,300
3.50
$
3.43
$
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:- GEOGRAPHIC INFORMATION AND SELECTED STATEMENTS OF INCOME DATA
a.
Summary information about geographical areas:
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 Company’s channel partners which are
considered as end customers, as well as direct customers of the Company.
The following table presents total revenues for the years ended December 31, 2016, 2015 and 2014, and property and
equipment, net as of December 31, 2016 and 2015, by geographic area:
1.
Revenues based on the channel partners’ location:
Americas, principally U.S.
Europe
Asia-Pacific, Middle-East and Africa
2.
Property and equipment, net:
Israel
U.S.
Rest of the world
2016
$ 847,458
627,524
266,319
$1,741,301
Year ended
December 31,
2015
$ 791,568
595,850
242,420
$1,629,838
2014
$ 729,933
550,811
215,072
$1,495,816
December 31,
2016
$56,682
2,952
2,225
$61,859
2015
$44,138
3,005
1,549
$48,692
F-43
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:- GEOGRAPHIC INFORMATION AND SELECTED STATEMENTS OF INCOME DATA (Cont.)
b.
Summary information about product lines:
The Company’s products can be classified by three main product lines. The following table presents total revenues for
the years ended December 31, 2016, 2015 and 2014 by product lines:
Product and licenses:
Network security Gateways
Other*)
Subscriptions:
Network security Gateways
Software updates and maintenance
Total revenues
2016
$ 516,254
56,710
572,964
389,885
778,452
$1,741,301
Year ended
December 31,
2015
$ 485,778
70,014
555,792
318,624
755,422
$1,629,838
2014
$ 469,097
51,215
520,312
265,021
710,483
$1,495,816
*)
Comprised of Endpoint security, Mobile security and Security management products, each comprising of less than 10% of
products and licenses revenues.
c.
Financial income, net:
Year ended December 31,
2015
2014
2016
Financial income:
Interest income
Realized gain on sale of marketable securities, net
Financial expense:
Amortization of marketable securities premium and accretion of
discount, net
Foreign currency re-measurement loss
Others
F-44
$69,425
2,993
72,418
$67,581
16
67,597
$65,497
288
65,785
23,388
2,658
1,970
28,016
$44,402
29,622
485
3,417
33,524
$34,073
33,021
1,844
2,158
37,023
$28,762
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.
SIGNATURES
CHECK POINT SOFTWARE TECHNOLOGIES
LTD.
By: /s/ Gil Shwed
Gil Shwed
Chief Executive Officer
By: /s/ Tal Payne
Tal Payne
Chief Financial Officer
Date: April 28, 2017
Exhibit 12.1
I, Gil Shwed, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 20-F of Check Point Software Technologies Ltd.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented
in this report;
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal
control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
company’s internal control over financial reporting.
Date: April 28, 2017
By: /s/ Gil Shwed
Gil Shwed
Chief Executive Officer
Exhibit 12.2
I, Tal Payne, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 20-F of Check Point Software Technologies Ltd.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented
in this report;
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal
control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
company’s internal control over financial reporting.
Date: April 28, 2017
By: /s/ Tal Payne
Tal Payne
Chief Financial Officer
Exhibit 13
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF
TITLE 18, UNITED STATES CODE)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18,
United States Code), each of the undersigned officers of Check Point Software Technologies Ltd., a company organized under the laws
of the State of Israel (the “Company”), does hereby certify that the Annual Report on Form 20-F for the year ended December 31, 2016
(the “Form 20-F”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and the information contained in the Annual Report on Form 20-F fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: April 28, 2017
Date: April 28, 2017
By: /s/ Gil Shwed
Gil Shwed
Chief Executive Officer
By: /s/ Tal Payne
Tal Payne
Chief Finance Officer
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference, in the Registration Statements (Form S-8 Nos. 333-6032, 333-7260, 333-09136,
333-09508, 333-114489, 333-132954, 333-142213, 333-207335 and 333-211113) of our reports dated April 28, 2017, with respect to
the consolidated financial statements of Check Point Software Technologies Ltd. and the effectiveness of internal control over financial
reporting of Check Point Software Technologies Ltd. included in this Annual Report (Form 20-F) for the year ended December 31,
2016.
Tel-Aviv, Israel
April 28, 2017
/s/ KOST FORER GABBAY & KASIERER
KOST FORER GABBAY & KASIERER
A Member of EY Global
Exhibit 15