false2019FY0001015922--12-31NASDAQL3CAUSNot including amortization of technology shown separately.Basic earnings per share amounts of the benefit resulting from the "Technological preferred or Preferred Enterprise" status $ 0.71 $ 0.57 $ 0.68 Diluted earnings per share amounts of the benefit resulting from the "Technological preferred or Preferred Enterprise" status $ 0.71 $ 0.56 $ 0.66Starting 2019, Middle East and Africa are part of the “Europe Middle East and Africa” region, while before it was part of “Asia Pacific, Middle East and Africa” region. 2018 and 2017 figures were reclassified to present the updated revenue distribution by geography.Comprised of Endpoint security, Mobile security and Security management products, each comprising of less than 10% of products and licenses revenues.The reclassification out of accumulated other comprehensive income during the year ended December 31, 2019 for realized losses on marketable securities are included within financial income, net.The reclassification out of accumulated other comprehensive income during the year ended December 31, 2019 for realized gains on cash flow hedges are included mostly within research and development expenses as well as other operating expenses.As of December 31, 2019 and 2018 unrecognized tax benefit in the amounts of $19.6 and $18.4 was presented net from deferred tax asset. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
20-F
 
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
For the transition period from
                
to
                
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
Date of event requiring this shell company report
                
Commission file number
000-28584
 
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
(Exact name of Registrant as specified in its charter)
 
ISRAEL
(Jurisdiction of incorporation or organization)
5 Shlomo Kaplan Street Tel Aviv 6789159, Israel
(Address of principal executive offices)
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
 
Trading symbol
 
 Name of exchange on which registered 
Ordinary shares, NIS 0.01 nominal value
 
CHKP
 
NASDAQ Global Select Market
 
 
 
 
Securities registered or to be registered pursuant to Section 12(g) of the Act. None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2019. 145,467,329 Ordinary Shares, nominal value NIS 0.01 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    Yes  
    No  
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:    Yes  
    No  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or an emerging growth company. See 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:
  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;
  the effects on our business of public health epidemics, including the strain of coronavirus known as
COVID-19;
  the effects on our business of evolving laws and regulations, including government export or import controls and U.S. tax regulations, and the potential economic effects of “Brexit”;
  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.
2

TABLE OF CONTENTS
             
 
PART I
 
 
Item 1.
     
4
 
             
Item 2.
     
4
 
             
Item 3.
     
4
 
             
Item 4.
     
19
 
             
Item 4A.
     
29
 
             
Item 5.
     
29
 
             
Item 6.
     
37
 
             
Item 7.
     
47
 
             
Item 8.
     
48
 
             
Item 9.
     
48
 
             
Item 10.
     
48
 
             
Item 11.
     
58
 
             
Item 12.
     
59
 
           
 
PART II
 
 
             
Item 13.
     
59
 
             
Item 14.
     
59
 
             
Item 15.
     
60
 
             
Item 16.
     
61
 
             
Item 16A.
     
61
 
             
Item 16B.
     
61
 
             
Item 16C.
     
61
 
             
Item 16D.
     
62
 
             
Item 16E.
     
62
 
             
Item 16F.
     
62
 
             
Item 16G.
     
62
 
             
Item 16H.
     
63
 
           
 
PART III
 
 
             
Item 17.
     
63
 
             
Item 18.
     
63
 
             
Item 19.
     
63
 
 
3

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 2015 to 2019. The selected consolidated statement of income data for the years 2017, 2018 and 2019, and the selected consolidated balance sheet data at December 31, 2018 and 2019, have been derived from our audited consolidated financial statements set forth in “Item 18 – Financial Statements”. The selected consolidated statement of income data for 2015 and 2016, and the selected consolidated balance sheet data at December 31, 2015, 2016 and 2017, 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.
 
                                         
 
Year ended December 31,
 
 
2019
 
 
2018
 
 
2017
 
 
2016
 
 
2015
 
 
(in millions, except per share data)
 
Consolidated Statements of Income Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
  $
1,994.8
    $
1,916.5
    $
1,854.7
    $
1,741.3
    $
1,629.8
 
Operating expenses (*):
   
     
     
     
     
 
Cost of revenues
   
215.4
     
201.4
     
213.0
     
202.0
     
189.0
 
Research and development
   
239.2
     
211.5
     
192.4
     
178.4
     
149.3
 
Selling and marketing
   
552.7
     
500.9
     
433.4
     
420.5
     
359.8
 
General and administrative
   
105.7
     
88.9
     
92.0
     
88.1
     
92.0
 
Total operating expenses
   
1,113.0
     
1,002.7
     
930.8
     
889.0
     
790.1
 
Operating income
   
881.8
     
913.8
     
923.9
     
852.3
     
839.7
 
Financial income, net
   
80.6
     
65.1
     
47.0
     
44.4
     
34.1
 
Income before taxes on income
   
962.4
     
978.9
     
970.9
     
896.7
     
873.8
 
Taxes on income
   
136.7
     
157.6
     
168.0
     
171.8
     
187.9
 
Net income
  $
825.7
    $
821.3
    $
802.9
    $
724.9
    $
685.9
 
Basic earnings per ordinary share
  $
5.48
    $
5.24
    $
4.93
    $
4.26
    $
3.83
 
Shares used in computing basic earnings per ordinary share
   
150.6
     
156.6
     
162.7
     
170.2
     
179.2
 
Diluted earnings per ordinary share
  $
5.43
    $
5.15
    $
4.82
    $
4.18
    $
3.74
 
Shares used in computing diluted earnings per ordinary share
   
152.1
     
159.4
     
166.6
     
173.3
     
183.6
 
 
(*) Including
pre-tax
charges for stock-based compensation, amortization of intangible assets and acquisition related expenses in the following items:
4

                                         
 
Year ended December 31,
 
 
2019
 
 
2018
 
 
2017
 
 
2016
 
 
2015
 
 
(in millions)
 
Amortization of intangible assets and acquisition related expenses
   
     
     
     
     
 
Cost of revenues
  $
5.6
    $
2.8
    $
2.2
    $
2.2
    $
1.8
 
Research and development
   
6.9
     
5.8
     
7.6
     
7.6
     
6.1
 
Selling and marketing
   
1.8
     
3.3
     
3.3
     
3.4
     
3.3
 
Stock-based compensation
   
     
     
     
     
 
Cost of revenues
  $
4.4
    $
3.5
    $
2.7
    $
2.2
    $
1.6
 
Research and development
   
18.9
     
17.6
     
16.2
     
12.7
     
11.5
 
Selling and marketing
   
28.8
     
20.8
     
18.3
     
19.2
     
16.4
 
General and administrative
   
54.6
     
47.3
     
50.2
     
48.7
     
46.8
 
 
                                         
 
December 31,
 
 
2019
 
 
2018
 
 
2017
 
 
2016
 
 
2015
 
 
(in millions)
 
Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Working capital
  $
737.5
    $
990.0
    $
757.5
    $
726.6
    $
679.0
 
Total assets
   
5,764.9
     
5,828.2
     
5,462.9
     
5,217.6
     
5,069.9
 
Shareholders’ equity
   
3,568.8
     
3,772.4
     
3,600.1
     
3,491.1
     
3,531.9
 
Capital stock
   
1,771.1
     
1,598.6
     
1,305.9
     
1,140.4
     
988.1
 
 
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:
  the continued expansion of Internet usage and the number of organizations adopting or expanding intranets;
  the continued adoption of “cloud” infrastructure by organizations;
  the ability of the infrastructures implemented by organizations to support an increasing number of users and services;
  the continued development of new and improved services for implementation across the Internet and between the Internet and intranets;
  the adoption of data security measures as it pertains to data encryption and data loss prevention technologies;
  continued access to mobile API’s, APPs and application stores with Apple, Google and Microsoft;
  government regulation of the Internet and governmental and
non-governmental
requirements and standards with respect to data security and privacy; and
  general economic conditions in the markets in which we, our customers and our suppliers operate.
In 2019, global and regional economies around the world and financial markets remained volatile as a result of a multitude of factors, including economic and political uncertainty, terrorism, governmental instability and other factors. During this period, many organizations limited their expenditures and a significant portion of such organizations have remained reluctant to increase expenditures. If challenging conditions continue or worsen, it may cause our customers to reduce or postpone their technology spending significantly, which could result in reductions in sales of our products, longer sales cycles, slower adoption of new technologies and increased price competition.
5

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. and Palo Alto Networks, Inc., and other companies in the network security space. We also compete with several other companies, including Microsoft Corporation, McAfee, Inc., International Business Machines Corporation, Hewlett-Packard Enterprise Company 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.
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.
6

Our future results of operations will depend upon our ability to enhance our current products and to develop and introduce new products on a timely basis; to address the increasingly sophisticated needs of our customers; and to keep pace with technological developments, new competitive product offerings, and emerging industry standards. Our competitors’ introduction of products embodying new technologies and the emergence of new industry standards may render our existing products obsolete or unmarketable. While we have historically been successful in developing, acquiring, and marketing new products and product enhancements that respond to technological change and evolving industry standards, we may not be able to continue to do so. In addition, we may experience difficulties that could delay or prevent the successful development, introduction, and marketing of these products, as well as the integration of acquired products. Furthermore, our new products or product enhancements may not adequately meet the requirements of the marketplace or achieve market acceptance. In some cases, a new product or product enhancements may negatively affect sales of our existing products. If we do not respond adequately to the need to develop and introduce new products or enhancements of existing products in a timely manner in response to changing market conditions or customer requirements, our business, results of operations and financial condition may be materially adversely affected. For additional information, see “Item 4 – Information on Check Point” and under the caption “We may not be able to successfully compete, which could adversely affect our business and results of operations” in this “Item 3 – Key Information – Risk Factors”.
We may need to change our pricing models to compete successfully
The intense competition we face in the sales of our products and services and general economic and business conditions can put pressure on us to change our prices. If our competitors offer deep discounts on certain products or services or develop products that the marketplace considers more valuable, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect results of operations. Additionally, the increasing prevalence of cloud and SaaS delivery models offered by us and our competitors may unfavorably impact pricing in both our
on-premise
enterprise software business and our cloud business, as well as overall demand for our
on-premise
software product and service offerings, which could reduce our revenues and profitability. Our competitors may offer lower pricing on their support offerings, which could put pressure on us to further discount our product or support pricing.
If our products fail to protect against attacks and our customers experience security breaches, our reputation and business could be harmed
Hackers and other malevolent actors are increasingly sophisticated, often affiliated with organized crime and operate large scale and complex attacks. In addition, their techniques change frequently and generally are not recognized until launched against a target. If we fail to identify and respond to new and increasingly complex methods of attack and to update our products to detect or prevent such threats in time to protect our customers’ high-value business data, our business and reputation will suffer.
In addition, an actual or perceived security breach or theft of the sensitive data of one of our customers, regardless of whether the breach is attributable to the failure of our products, could adversely affect the market’s perception of our security products. Despite our best efforts, there is no guarantee that our products will be free of flaws or vulnerabilities, and even if we discover these weaknesses we may not be able to correct them promptly, if at all. Our customers may also misuse our products, which could result in a breach or theft of business data.
Product defects may increase our costs and impair the market acceptance of our products and technology
Our products are complex and must meet stringent quality requirements. They may contain undetected hardware or software errors or defects, especially when new or acquired products are introduced or when new versions are released. In particular, the personal computer hardware environment is characterized by a wide variety of
non-standard
configurations that make
pre-release
testing for programming or compatibility errors very difficult and time-consuming. We may need to divert the attention of our engineering personnel from our research and development efforts to address instances of errors or defects.
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.
7

We are subject to risks relating to acquisitions
We have made acquisitions in the past, including the recent acquisitions of Cymplify and Protego by the end of 2019, and we may make additional acquisitions in the future. The pursuit of acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.
Competition within our industry for acquisitions of businesses, technologies, assets and product lines has been, and may in the future continue to be, intense. As such, even if we are able to identify an acquisition that we would like to consummate, we may not be able to complete the acquisition on commercially reasonable terms or because the target is acquired by another company. Furthermore, in the event that we are able to identify and consummate any future acquisitions, we could:
  issue equity securities which would dilute the current shareholders’ percentage of ownership;
  incur substantial debt;
  assume contingent liabilities; or
  expend significant cash.
These financing activities or expenditures could harm our business, results of operations and financial condition or the price of our ordinary shares. Alternatively, due to difficulties in the capital and credit markets, we may be unable to secure capital on acceptable terms, or at all, to complete acquisitions. In addition, with respect to the businesses we recently acquired and additional businesses we may acquire in the future, 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 businesses due to a number of factors, including:
  unanticipated costs or liabilities associated with the acquisition;
  incurrence of acquisition-related costs;
  diversion of management’s attention from other business concerns;
  harm to our existing business relationships with manufacturers, distributors and customers as a result of the acquisition;
  the potential loss of key employees;
  use of resources that are needed in other parts of our business;
  use of substantial portions of our available cash to consummate the acquisition; or
  unrealistic goals or projections for the acquisition.
Moreover, even if we do obtain benefits from acquisitions in the form of increased sales and earnings, there may be a delay between the time when the expenses associated with an acquisition are incurred and the time when we recognize such benefits.
We are dependent on a small number of distributors
We derive our sales primarily through indirect channels. During 2019, 2018 and 2017, we derived approximately 55%, 53% and 54%, respectively, of our sales from our ten largest distributors. In 2019, 2018 and 2017, our two largest distributors accounted for approximately 37%, 36% and 36% of our sales, respectively. 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.
8

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. Although we do not manufacture in China, some of our component parts are sourced from China. Our reliance on sole or limited suppliers, particularly foreign suppliers, and our reliance on subcontractors involves several risks, including a potential inability to obtain an adequate supply of required components, subassemblies, or modules and limited control over pricing, quality, and timely delivery of components, subassemblies or modules. Such risks could become exacerbated to the extent such suppliers and subcontractors are materially disrupted by quarantines, factory slowdowns or shutdowns, border closings, and travel restrictions resulting from the global coronavirus outbreak. While we continue to monitor the global effects of the coronavirus outbreak on the supply chains in which we rely, any material supply chain disruption could negatively impact our business, financial condition and results of operations. Although we have been successful in the past, replacing suppliers may be difficult and it is possible it could result in an inability or delay in producing designated hardware products. We are already seeing delays which 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 have been 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 security subscriptions and from software updates and maintenance. We expect that this concentration of revenues from a small number of product families will continue for the foreseeable future. Endpoint security products and associated software updates, maintenance, and security subscriptions represent an additional revenue source as well as our cloud initiatives. Our future growth depends heavily on our ability to effectively develop and sell new and acquired products as well as add new features to existing products. For more details, see “Item 4 – Information on Check Point” and “Item 5 – Operating and Financial Review and Prospects”.
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. Further, in the event significant numbers of employees of our third-party developers or owners of technologies must miss work due to the coronavirus outbreak or otherwise, and such third-party developers and owners are otherwise unable to provide such technology or services to us, our ability to provide our products and services could be disrupted. This includes mandated government shutdowns. Our suppliers and licensors may not be required or may not be able to indemnify us in the event that a claim of infringement is asserted against us, or they may be required to indemnify us only up to a maximum amount, above which we would be responsible for any further costs or damages. Any failure to obtain licenses to intellectual property or any exposure to liability as a result of incorporating third-party technology into our products could materially and adversely affect our business, results of operations and financial condition.
Failures of the third-party servers, cloud service providers and other third-party hardware, software and infrastructure on which we rely could adversely affect our business
We rely on servers, cloud service providers and other third-party hardware, software and infrastructure to support our operations. The owners and operators of the data centers and cloud services with which we are engaged do not guarantee uninterrupted or error-free services. Problems faced by our third-party hosting providers, including technological or business-related disruptions, could adversely impact our business and results of operations.
9

Our servers, data centers and other facilities are also vulnerable to damage or interruption from fires, natural disasters, terrorist attacks, power loss, telecommunications failures, pandemics or similar catastrophic events. For example, the coronavirus outbreak has caused many third-party service providers to shut down its business, and it is possible that providers of our cloud infrastructure services could face similar disruptions in their business or facility shutdowns. Disruptions to these servers or facilities could interrupt our ability to provide our products and services and materially adversely affect our business and results of operations.
We are the defendants in various lawsuits and have been subject to tax disputes and governmental proceedings, which could adversely affect our business, results of operations and financial condition
As a global company we are subject to taxation in Israel, the United States and various other countries. We attempt to utilize an efficient operating model and accordingly to pay taxes based on the laws in the countries in which we operate. This can lead to disputes with various tax authorities in different parts of the world.
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”.
Uncertainties in the interpretation and application of worldwide tax reforms, complex tax laws and regulations could materially affect our tax obligations and effective tax rate
The 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted on December 22, 2017 and significantly affected U.S. tax law by changing how the U.S. imposes income tax on multinational corporations. The U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how we will apply the law and impact our results of operations. We address these tax changes by third-party advices and tax opinions.
As part of the ongoing project of the OECD titled “Addressing the Tax Challenges Arising from the Digitalization of the Economy” (BEPS 2.0), in 2019, the OECD published a Programme of Work to develop a Consensus Solution to this project.
The issues underlying in this proposal will be further discussed among the framework jurisdictions through at least 2020. We follow the developments closely. We will evaluate the potential impact of these changes on our business models toward the end of 2020 once final rules will be set out. Therefore, at this stage it is difficult to assess and reflect these changes in our financial results.
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.
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In addition to patents, we rely on trade secret and other rights to protect our unpatented proprietary intellectual property and technology. Despite our efforts to protect our proprietary technologies and our intellectual property rights, unauthorized parties, including our employees, consultants, service providers or customers, may attempt to copy aspects of our products or obtain and use our trade secrets or other confidential information. We generally enter into confidentiality agreements with our employees, consultants, and other service providers, and generally limit access to and distribution of our proprietary information and proprietary technology through certain procedural safeguards. These agreements and arrangements may not effectively prevent unauthorized use or disclosure of our intellectual property or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our intellectual property or technology. We cannot be certain that the steps taken by us will prevent misappropriation of our intellectual property or technology or infringement of our intellectual property rights.
If we are unable to secure, protect and enforce our intellectual property rights, such failure could harm our brand and adversely impact our business, financial condition and results of operations.
We incorporate open source technology in our products which may expose us to liability and have a material impact on our product development and sales
Some of our products utilize open source technologies. These technologies are licensed to us under varying license structures, including the General Public License. If we have improperly used, or in the future improperly use, software that is subject to such licenses with our products in such a way that our software becomes subject to the General Public License, we may be required to disclose our own source code to the public. This could enable our competitors to eliminate any technological advantage that our products may have over theirs. Any such requirement to disclose our source code or other confidential information related to our products could materially and adversely affect our competitive position and impact our business, results of operations and financial condition.
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.
We are exposed to various legal, business, political, economic, health-related and other risks associated with our international operations; these risks could increase our costs, reduce future growth opportunities and affect our results of operations
We operate our business primarily from Israel, we sell our products worldwide, and we generate a significant portion of our revenue outside the United States. We intend to continue to expand our international operations, which will require significant management attention and financial resources. In order to continue to expand worldwide, we will need to establish additional operations, hire additional personnel and recruit additional channel partners internationally. For example, in the event of significant numbers of our employees or the employees of our channel partners having to miss work due to a widespread health situation or pandemic such as the coronavirus, we or our channel partners may not be able to quickly source replacement or temporary workers, which could adversely affect our operations, particularly in regions where such health situations are most severe or local regulations require a shut down. 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.
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Our international sales and operations subject us to many potential risks inherent in international business activities, including, but not limited to:
  technology import and export license requirements;
 
  costs of localizing our products for foreign countries, and the lack of acceptance of localized products in foreign countries;
 
  varying economic and political climates;
 
  trade restrictions, including as a result of trade disputes or other disputes between countries or regions in which we sell and operate;
 
  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;
 
  widespread health emergencies or pandemics, such as the coronavirus;
 
  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.
Due to the global nature of our business, we must comply with various anti-bribery regimes and any failure to do so could adversely affect our business
The global nature of our business creates various domestic and local regulatory challenges. The U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.K. Bribery Act 2010 (the “U.K. Bribery Act”), and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to foreign government officials and other persons for the purpose of obtaining or retaining business. In addition, companies are required to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. Further, changes in laws could result in increased regulatory requirements and compliance costs which could adversely affect our business, financial condition and results of operations.
As a result, we are exposed to a risk of violating anti-bribery laws in the countries where we operate. Although we have internal policies and procedures, including a code of ethics and proper business conduct, reasonably designed to promote compliance with anti-bribery laws, we cannot assure that our employees or other agents will not engage in prohibited conduct and render us responsible under the FCPA, the U.K. Bribery Act or any similar anti-bribery laws in other jurisdictions. If we are found to be in violation of the FCPA, the U.K. Bribery Act or other anti-bribery laws (either due to acts or inadvertence of our employees, or due to the acts or inadvertence of others), we could suffer criminal or civil penalties or other sanctions, which could have a material adverse effect on our business, results of operations, cash flows, financial condition, reputation and ability to win future business or maintain existing contracts. 
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Our actual or perceived failure to adequately protect personal data could subject us to sanctions and damages and could harm our reputation and business
A variety of state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data. These privacy and data protection related laws and regulations are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. Compliance with these laws and regulations can be costly and can delay or impede the development and offering of new products and services.
For example, the General Data Protection Regulation, which became applicable on May 25, 2018, adopts more stringent requirements for data processors and controllers. Such requirements include more fulsome disclosures about the processing of personal information, data retention limits and deletion requirements, mandatory notification in the case of a data breach and elevated standards regarding valid consent in some specific cases of data processing. The General Data Protection Regulation also includes substantially higher penalties for failure to comply, inter alia, a fine up to 20 million Euros or up to 4% of the annual worldwide turnover, whichever is greater, can be imposed. These more stringent requirements on privacy user notifications and data handling require us to adapt our business and incur additional costs.
Our actual or alleged failure to comply with applicable laws and regulations, or to protect personal data, could result in enforcement actions, significant penalties or other legal action against us or our customers or suppliers, which could result in negative publicity, increase our operating costs, subject us to claims or other remedies and have a material adverse effect on our business and results of operations.
Compliance with new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance
Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), new SEC regulations, amendments to the Israeli Companies Law and Nasdaq Global Select Market rules are creating increased compliance costs and uncertainty for companies like ours. These new or changed laws, regulations and standards may lack specificity and are subject to varying interpretations. The implementation of these laws and their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standard.
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 2019, our management assessed our internal control over financial reporting, and determined that our internal control over financial reporting was effective as of December 31, 2019, and our independent auditors have expressed an unqualified opinion over the effectiveness of our internal control over financial reporting as of December 31, 2019. 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.
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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, 2020, our directors and executive officers owned approximately 20.9% of the voting power of our outstanding ordinary shares, or 24.1% of our outstanding ordinary shares if the percentage includes options currently exercisable or exercisable within 60 days of January 31, 2020. 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:
  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:
 
  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:
 
  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 and marketable securities totaled $3,948 million as of December 31, 2019. The performance of the capital markets affects the values of funds that are held in marketable securities. These assets are subject to market fluctuations, market liquidity and various developments, including, without limitation, rating agency downgrades that may impair their value, or unexpected changes in the financial markets’ healthiness worldwide.
We expect that market conditions will continue to fluctuate and that the fair value of our investments may be affected accordingly. Moreover, in case we would like to liquidate some of our investments and turn them into cash – we are dependent on market conditions and liquidity opportunities, which may be impacted by global economic trends, including, without limitation, the economic effects of the
COVID-19.
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. Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions. Any significant decline in our financial income or the value of our investments as a result of the changes in interest rates and interest rate expectations of the financial markets, 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.
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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, 2019, would have increased by $22 million.
Currency fluctuations may affect the results of our operations or financial condition
Our functional and reporting currency is the U.S. dollar. We generate a majority of our revenues and expenses in U.S. dollars. In 2019, we incurred approximately 46% 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 2019, 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, 2019, we had outstanding forward contracts that hedge against changes in foreign currency exchange rates of $38 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, 2019, we had outstanding forward contracts that did not meet the requirement for hedge accounting, in the amount of $342 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.
Changes in currency rates around the globe, including, without limitation, the economic effects of the
COVID-19
or “Brexit” could have an adverse impact on our business and results of operations. These changes may have an impact on some of our expenses which are paid in local currencies (non US dollar), as well as an impact on our
non-US
customers which have their budgets in
non-US
dollar currencies.
In September 2019 the U.K. and E.U. agreed the terms of the UK’s withdrawal from the E.U. in the form of a Withdrawal Agreement, and on January 31, 2020 the U.K. formally left the E.U.
Under the Withdrawal Agreement, a “transition period” will come into force for eleven months: from February 1 until December 31, 2020. During this time E.U. rules and regulations as they currently apply to our business (and all U.K.-based businesses) will remain the same. The U.K. Government has stated that the transition period will end on December 31, 2020, although the Withdrawal Agreement allows for it to be extended to the end of 2022, and that this deadline will be incorporated into U.K. legislation. If a
U.K.-E.U.
trade deal is not agreed by the end of 2020, the U.K.’s trade with the E.U. and the rest of the world would be subject to tariffs and duties set by the World Trade Organization. Additionally, the movement of goods between the U.K. and the remaining member states of the E.U. will be subject to additional inspections and documentation checks, leading to possible delays at ports of entry and departure. These changes to the trading relationship between the U.K. and E.U. would likely result in increased cost of goods imported into and exported from the U.K. and may decrease the profitability of our U.K. and other operations. As such, although the Withdrawal Agreement ensures that a
“no-deal”
or “cliff-edge” Brexit was avoided on January 31, 2020, there is no certainty that a similar effect will be avoided at the end of 2020.
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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.
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 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.
Our business, results of operations and financial condition may be adversely affected by global public health epidemics, including the strain of coronavirus known as
COVID-19.
Outbreaks of epidemic, pandemic or contagious diseases, such as the recent 2019 Novel Coronavirus
(COVID-19),
could have an adverse effect on our business, financial condition or results of operations. A global public health epidemic could impact our customers’ business operations, including temporary closures of facilities, thereby decreasing demand for our products and services. Additionally, our employees, contingent workers and contractors may be impacted by an outbreak which could impact our ability to serve our customer or respond timely to their needs. The extent to which the coronavirus impacts our results will depend on future developments, which are uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.
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Our business and operations are subject to the risks of earthquakes, fire, floods, pandemics and other natural catastrophic events, as well as manmade problems such as power disruptions or terrorism
We operate our business primarily from Israel, we sell our products and have operations worldwide. For example, our headquarters in the United States, as well as certain of our research and development operations, are located in the Silicon Valley area of Northern California, a region known for seismic activity. We also have significant operations in other regions that have experienced natural disasters. A significant natural disaster occurring at our facilities in Israel or the United States or elsewhere, or where our channel partners are located, could have a material adverse impact on our business, results of operations and financial condition. In addition, acts of terrorism could cause disruptions to our or our customers’ businesses or the economy as a whole. Further, we rely on information technology systems to communicate among our workforce located worldwide. Any disruption to our internal communications, whether caused by a natural disaster, pandemics or by manmade problems, such as power disruptions or terrorism, could delay our research and development efforts. To the extent any of the foregoing causes disruptions or result in delays or cancellations of customer orders, our research and development efforts or the deployment of our products, our business and results of operations would be materially and adversely affected.
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 extensive hostilities 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.
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.
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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, 2019, our effective tax rate was 14%. We have benefited or currently benefit from a variety of government programs and tax benefits that generally carry conditions that we must meet in order to be eligible to obtain any benefit. Our tax expenses and the resulting effective tax rate reflected in our financial statements may increase over time as a result of changes in corporate income tax rates, other changes in the tax laws of the countries in which we operate or changes in the mix of countries where we generate profit.
If we fail to meet the conditions upon which certain favorable tax treatment is based, we would not be able to claim future tax benefits and could be required to refund tax benefits already received.
Any of the following could have a material effect on our overall effective tax rate:
  Some programs may be discontinued,
  We may be unable to meet the requirements for continuing to qualify for some programs,
  These programs and tax benefits may be unavailable at their current levels, or
  We may be required to refund previously recognized tax benefits if we are found to be in violation of the stipulated conditions.
Additional details are provided in “Item 5 – Operating and Financial Review and Products” under the caption “Taxes on income”, in “Item 10 – Additional Information” under the caption “Israeli taxation, foreign exchange regulation and investment programs” and in Note 11 to our Consolidated Financial Statements.
Your rights and responsibilities as a shareholder are, and will continue to be, governed by Israeli law which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies
The rights and responsibilities of the holders of our ordinary shares are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in the company, including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law and our articles of association may delay, prevent or make difficult an acquisition of us, prevent a change of control, and negatively impact our share price
Israeli corporate law regulates acquisitions of shares through tender offers and mergers, requires special approvals for transactions involving directors, officers or significant shareholders, and regulates other matters that may be relevant to these types of transactions. Furthermore, Israeli tax considerations may make potential acquisition transactions unappealing to us or to some of our shareholders. For example, Israeli tax law may subject a shareholder who exchanges his or her ordinary shares for shares in a foreign corporation, to taxation before disposition of the investment in the foreign corporation. These provisions of Israeli law may delay, prevent or make difficult an acquisition of our company, which could prevent a change of control and, therefore, depress the price of our shares.
In addition, our articles of association contain certain provisions that may make it more difficult to acquire us, such as the provision which provides that our board of directors may issue preferred shares. These provisions may have the effect of delaying or deterring a change in control of us, thereby limiting the opportunity for shareholders to receive a premium for their shares and possibly affecting the price that some investors are willing to pay for our securities.
Additional details are provided in “Item 10 – Additional Information” under the caption “Articles of Association and Israeli Companies Law – Anti-takeover measures”.
18

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, our sole focus has been on making the world a safer place to live and work. For the last 25 years, we have worked to fulfill our vision of making the Internet secure, reliable, and available for corporations and consumers.
Early on, we pioneered the first commercially available firewall, followed by a steady stream of industry-first cyber security solutions. As an example, our technology provides protection against both known and unknown cyber security threats across a wide range of environments: physical and virtual networks, cloud and mobile surroundings, critical infrastructures, and the ‘Internet of Things’ (IoT). In November 2019, we acquired Cymplify to create a consolidated security solution to harden and protect firmware of IoT devices. Check Point has identified the evolving different generations of both cyber-attacks and security products. Today, we find ourselves in an increasingly complex threat landscape with organizations experiencing the 5th generation of cyber-attacks. With enterprises expanding their use of Internet of Things (IoT), the 6th generation of attacks is emerging with the added sophistication of targeting the vulnerable IoT emerging attack vector. The security deployed by most businesses is generationally behind and incapable of protecting against such attacks
To address these dangerous gaps, organizations will need to move from older approaches comprised of a patchwork of point products to a unified security foundation and a well-defined security architecture. This architecture should provide:
  Proven, best threat prevention technologies across an organization’s entire IT infrastructure of networks, endpoints, cloud, workloads, IoT and mobile.
  Real-time sharing of threat intelligence across enterprises and within the enterprise.
  A single, consolidated security management framework.
19

Check Point Infinity NEXT is a fully consolidated cyber security architecture that protects against 5th and 6th generations of cyber-attacks across all networks, endpoint, cloud, Workloads, IoT and mobile. It leverages Nano Agent technology that is open-source and lightweight to ensure the latest security is delivered anywhere without the requirement of upgrades. Infinity is the only consolidated security architecture to support over 50 types of assets across Network, Endpoint, Mobile, Cloud, Workloads, and IoT, while achieving the highest level of security with over 60 adaptive threat prevention security practices delivered as a service. Through advanced threat prevention, business-oriented policy management, and cloud-based threat intelligence, Infinity delivers a solid foundation for a sustainable, effective risk management strategy.
Today, we are one the largest pure cyber security vendors globally. Our pledge to our customers and partners is to “secure your everything”, where there are no limits to the innovation needed to protect everyone living in a digital world.
Check Point Technology Leadership in 2019
During 2019 we received recognitions and awards for our activities.
NSS Labs
 
Highest Security Effectiveness Score in NSS Breach Prevention Systems Test 2019
 
Sandblast Agent Recommended Rating in NSS Advanced Endpoint Protection Test 2019
Gartner
- Leader, Gartner Network Firewall (FW) Magic Quadrant 2019
AVLabs
- ZoneAlarm Extreme Security Receives Highest Best+++ Award 2019
FedRAMP
- Check Point Achieves Federal Risk and Authorization Management (FedRAMP)
Forrester
 
Check Point CloudGuard Achieve Top Market Presence Score in Forrester Wave for Cloud Workload Security 2019
 
Leader, Check Point Endpoint Protection Recognized
Miercom
- SandBlast Mobile a Security Leader in Mobile Threat Defense
Business Highlights
In October 2018, we acquired 100% of the share capital of Dome9 Security Ltd. (Dome9), a privately held Israeli company. Founded in 2011, Dome9 has built a strong reputation for enabling security and compliance for rapid public cloud adoption. Dome9 customers use its platform to secure multi-cloud deployments across Amazon AWS, Microsoft Azure and Google Cloud. Dome9 provides significant cloud-native security capabilities, including intuitive visualization of security posture, compliance and governance automation, privileged identity protection and cloud traffic and event analysis, enabling safer and more manageable cloud deployments.
In January 2019, we acquired 100% of the share capital of ForceNock Security Ltd. (ForceNock), a privately held Israeli company. Founded in 2017, ForceNock developed a Web Application and API Protection (WAAP) technology, which utilizes machine learning, behavioral and reputation-based security engines. We plan to integrate ForceNock’s technology into our Infinity total protection architecture.
In November 2019, we acquired 100% of the share capital of Cymplify, a privately held Israeli company, and a developer of a new IoT cyber security technology. The new technology is intended to be integrated into the
 Infinity
 architecture.
In December 2019, we acquired 100% of the share capital of Protego, a new serverless security technology company. With this acquisition, we are now able to offer a consolidated security solution for cloud workload protection (CWPP) and security posture management (CSPM), delivering continuous serverless security with
best-in-class
run time protection and application hardening.
20

Further details regarding the important events in the development of our business since the beginning of 2018 are provided in “Item 5 – Operating and Financial Review and Prospects” under the caption “Overview”.
We are incorporated as a company under the laws of the State of Israel in 1993 under the name of “Check Point Software Technologies Ltd.” Our registered office and principal place of business is located at 5 Shlomo Kaplan Street Tel Aviv 6789159, Israel. The telephone number of our registered office is
972-3-753-4555.
Our company’s website is www.checkpoint.com. The contents of our website are not incorporated by reference into this Annual Report.
This Annual Report is available on our website. If you would like to receive a printed copy via mail, please contact our Investor Relations department at 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.
Market Landscape – The 6
th
and the 5
th
Generations of Cyber Security
Over the last 25 years, the technologies behind cyber-attacks and the ensuing preventative measures have advanced rapidly. During 2019, we witnessed an unprecedented number of cyber-attacks against organizations across all industries carried out as large-scale, multi-vector mega attacks, inflicting major damage on businesses and their reputations. As a result, heavy fines were levied in some cases where companies failed to protect sensitive data.
Looking back, we identified the evolving different generations of both cyber-attacks and security products. Today, we find ourselves in an increasingly complex threat landscape with organizations experiencing the 5
th
generation of cyber-attacks. With enterprises expanding their use of Internet of Things (IoT), the 6
th
generation of attacks is emerging with the added sophistication of targeting the vulnerable IoT emerging attack vector. The security deployed by most businesses is generationally behind and incapable of protecting against such attacks. Specifically, while we are facing the 5
th
and 6
th
generation of attacks, most businesses possess only 2nd or 3rd generation security. Let us look at the generations of attacks and associated security:
  Generation 1 – Late 1980s, virus attacks on stand-alone PCs affected all businesses and drove the rise of anti-virus products.
  Generation 2 – Mid 1990s, attacks from the internet affected all business and drove the creation of the firewall.
  Generation 3 – Early 2000s, exploiting vulnerabilities in applications affected most businesses and drove the rise in intrusion prevention systems (IPS) products.
  Generation 4 – Approximately 2010, rise of targeted, unknown, evasive, polymorphic attacks affected most businesses and drove the increase in behavior analysis technologies such as sandboxing products.
  Generation 5 – Approximately 2017, the large-scale and multi-vector mega attacks using advanced attack technologies. These are fast-moving attacks so detection-only is not enough. These attacks target traditional attack vectors and expanded to mobile and cloud. Advanced threat prevention is required.
  Generation 6 – 2019 and 2020 saw an increase in attacks on the potential billions of IoT devices with old firmware that has limited or no security. The next generation of security will be based on nano security agents. Nano agents are micro-plugins that can work with any device or operating system in any environment, controlling all data that flows to and from IoT devices, ensuring
always-on
security.
While it may be commonplace for businesses to avoid cutting-edge IT technologies in critical operations, lagging generationally behind in security protection leaves the business fully exposed to advanced attacks. Such attacks not only impact operations, but the exposure of critical information can also damage reputations and jeopardize the viability of a business. Today, even 4th generation security is simply not enough to properly protect against today’s 5
th
generation of attacks on today’s IT environments, cloud deployments, and mobile devices. With 6
th
generation attacks gaining ground with the expansion of IoT, status quo security is no longer an option.
To address these dangerous gaps, organizations will need to move from older approaches comprised of a patchwork of point products to a unified security foundation and a well-defined security architecture. This architecture should provide:
  Proven, best threat prevention technologies across an organization’s entire IT infrastructure of networks, endpoints, cloud, workloads, IoT and mobile.
21

  Real-time sharing of threat intelligence across enterprises and within the enterprise.
  A single, consolidated security management framework.
Product Strategy and Offerings
We strive to bring the most innovative, highest-quality products to the market. In this way, we can provide exceptional value to our customers, allowing organizations of all sizes to proactively protect their networks against sophisticated 5
th
and 6
th
generations of cyber threats. Our product strategy of driving innovation through research and development and strategic partnerships allows us to blaze new trails with market-leading products and solutions. Our strategy helps enterprises transition their corporate security strategies from not just detecting threats but to preventing them, while enabling businesses to adopt advanced IT technologies and services, including Endpoint and Mobile, , cloud and workloads, IoT and 5G solutions.
Check Point Infinity Architecture
Check Point Infinity is a fully consolidated cyber security architecture that protects against 5
th
and 6
th
generations of cyber-attacks across all networks, endpoint, cloud, Workloads, IoT and mobile. It leverages Nano Agent technology that is open-source and lightweight to ensure the latest security is delivered anywhere without the requirement of upgrades. consolidated security architecture to support over 50 types of assets across Network, Endpoint, Mobile, Cloud, Workloads, and IoT, while achieving the highest level of security with over 60 adaptive threat prevention security practices delivered as a service.
The architecture is designed to resolve the complexities of growing connectivity and inefficient security. Check Point Infinity leverages unified threat intelligence and open interfaces, enabling all environments to stay protected against targeted attacks. As a result, it provides comprehensive threat prevention which seals security gaps, enables automatic and immediate threat intelligence sharing across all security environments and a consolidated security management for an efficient security operation. Check Point Infinity delivers protection against current and potential attacks, today and in the future.
The Check Point Infinity Total Protection business model enables enterprises to benefit from the most advanced threat prevention technologies available. This model allows organizations to use all of Check Point’s security technologies, protecting their networks, endpoint, mobile devices, cloud, and IoT through an annual security subscription based on the number of enterprise users.
Check Point Network Security
In order to serve the different needs and demands of our customers, we offer a wide portfolio of security gateways and software platforms that support everything from small business (SMB) to large enterprise data center and telco-grade environments. On each security gateway, we offer the full expanse of Check Point’s network security portfolio from industry-leading next generation firewall, IPS, VPN, WAF, SSL, and Data Security (DLP) to a wide set of threat prevention technologies blocking known and unknown advanced fifth-generation cyber-attacks. Check Point‘s security gateways are available as a cloud service, software-only products that can run on standard hardware, or dedicated security gateway hardware appliances.
In 2019, we introduced a number of innovative security gateways and software solutions. In early 2019, we introduced the Maestro Security Orchestrator, the industry’s first truly hyperscale network security solution. Maestro enables a single gateway to expand to the hyperscale capacity and performance of 52 gateways in minutes. Maestro provides any size business the power, flexibility, scalability and resilience of cloud-level security platforms on premises. This enables enterprises to seamlessly expand their security gateways to hyperscale capacity with over one Terabit of threat prevention performance. Maestro enables enterprises to meet the performance demands of any networking environment including the high data rate,
ultra-low
latency performance required for cloud data centers and 5G networks. Along with Maestro, we announced the 6000 family of security gateways to leverage the new unprecedented hyperscale threat prevention performance. The 6500 and 6800 security gateways combine our award-winning Threat Prevention suite with the power to inspect
SSL-encrypted
network traffic without compromising on performance or uptime.
In
mid-2019,
we announced a new suite of network security products for large enterprises and data centers that deliver industry-leading
Tera-bps
(bits per second) of Gen V Threat Prevention without compromising on network performance, up time, or scalability. Powered by the Check Point Infinity architecture, the 16000 and 26000 Security Gateways incorporate Check Point’s ThreatCloud and award-winning SandBlast
Zero-Day
Protection. These modular gateways come in base, plus and turbo models delivering up to 30 Gbps of Gen V Threat Prevention security throughput, support connectivity standards up to 100 Gbe, and feature expansion options for up to 64 network interfaces.
22

In
mid-2019,
we also released the newest version of the R80.30 software with the industry’s first threat extraction for the web and patent-pending TLS/SSL inspection capabilities. With over 160 technology integrations and 100 new features, R80 is the industry’s most advanced threat prevention and security management software for the data center, cloud, mobile and endpoint. R80.30’s innovations enable the new 16000 and 26000 gateways to achieve industry leading Threat Prevention performance while streamlining the management process through a single console.
In the fourth quarter of 2019, we continued to innovate with the new 1500 series of security gateways the protect Small and Medium Size Businesses (SMBs) from both known threats and
zero-day
attacks. The 1550 and 1590 gateways provide SMBs enterprise-grade security powered by Check Point’s R80 security software including new support for IoT devices, the award-winning SandBlast
Zero-Day
Protection, antivirus,
anti-bot,
IPS, app control, URL filtering and identity awareness. In addition, the 1500 series gateways offer unrivalled ease of deployment and management with
zero-touch
provisioning, and the Check Point WatchTower mobile app for monitoring and stopping network security threats while on go from their mobile device.
In late 2019, through the acquisition of Cymplify, we announced a new IoT cyber security technology. With the technology, it is now possible to take an IP camera, a Smart TV, an elevator controller or a medical device such as an infusion pump, and in a rapid manner, harden and protect it against advanced zero day attacks. We have been incorporating Cymplify’s technology into Check Point’s Infinity architecture to strengthen its ability to reduce customer’s exposure to the IoT cyber risk, and proactively tackle IoT related threats and vulnerabilities without disrupting critical operations.
Check Point Threat Prevention Technologies & Products
To continuously improve our ability to block and prevent cyber-attacks before they occur, the Check Point SandBlast family of advanced threat prevention and
zero-day
protections now includes more than 60 different innovative technologies that combat the growing frequency and sophistication of cyber security threats.
SandBlast technologies are deployed as part of our advanced threat prevention suite for network perimeters (SandBlast Network), endpoints (SandBlast Agent), web browsers (SandBlast Web), and mobile (SandBlast Mobile). In 2019, we expanded our threat prevention capabilities with the Anti-Ransomware agent, preventing the most evasive
zero-day
ransomware, web sandboxing (an early detonation technology that detects highly evasive
zero-day
exploits in Adobe Flash objects), Image Extraction, a feature that sanitizes suspicious images; and a capability called Malware DNA, which provides analysts with attack forensics based on families of malware and behaviors.
Check Point Cloud Security
The growth and popularity of the public cloud continues to drive more data beyond traditional IT security protections and into data center environments that are no longer owned, managed, or controlled by corporate IT. Security is often cited as a key barrier to the wide-spread adoption of an enterprise cloud. Traditional security approaches do not meet the complex requirements of the dynamic nature of the cloud leaving a business exposed to a whole host of new threats. Managing security and compliance in the cloud requires a new breed of cloud natively integrated tools that prevent sophisticated cyber security attacks, prevent catastrophic misconfigurations and actively protect applications and workloads, in an agile cloud environment. Check Point combines its long history of innovation in threat prevention security, combined with, visibility and agile tools lead our customers safely into the cloud.
As part of the Check Point Infinity Architecture, the Check Point CloudGuard cloud security product suite delivers threat prevention to all of the leading cloud providers and applications with agile cloud security.
The Check Point CloudGuard portfolio offers a comprehensive threat prevention security, cloud visibility, cloud security posture management and workload protection solutions for enterprise cloud networks, data, and applications:
  1) CloudGuard IaaS provides a unified management pane for cyber security policy enforcement across cloud and
on-premise
environments. CloudGuard IaaS integrates with a large number of public and private cloud infrastructure and workload platforms, including VMware NSX, Cisco ACI, Amazon Web Services (AWS), Microsoft Azure cloud, and the Google Cloud Platform (GCP).
  2) CloudGuard SaaS supports cloud-based applications such as Salesforce, Office 365, and Box to work at protecting cloud services against the most sophisticated malware and
zero-day
attacks. CloudGuard Dome9, based on Dome9’s platform that we acquired in 2018, extends public cloud capabilities allowing enterprise organizations to easily manage network security and compliance automation at any scale across AWS, Azure and GCP. Log.ic, provides cloud security analytics within AWS, Azure and GCP, helping enterprises provide context and logic around log data. With CloudGuard Log.ic, enterprises are able to visualize cybersecurity anomalies and take action, remediating any regulatory violations or resolve incidence of compromise, where detected in the cloud.
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  3) CloudGuard Workload is a solution that is integrated in the DevOps CI/CD pipeline, providing you continuous application security runtime assessment for code in any type of workloads.
 
  4) CloudGuard Connect, introduced in August of 2019, transforms branch cloud security by delivering enterprise grade security to branches as a cloud service, with
top-rated
threat prevention, quick and easy deployment in minutes, and unified management saving up to 40% in security operating expenses.
 
  5) CloudGuard Edge, also introduced in August 2019, complements CloudGuard Connect by providing
on-premise
branch office security solution. CloudGuard Edge provides
top-rated
threat prevention running as a virtual machine (VM) seamless integrated into leading
SD-WAN
devices or universal Customer Premise Equipment (uCPE) servers. This enables enterprises who need an on premises security solution to satisfy data privacy, compliance, or data location requirements.
 
The combination of CloudGuard portfolio solutions provide a holistic approach to delivering a complete cyber security threat prevention and cloud security management strategy across cloud data and control planes. Furthermore, Check Point supports single-click and agile deployment models aligned with the dynamic nature of cloud services for its customers.
Check Point Mobile Security
Smartphones and tablets give us unprecedented access to the critical business information we need to work faster and more accurately. Providing business employees with access to information on mobile devices has many benefits, but they can also expose the business to risk. According to a study published in 2018 by Check Point mobile threat researchers, every business has experienced at least one mobile infection in the past year. We believe this report was the first study to document the volume and impact of mobile attacks across corporate and public enterprise environments. In 2019, Check Point worked with the Anti-Phishing Work Group to address the rise of mobile phishing, which has grown to be the primary attack vector on mobile.
Check Point SandBlast Mobile, an innovative approach to mobile security for iOS and Android devices, detects and stops mobile threats before they start. Whether data is at rest on a device or in flight through the cloud, SandBlast Mobile helps protect our customers from vulnerabilities and attacks that may put their data at risk.
Check Point Security Management
A significant part of our product strategy addresses the need for scalable and consolidated security management. As part of Check Point’s Infinity architecture, we enable customers of all sizes - from single offices to hundreds and thousands of offices
-to
manage and tailor their security policy to express their business needs from a single pane of glass. With Check Point’s R80 security management software, administrators can consolidate security management in an
all-in-one,
single scalable server for full threat visibility and control across networks, endpoints, cloud and mobile. In 2019, we updated our Security Management Software to version R80.30 offering security management through a single console with a unified security policy that streamlines security operations and provides a greater visibility into policy administration and threat analysis.
Check Point’s security management servers are available as software-only products that can run on standard hardware, or on dedicated security management hardware appliances named the
Smart-1
product line. In 2019, Check Point also introduced a new
Smart-1
appliances (525, 625, 5050 and 5150), powering the 5th generation of Cyber Security with significant performance boost, facilitating the full security management consolidation under a single device.
24

Revenues by Category of Activity
The following table presents our revenues for the last three fiscal years by category of activity:
                         
 
Year Ended December 31,
 
 
2019
 
 
2018
 
 
2017
 
 
(in millions)
 
Category of Activity:
 
   
 
 
Products and licenses
  $
510.8
    $
525.6
    $
559.0
 
Security subscriptions
   
610.3
     
542.3
     
480.4
 
Software updates and maintenance
   
873.7
     
848.6
     
815.3
 
                         
Total revenues
  $
1,994.8
    $
1,916.5
    $
1,854.7
 
                         
 
Sales and Marketing
At the heart of Check Point’s strategy to drive revenue is the commitment to address current and future customer requirements for enterprises of all sizes. We accomplish this in multiple ways:
• Through a global network of thousands of partners, which spans
two-tier
distributors, value-added resellers, global systems integrators, telecommunications companies and managed service providers.
• Spearheaded by our sales support and account management teams, Check Point works closely with the partner ecosystem to capture customer needs and match them with the right solutions.
• As part of our
pre-sales
support to our channel partners community, we employ technical consultants and systems engineers who work closely with partners and customers to assist them with
pre-sale
product configuration, use, and application support.
• Through technology partnerships with hardware and software suppliers such as IBM, Hewlett-Packard, VMware, Symantec, Apple, Google, Amazon, and Microsoft, Check Point uses integration to better meet diverse customer needs.
To drive awareness and demand for Check Point solutions, we create messaging and communications strategies to 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 targeted demand generation programs.
As of December 31, 2019, we had 2,434 employees and subcontractors 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; (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, 2019, we had 800 employees and subcontractors 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 select to receive support directly from us. In addition, due to increasing demand for our portfolio of security gateway appliances, from 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, mitigate and remediate critical security events quickly.
25

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. This becomes especially true as we find ourselves facing 5
th
and 6
th
generation cyber-attacks. Today’s attacks are the most advanced and impactful we have ever seen and yet the security deployed by most businesses is generationally behind and incapable of protecting against these attacks. Part of the problem is that older generations of security are based on patchwork solutions that simply detect. Check Point continues its focus in 2020 on 5
th
and 6
th
generation cyber security, which emphasizes prevention through a consolidated architecture that unifies all network, virtual, cloud, remote office and mobile operations.
We work closely with existing and potential customers, distribution channels and major resellers, who provide significant feedback for product development and innovation. We work with these audiences to understand the challenges they face, to ensure each new generation of security we introduce keeps them well protected as the threats evolve. Our product development efforts are focused on providing unified security architecture, named the Check Point Infinity Generation V Architecture, which 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.
As of December 31, 2019, we had 1,524 employees and subcontractors dedicated to research and development activities and quality assurance.
Competition
Information concerning competition is provided in “Item 3 – Key Information” under the caption “Risk Factors – Risks Related to Our Business and Our Market – We may not be able to successfully compete, which could adversely affect our business and results of operations”.
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 82 issued patents in the U.S. and in other regions and 27 pending patent applications worldwide. Our efforts to protect our patent rights and other proprietary rights may not be adequate and our competitors may independently develop technology that is similar. Additional details are provided in “Item 3 – Key Information” under the caption “Risk Factors – Risks Related to Our Business and Our Market – We may not be able to successfully protect our intellectual property rights”.
26

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”.
Organizational Structure
We are organized under the laws of the State of Israel. We wholly own the subsidiaries listed below, directly or through other subsidiaries, unless otherwise specified in the footnotes below:
     
NAME OF SUBSIDIARY
 
COUNTRY OF INCORPORATION
Check Point Software Technologies, Inc.
 
United States of America (Delaware)
Check Point Software (Canada) Technologies Inc.
 
Canada
Check Point Software Technologies (Japan) Ltd.
 
Japan
Check Point Software Technologies (Netherlands) B.V.
 
Netherlands
Check Point Holding (Singapore) PTE Ltd.
 
Singapore
Check Point Holding (Singapore) PTE Ltd. (1)
 
Indonesia
Check Point Holding (Singapore) PTE Ltd. – U.S. Branch (2)
 
United States of America (New York)
Israel Check Point Software Technologies Ltd. China (3)
 
China
Check Point Holding AB (4)
 
Sweden
Check Point Advanced Threat Prevention Ltd.
 
Israel
Check Point Mobile Security Ltd.
 
Israel
Check Point Software Technologies South Africa PTY. Ltd
 
South Africa
Check Point Software (Kenya) Ltd.
 
Kenya
Check Point Software Technologies B.V Nigeria Ltd. (5)
 
Nigeria
Check Point Public Cloud Security Ltd.
 
Israel
Check Point Web Applications and API Protection Ltd.
 
Israel
Protego Labs, Inc.
Check Point IOT Security Ltd.
Check Point Serverless Security Ltd. (6)
 
Delaware
Israel
Israel
Check Point Software Technologies (Sweden) AB. (7)
 
Sweden
Zone Labs, L.L.C. (8)
 
United States of America (California)
 
 
 
 
 
(1) Representative office of Check Point Holding (Singapore) PTE Ltd.
 
 
 
 
(2) Branch of Check Point Holding (Singapore) PTE Ltd.
 
 
 
 
(3) Representative office of Check Point Software Technologies Ltd.
 
 
 
 
(4) Subsidiary of Check Point Holding (Singapore) PTE Ltd. (former name: Protect Data AB)
 
 
 
 
(5) Subsidiary of Check Point Holding (Singapore) PTE Ltd. and Check Point Yazilim Teknolojileri Pazarlama A.S.
 
 
 
 
(6) Subsidiary of Protego Labs, Inc
 
 
 
 
(7) Check Point Holding AB
 
 
 
 
(8) Check Point Software Technologies Inc.
 
 
 
 
27

Check Point Software Technologies (Netherlands) B.V. acts as a holding company. It wholly owns all or substantially all of the share capital of the principal operating subsidiaries listed below, unless otherwise indicated in the footnotes below:
     
NAME OF SUBSIDIARY
 
                    COUNTRY OF INCORPORATION
Check Point Software Technologies S.A.
 
Argentina
Check Point Software Technologies (Australia) PTY Ltd.
 
Australia
Check Point Software Technologies (Austria) GmbH
 
Austria
Check Point Software Technologies (Belarus) LLC
 
Belarus
Check Point Software Technologies (Belgium) S.A.
 
Belgium
Check Point Software Technologies (Brazil) LTDA
 
Brazil
Check Point Software Technologies (Hong Kong) Ltd. (Guangzhou office) (1)
 
China
Check Point Software Technologies (Hong Kong) Ltd. (Shanghai office) (1)
 
China
Check Point Software Technologies (Czech Republic) s.r.o.
 
Czech Republic
Check Point Software Technologies (Denmark) ApS
 
Denmark
Check Point Software Technologies (Finland) Oy
 
Finland
Check Point Software Technologies SARL
 
France
Check Point Software Technologies GmbH
 
Germany
Check Point Software Technologies (Greece) SA
 
Greece
Check Point Software Technologies (Hungary) Ltd.
 
Hungary
Check Point Software Technologies (Hong Kong) Ltd.
 
Hong Kong
Check Point Software Technologies (India) Private Limited
 
India
Check Point Software Technologies (Italia) Srl
 
Italy
Check Point Software Technologies Mexico S.A. de C.V.
 
Mexico
Check Point Software Technologies (Beijing) Co., Ltd.
 
China
Check Point Software Technologies (New Zealand) Limited
 
New Zealand
Check Point Software Technologies Norway A.S.
Check Point Software Technologies (Philippines) Inc.
 
Norway
Philippines
Check Point Software Technologies (Poland) Sp.z.o.o.
 
Poland
CPST (Portugal), Sociedade Unipessoal Lda.
 
Portugal
Check Point Software Technologies (RMN) SRL.
 
Romania
Check Point Software Technologies (Russia) OOO
 
Russia
Check Point Software Technologies (Korea) Ltd.
 
S. Korea
Check Point Software Technologies (Spain) S.A.
 
Spain
Check Point Software Technologies (Switzerland) A.G.
 
Switzerland
Check Point Software Technologies (Taiwan) Ltd.
 
Taiwan
Check Point Yazilim Teknolojileri Pazarlama A.S.
 
Turkey
Check Point Software Technologies (UK) Ltd.
 
United Kingdom
 
 
 
 
 
(1) Representative office of Check Point Software Technologies (Hong Kong) Ltd.
 
 
 
 
28

Property and Equipment
We lease offices in various locations throughout the world. The breakdown in the various geographies is as follows:
         
Location
 
Space (square feet)
 
Israel
   
379,000*)
 
Americas
   
138,000   
 
Europe, Middle East and Africa
   
67,000   
 
Asia Pacific
   
35,000   
 
 
 
 
 
 
*) Our international headquarters are located in Tel Aviv, Israel. We occupy our headquarters pursuant to a long-term lease on the land 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 contains approximately 332,000 square feet of office space. In addition, we lease approximately 47,000 square feet of additional space substantially all in Tel Aviv, Israel.
 
 
 
 
Principal Capital Expenditures and Divestitures
For more information regarding our principal capital expenditures currently in progress, see “Item 5 – Operating and Financial Review and Prospects” under the caption “Liquidity and Capital Resources
”.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
For discussion related to our financial condition, changes in financial condition, and the results of operations for 2018 compared to 2017, refer to Part I, Item 5. Operating and Financial Review and Prospects, in our Annual Report on Form
20-F
for the fiscal year ended December 31, 2018, which was filed with the U.S. Securities and Exchange Commission on April 23, 2019.
The following discussion and analysis is based on our consolidated financial statements including the related notes, and should be read in conjunction with them. Our consolidated financial statements are provided in “Item 18 – Financial Statements”.
Overview
We develop, market and support a wide range of products and services for IT security by offering a multilevel security architecture that defends enterprises’ cloud, network, mobile device information and IOT 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 2019, 2018 and 2017, we derived approximately 55%, 53%, and 54%, respectively, of our sales from our ten largest channel partners. In 2019, 2018 and 2017, our two largest distributors accounted for approximately 37%, 36% and 36% of our sales, respectively. The following table presents the percentage of total consolidated revenues that we derive from sales in each of the regions shown:
29

                         
 
Year Ended December 31,
 
 
2019
 
 
*2018
 
 
*2017
 
Region:
 
 
 
 
 
 
 
 
 
Americas, principally U.S.
   
46
%    
47
%    
47
%
Europe, Middle East and Africa
   
42
%    
42
%    
41
%
Asia-Pacific
   
12
%    
11
%    
12
%
 
 
 
 
* Starting 2019, Middle East and Africa are part of the “Europe Middle East and Africa” region, while before it was part of “Asia Pacific, Middle East and Africa” region. 2018 and 2017 figures were reclassified to present the updated revenue distribution by geography.
 
 
 
 
For information on the impact of foreign currency fluctuations, please refer to “Item 11 – Quantitative and Qualitative Disclosures about Market Risk – Foreign Currency Risk”.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we make are reasonable based upon information available to us at the time that these estimates, judgments and assumptions were made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results, include the following:
  Revenue recognition (including sales reserves),
 
 
 
 
  Realizability of long-lived assets (including intangible assets),
 
 
 
 
  Accounting for income taxes,
 
 
 
 
  Allowances for doubtful accounts,
 
 
 
 
  Impairment of marketable securities; and
 
 
 
 
  Loss Contingencies.
 
 
 
 
In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed these critical accounting policies and related disclosures with the audit committee of our board of directors. You can see a summary of our significant accounting policies in Note 2 to our consolidated financial statements, as set forth in Item 18.
Revenue recognition
We derive our revenues mainly from sales of products and licenses, security subscriptions and software updates and maintenance. Our products are generally integrated with software that is essential to the functionality of the product. We sell our products primarily through channel partners including distributors, resellers, Original Equipment Manufacturers (“OEMs”), system integrators and Managed Security Service Providers (“MSPs”), all of whom are considered end users.
Security subscriptions provide customers with access to its suite of security solutions and is sold as a service.
Software updates and maintenance provide customers with rights to unspecified software product upgrades released during the term of the agreement and include maintenance services to
end-user
customers, through primarily telephone access to technical support personnel as well as hardware support services.
On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under Topic 605. As a result of this adoption, we revised our accounting policy for revenue recognition as detailed below. The new standard application had no material effect on the pattern of our revenue recognition.
30

We recognize revenues under the core principle that transfer of control to our customers should be depicted in an amount reflecting the consideration we expect to receive in revenue. Therefore, we identify a contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to each performance obligation in the contract and recognize revenues when (or as) we satisfy a performance obligation.
We recognize revenues from sales of products and licenses, under Topic 606, upon shipment when control of the promised goods is transferred to the customer, or upon electronic transfer of the Certificate Key to the customer.
We recognize revenues from security subscriptions and software updates and maintenance ratably over the term of the agreement due to the continuous transfer of control to the customer over the period.
Our arrangements typically contain multiple deliverables, such as products and licenses, security subscriptions and software updates and maintenance, which are generally capable of being distinct and accounted for as separate performance obligations. We evaluated the criteria to be distinct under Topic 606, and concluded that the products and the licenses were distinct and distinct in the context of the contract from the security subscription and the software updates and maintenance, as the customer can benefit from the products and licenses without the services and the services are separately identifiable within the arrangement. We allocate the transaction price to each performance obligation based on relative standalone selling price basis, by using the prices charged for a performance obligation when sold separately.
Deferred revenues represent mainly the unrecognized revenue billed for security subscriptions and for software updates and maintenance. Such revenues are recognized ratably over the term of the related agreement.
We recognize revenues net of estimated amounts that may be refunded for sales returns, rebates, stock rotations and other rights provided to customers on product and service related sales subject to varying limitations. We estimate and record these reductions based on our historical sales returns experience, analysis of credit memo data, rebate plans, stock rotation and other known factors. In each accounting period, we use judgments and estimates to determine potential future sales credits, returns and stock rotation, related to current period revenue. These estimates affect our “revenue” line item on our consolidated statements of income and affect our “deferred revenues” and “accrued expenses and other liabilities” on our consolidated balance sheets.
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 2019, 2018 and 2017.
Accounting for income tax
We are subject to income taxes in Israel, the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate, or upon lapse of statute of limitations. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made.
Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.
31

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.
Impairment of marketable securities
Our debt securities are classified as
available-for-sale
securities. We assess our
available-for-sale
debt 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.
Loss Contingencies
We are currently involved in various claims and legal proceedings. We review the status of each matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss.
Manufacturing Partner and Supplier Liabilities
We purchases manufactured products from its original design manufacture (“ODM”). We generally do not own the manufactured products. ODM’s provide services of design, manufacture, orders fulfillment and support with a full
turn-key
solution to meet our detailed requirements. If the actual demand is significantly lower than forecast, we records a liability for its commitment in excess of the actual demand. As of December 31, 2019 and 2018, we have not accrued any significant liability in respect with this exposure.
Recent Accounting Pronouncements
For a summary of recent accounting pronouncements applicable to our consolidated financial statements see Note 2, “Significant Accounting Policies” to the Consolidated Financial Statements included in Part III, Item 18 of this Annual Report on Form
20-F.
Results of Operations
The following table presents information concerning our results of operations in 2019 and 2018:
                 
 
Year Ended December 31,
 
 
2019
 
 
2018
 
 
(in millions)
 
Revenues:
   
     
 
Products and licenses
  $
510.8
    $
525.6
 
Security subscriptions
   
610.3
     
542.3
 
Software updates and maintenance
   
873.7
     
848.6
 
                 
Total revenues
   
1,994.8
     
1,916.5
 
                 
 
 
32

                 
 
Year Ended December 31,
 
 
2019
 
 
2018
 
 
(in millions)
 
Operating expenses(*):
   
     
 
Cost of products and licenses
   
90.7
     
92.0
 
Cost of security subscriptions
   
24.6
     
17.7
 
Cost of software updates and maintenance
   
94.5
     
88.9
 
Amortization of technology
   
5.6
     
2.8
 
                 
Total cost of revenues
   
215.4
     
201.4
 
                 
Research and development
   
239.2
     
211.5
 
Selling and marketing
   
552.7
     
500.9
 
General and administrative
   
105.7
     
88.9
 
                 
Total operating expenses
   
1,113.0
     
1,002.7
 
                 
Operating income
   
881.8
     
913.8
 
Financial income, net
   
80.6
     
65.1
 
                 
Income before taxes on income
   
962.4
     
978.9
 
Taxes on income
   
136.7
     
157.6
 
Net income
  $
825.7
    $
821.3
 
 
 
 
(*) Including
pre-tax
charges for stock-based compensation, amortization of intangible assets and acquisition related expenses in the following items:
 
 
                 
 
Year Ended December 31,
 
 
2019
 
 
2018
 
 
(in millions)
 
Amortization of intangible assets and acquisition related expenses
   
     
 
Amortization of technology
  $
5.6
    $
2.8
 
Research and development
   
6.9
     
5.8
 
Selling and marketing
   
1.8
     
3.3
 
                 
Total amortization of intangible assets and acquisition related expenses
  $
14.3
    $
11.9
 
                 
Stock-based compensation
   
     
 
Cost of products and licenses
  $
0.2
    $
0.1
 
Cost of software updates and maintenance
   
4.2
     
3.5
 
Research and development
   
18.9
     
17.6
 
Selling and marketing
   
28.8
     
20.8
 
General and administrative
   
54.6
     
47.3
 
                 
Total stock-based compensation
  $
106.7
    $
89.3
 
                 
 
 
The following table presents information concerning our results of operations as a percentage of revenues for the periods indicated:
                 
 
Year Ended December 31,
 
 
2019
 
 
2018
 
Revenues:
   
     
 
Products and licenses
   
26
%    
28
%
Security subscriptions
   
30
     
28
 
Software updates and maintenance
   
44
     
44
 
                 
Total revenues
   
100
%    
100
%
                 
 
 
33

                 
 
Year Ended December 31,
 
 
2019
 
 
2018
 
Operating expenses:
   
     
 
Cost of products and licenses
   
5
     
5
 
Cost of security subscriptions
   
1
     
1
 
Cost of software updates and maintenance
   
5
     
5
 
Amortization of technology
   
*)    
*)
                 
Total cost of revenues
   
11
     
11
 
                 
Research and development
   
12
     
10
 
Selling and marketing
   
28
     
26
 
General and administrative
   
5
     
5
 
                 
Total operating expenses
   
56
     
52
 
                 
Operating income
   
44
     
48
 
Financial income, net
   
4
     
3
 
                 
Income before taxes on income
   
48
     
51
 
Taxes on income
   
7
     
8
 
                 
Net income
   
41
     
43
 
                 
 
 
*) Less than 1%.
 
 
Revenues
We derive our revenues mainly from the sale of products and licenses, security subscriptions and software updates and maintenance. Our revenues were $1,995 million in 2019 and $1,916 million in 2018.
Total revenues in 2019 increased by 4% compared to 2018. Product and license revenues decreased by $15 million, or 3%, from $526 million in 2018 to $511 million in 2019, which was partially attributed to customer transitions to security subscriptions solutions. We continued to deliver increasingly more of our latest security offerings as subscriptions resulting in increased sales of our security subscription packages, including advance threat protection, cloud, Infinity and mobile solutions. As a result, security subscription revenues increased by $68 million, or 12%, from $542 million in 2018 to $610 million in 2019. In 2019, product and license and security subscription revenues as a percentage of total revenues were 56%, similar to 2018. Software updates and maintenance revenues increased by $25 million, or 3%, from $849 million in 2018 to $874 million in 2019, primarily as a result of renewals of existing and sales of new maintenance contracts.
Cost of Revenues
Total cost of revenues was $215 million in 2019 and $201 million in 2018. Cost of revenues includes cost of product and licenses, cost of security subscriptions and cost of software updates and maintenance and amortization of technology. Our cost of products and licenses includes mainly cost of software and hardware production, packaging and shipping. Our cost of security subscriptions is comprised of costs paid to third parties, hosting and infrastructure costs and cost of customer support related to these services. Our cost of software updates and maintenance include mainly the cost of post-sale customer support.
Cost of products and licenses was $91 million in 2019 and $92 million in 2018, and represented 18% of products and licenses revenues in 2019 and 17% in 2018.
Cost of security subscriptions was $25 million in 2019 and $18 million in 2018, and represented 4% and 3% of security subscription revenues in 2019 and 2018, respectively. The higher costs in 2019 were related to the increase in sales of security subscriptions, including sales of security subscriptions that have higher cloud based and other costs expenses.
Cost of software updates and maintenance was $95 million in 2019 and $89 million in 2018 and represented 11% and 10% of software updates and maintenance revenues in 2019 and 2018, respectively. In 2019, the $6 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 subcontractors, from 755 at the end of 2018 to 789 at the end of 2019.
In 2019 amortization of technology was $6 million compared to $3 million in 2018. The increase in 2019 is attributed to the acquisitions made during 2019 and 2018.
Research and Development
Research and development expenses were $239 million in 2019 and $212 million in 2018, and represented 12% and 10% of revenues in 2019 and 2018, respectively. 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.
34

The $27 million increase in 2019 is primarily a result of an increase in compensation and related expenses for personnel and in our cloud infrastructure expenses.
The majority of our personnel engaged in research and development are located in Israel, where compensation-related expenses are paid in Israeli Shekels, while our research and development expenses are reported in U.S. dollars. Therefore, changes to the exchange rate between the Israeli Shekel and the U.S. dollar have affected and may in the future affect our research and development expenses. We have forward contracts to hedge against a certain portion of the exposure mentioned above.
Selling and Marketing
Selling and marketing expenses consist primarily of salaries, commissions, advertising, trade shows, seminars, public relations,
co-op
activities with partners, travel and other related expenses. Selling and marketing expenses were $553 million in 2019 and $501 million in 2018, which represented 28% of revenues in 2019 and 26% of revenues in 2018. In 2019 there was an increase of $52 million. In 2019, the increase was primarily related to an increase in compensation and related expenses for personnel.
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 $106 million in 2019 and $89 million in 2018, and represented 5% of revenues in each of the years 2019 and 2018. In 2019, there was an increase of $17 million in general and administrative expenses, which related mostly to an increase in our workforce.
Operating Income Margin
We had an operating margin of 44% in 2019 and 48% in 2018. Our operating margin decreased by 4% in 2019 mainly due to continued investment in our sales force and marketing efforts.
We may experience future fluctuations or declines in operating margins from historical levels due to several factors, as described above in “Item 3 – Key Information” under the caption “Risk Factors – Risks Related to Our Business and Our Market”.
Financial Income, Net
Net financial income consists primarily of interest earned on cash equivalents and marketable securities. Net financial income was $81 million in 2019 and $65 million in 2018. 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 2019 was primarily due to an increased portfolio interest rate in 2019 compared to 2018. In 2019 and 2018 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”.
Taxes on Income
Total taxes on income were $137 million in 2019 and $158 million in 2018. Our effective tax rate was 14% in 2019 compared to 16% in 2018. The lower effective tax rate in 2019 compared to 2018 is attributed substantially to the lower provisions on uncertain tax positions and included tax benefit from lapse of statute of limitation on certain provisions. See Note 11 to our consolidated financial statements for further information on our statutory rates.
Additional details are provided in “Item 10 – Additional Information” under the caption “Israeli taxation, foreign exchange regulation and investment programs” and “Item 3 – Key Information” under the caption “The tax benefits available to us require us to meet several conditions, and may be terminated or reduced in the future, which would increase our taxes”.
Liquidity and Capital Resources
During 2019 and 2018, 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 $3,948 million as of December 31, 2019 and $4,039 million as of December 31, 2018. Our cash and cash equivalents and short-term investments were $1,580 million as of December 31, 2019 and $1,752 million as of December 31, 2018. Our long-term interest bearing investments were $2,369 million as of December 31, 2019 and $2,287 million as of December 31, 2018. Our financial assets are held and managed through the parent company in Israel and our subsidiaries in Singapore, Canada and the U.S.
35

We generated net cash from operations of $1,104 million in 2019 and $1,144 million in 2018. Net cash from operations for 2019 and 2018 consisted primarily of net income adjusted for
non-cash
activity. The decrease in our cash from operations derived mostly from the lower increase in our deferred revenues compared to 2018.
We generated net cash from investing activities of $60 million in 2019 compared to net cash used in investing activities of $330 million in 2018. In 2019, net cash generate from investing activities was primarily of proceeds related to marketable securities and lower cash paid in conjunction with acquisitions compared to 2018. Our capital expenditures amounted to $26 million in 2019 and $17 million in 2018. Our capital expenditures consisted primarily of computer equipment, software and leasehold improvements.
Net cash used in financing activities was $1,189 million in 2019 and $755 million in 2018. In 2019 and 2018, 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 2019 and 2018, we repurchased ordinary shares in the amount of $1,278 million and $1,104 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 $95 million and $354 million in 2019 and 2018, 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 and marketable securities (which aggregated $3,948 million as of December 31, 2019) 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.
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.
36

Tabular Disclosure of Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2019:
                                         
 
Payments due by period
 
 
Total
 
 
Less than 1
year
 
 
1-3
 years
 
 
4-5
 years
 
 
Over 5 years
 
 
(in millions)
 
Operating lease obligations
  $
30.9
    $
10.4
    $
12.7
    $
6.4
    $
1.4
 
Uncertain income tax positions(*)
   
393.3
     
— 
     
— 
     
— 
     
— 
 
Severance pay(**)
   
10.1
     
— 
     
— 
     
— 
     
— 
 
                                         
Total
  $
434.3
    $
10.4
    $
12.7
    $
6.4
    $
1.4
 
                                         
 
 
 
(*) 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 12g of our Consolidated Financial Statements for further information regarding our 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, $5 million is unfunded.
 
 
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors and Senior Management
Our directors and executive officers as of December 31, 2019, were as follows:
                         
Name
 
            Position                
 
Independent
Director (1)
 
Outside
Director
(2)
 
Member
of Audit
Committee
 
Member of
Compensation
Committee
 
Member of
Nominating
Committee
Gil Shwed
 
Chief Executive Officer and Director
 
 
 
 
 
Marius Nacht
 
Chairman of the Board
 
 
 
 
 
Jerry Ungerman
 
Vice Chairman of the Board
 
 
 
 
 
                         
Tal Payne
 
Chief Financial and Operations Officer
 
 
 
 
 
Dorit Dor
 
Vice President of Products
 
 
 
 
 
Dan Yerushalmi
 
Chief Customer Officer
 
 
 
 
 
Yoav Chelouche (3)
 
Director
 
 
 
 
 
Irwin Federman (3)
 
Director
 
 
 
 
 
Guy Gecht (3)
 
Director
 
 
 
 
 
Dan Propper
 
Director
 
 
 
 
 
Ray Rothrock (3)
 
Director
 
 
 
 
 
                         
Tal Shavit
 
Director
 
 
 
 
 
Shai Weiss
 
Director
 
 
 
 
 
 
 
(1) “Independent Director” under the Nasdaq Global Select Market regulations and the Israeli Companies Law (see explanation below).
 
 
(2) “Outside Director” as required by the Israeli Companies Law (see explanation below).
 
 
(3) “Financial expert” as required by the Israeli Companies Law and Nasdaq requirements with respect to membership on the audit committee (see “Item 16A – Audit Committee Financial Expert”).
 
 
37

Gil Shwed
is the founder, Chief Executive Officer and Director. Mr. Shwed served as Chairman of our board of directors until September 2015. Mr. Shwed is considered the inventor of the modern firewall and authored several patents, such as the company’s Stateful Inspection technology. Mr. Shwed has received numerous accolades for his individual achievements and industry contributions, including an honorary Doctor of Science from the Technion – Israel Institute of Technology, an honorary Doctor of Science from Tel Aviv University, the World Economic Forum’s Global Leader for Tomorrow for his commitment to public affairs and leadership in areas beyond immediate professional interests, and the Academy of Achievement’s Golden Plate Award for his innovative contribution to business and technology. Mr. Shwed is the Chairman of the Board of Trustees of the Youth University of Tel Aviv University. Mr. Shwed is a Tel Aviv University Governor and founder of the University’s Check Point Institute for Information Security. He is also Chairman of the Board of the board of directors of Yeholot Association Founded by the Rashi Foundation whose charter is, among other things, to reduce the dropout rates in high schools. In 2018, Gil was awarded the prestigious Israel Prize for his contributions to the Israeli technology industry.
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.
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. In 2019 Dr. Dor was named as one of Israel’s most influential women by Forbes Israel, for her leadership role in one of the world’s leading tech industries.
Dan Yerushalmi
, Chief Customer Officer at Check Point, manages worldwide sales field operations and engineering, channel sales and strategic technologies, focusing on customer experience. Mr. Yerushalmi has served as a
c-suite
leader in large-scale enterprises in technology, banking, and telecom. Prior to joining Check Point in 2018, he was the first Executive Vice President, group Chief Technology Officer and Chief Operations Officer of Israel’s largest Bank – Bank Leumi Ltd from 2013 to 2017. He also served as President of EMEA for Advertising and Media and Regional Vice President & Client Business Executive at Amdocs, a multinational technology corporation from 1993 to 2012. In 2016, he was named one of the leading Chief Technology Officers by CIO 100 magazine.
Yoav Z. Chelouche
has served on our board of directors since 2006. Mr. Chelouche has also served as one of our outside directors under the Israeli Companies Law since 2006. Mr. Chelouche has been Managing Partner of Aviv Venture Capital since August 2000. He serves on boards of directors of certain Aviv companies. Prior to joining Aviv Venture Capital, Mr. Chelouche served as a President and Chief Executive Officer of Scitex Corp., a world leader in digital imaging and printing systems, from December 1994 until July 2000. From August 1979 until December 1994, Mr. Chelouche held various managerial positions with Scitex, including VP Strategy and Business Development, VP Marketing and VP Finance for Europe. Mr. Chelouche is a member of the board of directors of a number of private companies. He was also a board member and until 2015
co-Chairman
of IATI-Israel Advanced Technology Industries, an Israeli nonprofit organization that researches, develops and advocates policies that promote Israel’s high tech ecosystem through activities in training, tuition, business development, public relations and public policy advocacy. Mr. Chelouche has been a board member of Tower Semiconductor Ltd. since July 2016. He was until May 2018 and again since February 2019 an external director of the Tel Aviv Stock Exchange (TASE). Mr. Chelouche earned B.A. in Economics and Statistics from Tel Aviv University, and an M.B.A. from INSEAD University in Fontainebleau, France.
38

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 served as 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 from January 2000 until October 2018. 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. In 2019, Mr. Gecht joined the board of directors for Logitech. He also 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. In 2018, Mr. Propper was appointed the Czech Republic Honorary Consul in Jerusalem.
Ray Rothrock
has served on our board of directors since 1995. Mr. Rothrock has also served as one of our outside directors under the Israeli Companies Law since 2000 and as a director under Roku, Inc. Mr. Rothrock is a Partner emeritus at Venrock, a venture capital firm, where he was a member since 1988 and a general partner since 1995. He retired from Venrock in 2013. Presently, Mr. Rothrock is the Chairman and Chief Executive Officer of RedSeal, Inc., a cybersecurity analytics company. Mr. Rothrock is a director of Nasdaq-listed Roku, Inc, and a number of private companies. Mr. Rothrock is a member of the Massachusetts Institute of Technology Corporation, and a Trustee of the University of Texas and Texas A&M Investment Management Company. Mr. Rothrock received a B.S. in Engineering from Texas A&M University, an M.S. from the Massachusetts Institute of Technology and an M.B.A. from the Harvard Business School.
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.
Shai Weiss
has served on our board of directors since 2018. Mr. Weiss is the Chief Executive Officer of Virgin Atlantic, one of the most innovative airlines in the world. Mr. Weiss joined Virgin Atlantic as Executive Vice President and Chief Financial Officer in July 2014 from Virgin Management Ltd, where he had been an Investment Partner since 2012 and was a Founding Partner of Virgin Green Fund. Prior to joining Virgin Group, he held several senior management positions at ntl:Telewest (now Virgin Media), the UK and Europe’s largest cable operator. Mr. Weiss was part of the turn-around of ntl with roles including Managing Director of Consumer Products, Director of Operations, and Director of Financial Planning for the Consumer division. Mr. Weiss was also behind the merger between Virgin Mobile UK and ntl:Telewest and the
re-brand
to Virgin Media. Prior to ntl, Mr. Weiss established the European office of early-stage technology venture fund JVP and was a senior associate with Morgan Stanley. He holds an M.B.A. degree from Columbia University and a BBA degree from City University of New York, Baruch College.
Of the individuals mentioned above, only Gil Shwed and Marius Nacht owned more than one percent of our outstanding shares as of December 31, 2019. 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.
39

The terms of Gil Shwed, Marius Nacht, Jerry Ungerman, Dan Propper, Dr. Tal Shavit and Shai Weiss will expire at our 2020 annual meeting of shareholders. The terms of Irwin Federman and Ray Rothrock will expire at our 2020 annual meeting of shareholders, and the terms of Yoav Chelouche and Guy Gecht will expire at our 2021 annual meeting of shareholders.
There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any of the directors or members of senior management are elected.
Compensation of Directors and Officers
The total direct cash compensation that we accrued for our directors and executive officers as a group including a director and an executive officer who left the company during 2019 was approximately $2.68 million for the year ended December 31, 2019. These amounts include $0.17 million that were set aside or accrued to provide for severance and retirement insurance policies in 2019. These amounts do not include amounts accrued for expenses related to business travel, professional and business association dues and other business expenses reimbursed to officers. We do not have any agreements with our director who is also an officer that provide for benefits upon termination of employment, except for severance payments mandated by Israeli law for all employees employed in Israel.
Following is a summary of the salary and benefits paid in 2019 (i) to our five most highly compensated executive officers as of the date of this Annual Report (referred to as the “Covered Executives”) and (ii) to our
non-executive
directors.
Cash Compensation
Mr. Gil Shwed, Chief Executive Officer and Director.
Cash compensation expenses recorded in 2019 consisted of $16.96 thousands in salary expenses, and $12.56 thousands in benefit costs. Mr. Shwed requested to forego his salary and bonus for 2019, 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 2019, and did not receive any cash compensation for 2019 except for an amount equal to the minimum wage required under Israeli law.
Dr. Dorit Dor, Vice President, Products.
Compensation expenses recorded in 2019 included $382.39 thousands in salary expenses and $93.42 thousands in benefit costs.
Ms. Tal Payne, Chief Financial Officer & Chief Operating Officer.
Compensation expenses recorded in 2019 included $434.53 thousands in salary expenses and $105.52 thousands in benefit costs.
Ms. Miryam Steinitz, Head of Human Resources
. Compensation expenses recorded in 2019 included $260.72 thousands in salary expenses and $66.61 thousands in benefit costs.
Mr. Dan Yerushalmi, Chief Customer Officer
. Compensation expenses recorded in 2019 included $382.39 thousands in salary expenses and $93.11 thousands in benefit costs.
The salary expenses summarized above include the gross salary paid to the Covered Executives, and the benefit costs include the social benefits paid by us on behalf of the Covered Executives, including convalescence pay, contributions made by the company to an insurance policy or a pension fund, work disability insurance, severance, educational fund and payments for social security. We do not lease vehicles for our Covered Executives.
In accordance with the company’s executive compensation policy, we also paid cash bonuses upon compliance with predetermined 2019 performance parameters set by the Compensation Committee and the Board of Directors. The 2019 cash bonus expenses for Dr. Dor, Ms. Payne, Ms. Steinitz and Mr. Yerushalmi were $288.2 thousands, $394.7 thousands, $105.2 thousands and $233.8 thousands, respectively. As noted above, Mr. Shwed did not receive a cash bonus for 2019. The cash compensation amounts paid 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 $40.0 thousands for the services provided to our board of directors and an annual cash retainer of $7.5 thousands for each committee membership. In addition, we pay the chair of our audit committee an annual cash retainer of $7.5 thousands and the chair of each of our nominating committee and compensation committee an annual cash retainer of $2.5 thousands. Only directors who are not officers receive compensation for serving as directors.
40

Equity-based Compensation
From time to time, we grant options and other awards under our equity incentive plans (described below) to our executive officers and directors. See Item 10 “Additional Information – Compensation of Executive Officers and Directors; Executive Compensation Policy” for a detailed description of the approval procedures we follow in compensating our directors and executive officers.
Our
non-employee
directors receive an automatic option grant and are also eligible for discretionary awards under the plans. Each
non-employee
director who is first elected or appointed to the board of directors is granted an option to purchase 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.
On June 19, 2019, following the approval of our Compensation Committee, Board of Directors and the company’s shareholders at the 2019 Annual General Meeting, we granted Mr. Gil Shwed, our Chief Executive Officer and Director, 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 gradually over a period of four years.
During 2019, we granted our executive officers and directors options to purchase an aggregate of approximately 1.9 million shares and approximately 39,688 RSUs under our equity incentive plans. The exercise price of these options range between
$114.23-$115.9,
and their expiration dates range between February 2026 and June 2026.