The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying
notes are an integral part of the consolidated financial statements.
(*) Payments related to shares withheld for taxes during the year ended December 31, 2016 were
reclassified from operating activity to financing activity following ASU
2016-09
adoption.
The
accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
|
a.
|
Check Point Software Technologies Ltd., an Israeli corporation (Check Point Ltd.), and
subsidiaries (collectively, the Company or Check Point), develop, market and support wide range of products and services for IT security, by offering a multilevel security architecture that defends enterprises cloud,
network and mobile device held information.
|
|
|
The Company operates in one operating and reportable segment and its revenues are mainly derived from the
sales of its network and data security products, including licenses, related software updates, maintenance and security subscriptions. The Company sells its products worldwide primarily through multiple distribution channels (channel
partners), including distributors, resellers, system integrators, Original Equipment Manufacturers (OEMs) and Managed Security Service Providers (MSPs).
|
|
b.
|
During 2018, 2017 and 2016, approximately 36%, 36% and 37% of the Companys revenues were derived from
two channel partners. Revenues derived from one channel partner in 2018, 2017 and 2016 were 17%, 18% and 19%, respectively, and revenues derived from the other channel partner in 2018, 2017 and 2016 were 18%, 18%, and 18%, respectively, of the
Companys revenues in such years. Trade receivable balances from these two channel partners aggregated to $ 207,938 and $ 189,236 as of December 31, 2018 and 2017, respectively.
|
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES
|
The consolidated financial statements are prepared in conformity with United States generally accepted
accounting principles (U.S. GAAP).
|
|
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to
make estimates, judgments and assumptions. The Companys management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and
assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
|
|
b.
|
Financial statements in United States dollars:
|
|
|
Most of the Companys revenues and costs are denominated in United States dollar (dollar).
The Companys management believes that the dollar is the primary currency of the economic environment in which Check Point Ltd. and each of its subsidiaries operate. Thus, the dollar is the Companys functional and reporting currency.
|
F-12
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
Accordingly,
non-dollar
denominated transactions and balances have
been
re-measured
into the functional currency in accordance with Accounting Standard Code (ASC) No. 830, Foreign Currency Matters. All transaction gains and losses from the
re-measured
monetary balance sheet items are reflected in the statements of income as financial income or expenses, as appropriate.
|
|
c.
|
Principles of consolidation:
|
|
|
The consolidated financial statements include the accounts of Check Point Ltd. and subsidiaries.
Intercompany transactions and balances have been eliminated upon consolidation.
|
|
|
Cash equivalents are short-term unrestricted highly liquid investments that are readily convertible to cash
and with original maturities of three months or less at acquisition.
|
|
e.
|
Short-term bank deposits:
|
|
|
Bank deposits with maturities of more than three months at acquisition but less than one year are included
in short-term bank deposits. Such deposits are stated at cost which approximates fair values.
|
|
f.
|
Investments in marketable securities:
|
|
|
The Company accounts for investments in marketable securities in accordance with ASC No. 320,
Investments - Debt and Equity Securities.
|
|
|
Management determines the appropriate classification of its investments at the time of purchase and
reevaluates such determinations at each balance sheet date.
|
|
|
The Company classifies all of its marketable securities as
available-for-sale.
Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net of tax,
reported in accumulated other comprehensive income (loss) in shareholders equity. Realized gains and losses on sale of investments are included in financial income, net and are derived using the specific identification method for determining
the cost of securities sold.
|
|
|
The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization together with interest on securities is included in financial income, net.
|
F-13
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Companys securities are reviewed for impairment in accordance with
ASC
320-10-35.
If such assets are considered to be impaired, the impairment charge is recognized in earnings when a decline in the fair value of its investments below
the cost basis is judged to be other-than-temporary. Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period and the Companys
intent to sell, including whether it is more likely than not that the Company will be required to sell the investment before recovery of cost basis. For securities with an unrealized loss that the Company intends to sell, or it is more likely than
not that the Company will be required to sell before recovery of their amortized cost basis, the entire difference between amortized cost and fair value is recognized in earnings. For securities that do not meet these criteria, the amount of
impairment recognized in earnings is limited to the amount related to credit losses, while declines in fair value related to other factors are recognized in other comprehensive income (loss).
|
g.
|
Property and equipment, net:
|
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets at the following annual rates:
|
|
|
|
|
%
|
|
|
Computers and peripheral equipment
|
|
33 - 50
|
Office furniture and equipment
|
|
10 - 20
|
Building
|
|
4
|
Leasehold improvements
|
|
The shorter of term of the lease or the useful life of the asset
|
The Company applies the provisions of ASC 805, Business Combination and allocates the fair value of purchase
consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and
liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing
certain intangible assets include, but are not limited to future expected cash flows from acquired technology and acquired trademarks and tradenames from a market participant perspective, useful lives and discount rates. Managements estimates
of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
F-14
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Goodwill has been recorded as a result of acquisitions. Goodwill represents the excess of the purchase price in a business
combination over the fair value of identifiable net tangible and intangible assets acquired. Goodwill is not amortized, but rather is subject to an impairment test.
ASC No. 350, Intangibles - Goodwill and other (ASC No. 350) requires goodwill to be tested
for impairment at the reporting unit level at least annually or between annual tests in certain circumstances, and written down when impaired.
ASC No. 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the
two-step
quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required. If it does result in a
more likely than not indication of impairment, the
two-step
impairment test is performed. Alternatively, ASC No. 350 permits an entity to bypass the qualitative assessment for any reporting unit and
proceed directly to performing the first step of the goodwill impairment test.
The Company operates in one operating
segment, and this segment comprises its only reporting unit. The Company performs the first step of the quantitative goodwill impairment test during the fourth quarter of each fiscal year, or more frequently if impairment indicators are present and
compares the fair value of the reporting unit with its carrying value.
During the years 2018, 2017 and 2016, no
impairment losses have been identified.
|
j.
|
Other intangible assets, net:
|
Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives,
which range from 8 to 20 years. These intangible assets consist of core technology, trademarks and trade names which are amortized over their estimated useful lives on a straight-line basis.
|
k.
|
Impairment of long-lived assets including intangible assets subject to amortization:
|
The Companys long-lived assets are reviewed for impairment in accordance with ASC No. 360, Property, Plant
and Equipment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to
the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of
the assets. During the years 2018, 2017 and 2016, no impairment indicators have been identified.
F-15
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
l.
|
Manufacturing partner and supplier liabilities:
|
The Company purchases manufactured products from its original design manufacture (ODM). The Company
generally does not own the manufactured products. ODMs provide services of design, manufacture, orders fulfillment and support with a full
turn-key
solution to meet the Companys detailed
requirements. If the actual demand is significantly lower than forecast, the Company records a liability for its commitment in excess of the actual demand. As of December 31, 2018 and 2017, the Company has not accrued any significant liability
in respect with this exposure.
|
m.
|
Research and development costs:
|
Research and development costs are charged to the statements of income as incurred. ASC
No. 985-20,
Software - Costs of Software to Be Sold, Leased, or Marketed, requires capitalization of certain software development costs subsequent to the establishment of technological
feasibility.
Based on the Companys product development process, technological feasibility is established upon
completion of a working model. Costs incurred by the Company between completion of the working models and the point at which the products are ready for general release, have been insignificant. Therefore, all research and development costs are
expensed as incurred.
The Company derives its revenues mainly from sales of products and licenses, security subscriptions and software updates and
maintenance. The Companys products are generally integrated with software that is essential to the functionality of the product. The Company sells its products primarily through channel partners including distributors, resellers, OEMs
(Original Equipment Manufacturers), system integrators and MSPs (Managed Service Providers), all of whom are considered
end-users.
The Companys security subscriptions provide customers with access to its suite of security solutions and is sold as a
service.
The Companys 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.
The Company recognizes revenues in accordance with ASC No. 606, Revenue from Contracts with
Customers. As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and
recognizes revenues when (or as) the Company satisfies a performance obligation.
F-16
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Revenues from sales of products and licenses are recognized upon shipment
when control of the promised goods is transferred to the customer, or upon electronic transfer of the Certificate Key to the Customer. Revenues from security subscriptions and from software updates and maintenance are recognized ratably over the
term of the agreement.
The Companys arrangements typically contain various combinations of its products and
licenses, security subscriptions and software updates and maintenance, which are distinct and are accounted for as a separate performance obligations. The Company allocates the transaction price to each performance obligation based on its relative
standalone selling price 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. The amount of revenues recognized in the period that
was included in the opening deferred revenues balance was $ 878,538 for the year ended December 31, 2018.
Revenue expected to be recognized from remaining performance obligations was $ 1,557,552 as of December 31, 2018, of
which the Company expects to recognize approximately $ 1,069,938 over the next 12 months and the remainder thereafter.
The Company records a provision for estimated sales returns, rebates, stock rotations and other rights provided to customers
on product and services based on historical sales returns, analysis of credit memo data, rebate plans, stock rotation arrangements and other known factors. This provision is accounted for as variable consideration that is deducted from revenue in
the period in which the revenue is recognized. Such provision amounted to $ 8,491 as of December 31, 2018 and is included in accrued expenses and other current liabilities in the consolidated balance sheet. Under Topic 605, the provision of $
8,978 as of December 31, 2017 was presented as a reduction to trade receivables.
Sales commissions earned by
the Companys sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized over a period of benefit which is typically over the term of the customer contracts
as initial commission rates are commensurate with the renewal commission rates. Amortization expense is included in sales and marketing expenses in the accompanying consolidated statements of income. If the amortization period of those costs is one
year or less, the costs are expensed as incurred. As of December 31, 2018 the amount of deferred commission was $22,623 and included in other long term assets.
For information regarding disaggregated revenues, please refer to Note 15 below.
F-17
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Cost of products and licenses is comprised of cost of software and hardware production, manuals, packaging and shipping.
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.
Cost of software updates and maintenance is mainly comprised of cost of
post-sale customer support.
Amortization of technology is comprised of amortization of core technology assets which are
used in the Companys operations, and is presented separately as part of cost of revenues.
The Companys liability for severance pay for periods prior to January 1, 2007, is calculated pursuant to Israeli
severance pay law based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date. The Company recorded as expenses the increase in the severance liability, net of earnings (losses) from
the related investment fund. Employees were entitled to one months salary for each year of employment, or a portion thereof. Until January 1, 2007, the Companys liability was partially funded by monthly payments deposited with
insurers; any unfunded amounts are covered by a provision established by the Company.
The carrying value of deposited
funds in respect to the severance liability for services prior to January 1, 2007, includes profits (losses) accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to
Israeli severance pay law or labor agreements.
Effective January 1, 2007, the Companys agreements with
employees in Israel, are under Section 14 of the Severance Pay Law, 1963. The Companys contributions for severance pay have extinguished its severance obligation. Upon contribution of the full amount based on the employees monthly
salary for each year of service, no additional obligation exists regarding the matter of severance pay and no additional payments is made by the Company to the employee. Further, the related obligation and amounts deposited on behalf of the employee
for such obligation are not stated on the balance sheet, as the Company is legally released from the obligation to employees once the required deposit amounts have been paid.
Severance expenses for the years ended December 31, 2018, 2017 and 2016, were $ 11,267, $ 10,180 and $ 8,165
respectively.
F-18
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
q.
|
Employee benefit plan:
|
The Company has a 401(K) defined contribution plan covering certain employees in the U.S. All eligible employees may elect to
contribute up to 50%, but generally not greater than $ 18.5 per year (and an additional amount of $ 6 for employees aged 50 and over), of their annual compensation to the plan through salary deferrals, subject to statutory limits. The
Company matches 50% of employee contributions to the plan up to a limit of 6% of their eligible compensation. In 2018, 2017 and 2016, the Companys matching contribution to the plan amounted to $ 4,163, $ 3,613 and $ 2,290 respectively.
The Company accounts for income taxes in accordance with ASC No. 740, Income Taxes (ASC
No. 740). ASC No. 740 prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined for temporary differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to amounts more likely than not to be
realized. The Company accrues interest and indexation related to unrecognized tax benefits on its taxes on income.
ASC
No. 740 contains a
two-step
approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by
determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation
processes.
The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative basis)
likely to be realized upon ultimate settlement. The Company classifies interest related to unrecognized tax benefits in taxes on income.
Advertising costs are expensed as incurred. Advertising expenses for the years ended December 31, 2018, 2017 and 2016,
were $ 3,106, $ 1,764 and $ 3,127 respectively.
|
t.
|
Concentrations of credit risk:
|
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and
cash equivalents, short-term bank deposits, marketable securities, trade receivables and foreign currency derivative contracts.
F-19
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The majority of the Companys cash and cash equivalents and short-term
bank deposits are deposited in major banks in the U.S., Israel and Europe. Deposits in the U.S. may be in excess of insured limits and are not insured in other jurisdictions. Generally, these deposits may be withdrawn upon demand and therefore bear
low risk. Marketable securities are held mainly by Check Point Ltd., the Companys Singaporean subsidiary, Canadian subsidiary and the U.S. subsidiary, and are invested in securities denominated in U.S. dollar.
The Companys marketable securities consist of investments in government, corporate and government sponsored enterprises
debentures. The Companys investment policy, approved by the Board of Directors, limits the amount that the Company may invest in any one type of investment or issuer, thereby reducing credit risk concentrations.
The Companys trade receivables are geographically dispersed and derived from sales to channel partners mainly in the
United States, Europe and Asia. Concentration of credit risk with respect to trade receivables is limited by credit limits, ongoing credit evaluation and account monitoring procedures. The Company performs ongoing credit evaluations of its channel
partners and establishes an allowance for doubtful accounts based on factors that may affect a customers ability to pay, such as known disputes, age of the receivable balance and past experience. Allowance for doubtful accounts amounted to
$ 1,033 and $ 1,911 as of December 31, 2018 and 2017, respectively. The Company writes off receivables when they are deemed uncollectible, having exhausted all collection efforts. Actual collection experience may not meet expectations
and may result in increased bad debt expense. Bad debt expense (income) amounted to $ (878), $ (344) and $ 154 in 2018, 2017 and 2016, respectively. Total write offs during 2018, 2017 and 2016 amounted to $ 627, $ 29 and $ 0, respectively.
|
u.
|
Derivatives and hedging:
|
The Company accounts for derivatives and hedging based on ASC No. 815, Derivatives and Hedging (ASC
No. 815). ASC No. 815 requires the Company to recognize all derivatives on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship, as well as the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument,
based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. If the derivatives meet the definition of a hedge and are designated as such, depending on the nature of the hedge,
changes in the fair value of such derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in accumulated other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivatives change in fair value is recognized in financial income, net.
F-20
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company entered into forward contracts to hedge the fair value of assets
and liabilities denominated in several foreign currencies. As of December 31, 2018 and 2017, the Company had outstanding forward contracts that did not meet the requirement for hedge accounting, in the notional amount of $ 337,498 and $
338,053, respectively. The Company measured the fair value of the contracts in accordance with ASC No. 820, Fair Value Measurement (ASC No. 820) (classified as level 2 of the fair value hierarchy). The net gains
(losses) resulting from these forward contracts recognized in financial income, net during 2018, 2017 and 2016 were $ (33,330), $ 25,086, and $ 1,822, respectively. The fair value of the Companys outstanding forward contracts at
December 31, 2018 and 2017 amounted to liabilities of $ 45 and $ 107, respectively.
The Company entered into
forward contracts to hedge against the risk of overall changes in future cash flow from payments of payroll and related expenses denominated in New Israeli Shekel and in Euro. As of December 31, 2018 and 2017, the Company had outstanding
forward contracts in the notional amount of $ 112,053 and $ 7,354, respectively. These contracts were for a period of up to twelve months. The Company measured the fair value of the contracts in accordance with ASC No. 820 (classified as level
2 of the fair value hierarchy). These contracts met the requirement for cash flow hedge accounting and, as such, gains (losses) on the contracts are recognized initially as component of Accumulated Other Comprehensive Income in the balance sheet and
reclassified to the statement of income in the period the related hedged items affect earnings. Any gains or losses related to the ineffective portion of cash flow hedges are recorded immediately in financial income, net in the consolidated
statements of income. During 2018, 2017 and 2016 gains (losses) in the amount of $ (4,637), $ 4,655 and $ 120, respectively, were reclassified when the related expenses were incurred and recognized in operating expenses. The fair value of the
Companys outstanding forward contracts at December 31, 2018 and 2017 amounted to $ (801) and $ 267, respectively, and are included in accrued expenses and other current liabilities and prepaid expenses and other current assets on the
balance sheets.
|
v.
|
Basic and diluted earnings per share:
|
Basic earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year.
Diluted earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year, plus dilutive potential ordinary shares outstanding during the year, in accordance with ASC No. 260, Earnings
Per Share.
The total weighted average number of shares related to the outstanding options excluded from the
calculations of diluted earnings per share, since it would have an anti-dilutive effect, was 3,235,080, 1,640,329 and 4,232,063 for 2018, 2017 and 2016, respectively.
F-21
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
w.
|
Accounting for stock-based compensation:
|
The Company accounts for stock-based compensation in accordance with ASC No. 718, Compensation-Stock
Compensation (ASC No. 718). ASC No. 718 requires companies to estimate the fair value of equity-based payment awards on the grant date using an option-pricing model.
The Company recognizes compensation expenses for the value of awards granted, based on the straight line method for service
based awards and based on the accelerated method for performance-based awards. Compensation expense is recognized over the requisite service period of the awards. The Company recognizes forfeitures of awards as they occur.
The Company selected the Black-Scholes-Merton option pricing model as the most appropriate model for determining the fair
value for its stock options awards and Employee Stock Purchase Plan, whereas the fair value of restricted stock units is based on the closing market value of the underlying shares at the date of grant. The option-pricing model requires a number of
assumptions, the most significant of which are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon actual historical stock price movements over the most recent periods ending on the grant
date, equal to the expected term of the options. The expected term of options granted is based upon historical experience and represents the period of time between when the options are granted and when they are expected to be exercised. The
risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term to the expected term of the options. The Company has historically not paid dividends and has no plans to pay dividends in the foreseeable future.
The fair value of options granted and Employee Stock Purchase Plan in 2018, 2017 and 2016 is estimated at the date of grant
using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
Employee Stock Options
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
Expected volatility
|
|
21.98%
|
|
22.20%
|
|
22.23%
|
Risk-free interest rate
|
|
2.67%
|
|
1.71%
|
|
1.07%
|
Dividend yield
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
Expected term (years)
|
|
5.13
|
|
4.76
|
|
4.65
|
|
|
|
|
Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
22.88%
|
|
18.21%
|
|
23.24%
|
Risk-free interest rate
|
|
1.07%
|
|
0.50%
|
|
0.16%
|
Dividend yield
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
Expected term (years)
|
|
0.5
|
|
0.5
|
|
0.5
|
F-22
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
On January 1, 2017, the Company adopted Financial Accounting Standards
Board (FASB) Accounting Standards Update
(ASU) No. 2016-09 (Topic 718)
CompensationStock Compensation: Improvements to Employee Stock-Based Payment Accounting,
which simplifies several aspects of the accounting for stock-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, forfeiture, statutory tax withholding requirements, and
classification on the statement of cash flows.
The impact of the adoption on the Companys Consolidated Financial
Statements was as follows:
Forfeitures: The Company elected to change its accounting policy and account for forfeitures
as they occur using a modified retrospective transition method, rather than estimating forfeitures, resulting in a cumulative-effect net of tax adjustment of $2,149, which decreased the January 1, 2017 opening retained earnings balance on
the Consolidated Balance Sheets.
Income tax accounting:
ASU 2016-09 also
eliminates the requirement that excess tax benefits be realized as a reduction in current taxes payable before the associated tax benefit can be recognized as an increase in paid in
capital. Following
ASU 2016-09 adoption,
the Company recorded excess tax benefits and tax deficiencies related to stock-based compensation as income tax benefit or expense in the statement of income
prospectively when share-based awards vest or are settled. Upon adoption, the Company recognized the previously unrecognized excess tax benefits using the modified retrospective transition method, which resulted in a cumulative-effect of $86,132,
which increased the January 1, 2017 opening retained earnings.
Cash flow presentation of excess tax benefits: The
Company is required to classify excess tax benefits along with other income tax cash flows as an operating activity either prospectively or retrospectively. The Company elected to apply the change in presentation to the statements of cash flows
prospectively from January 1, 2017. Prior periods have not been adjusted and are classified as financing activity.
Cash flow presentation of employee taxes paid: The Company is required to classify as a financing activity in its statement
of cash flows the cash paid to a tax authority when shares are withheld to satisfy the employers statutory income tax withholding obligation. The Company was required to apply the change in presentation to the statements of cash flows
retrospectively and no longer classify the payments related to shares withheld for taxes as an operating activity.
F-23
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
x.
|
Fair value of financial instruments:
|
The Company measures its investments in money market funds (classified as cash equivalents), marketable securities and its
foreign currency derivative contracts at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A three-tier
fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
|
Level 1 -
|
Valuations based on quoted prices in active markets for identical assets that the Company has the ability to
access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
|
|
Level 2 -
|
Valuations based on one or more quoted prices in markets that are not active or for which all significant
inputs are observable, either directly or indirectly.
|
|
Level 3 -
|
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.
The Company accounts for comprehensive income in accordance with ASC No. 220, Comprehensive Income.
Comprehensive income generally represents all changes in shareholders equity during the period except those resulting from investments by, or distributions to, shareholders. The Company determined that its items of other comprehensive income
relate to gains and losses on hedging derivative instruments and unrealized gains and losses on
available-for-sale
marketable securities.
F-24
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The following table shows the components of accumulated other comprehensive
income (loss), net of taxes, for the year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018
|
|
|
Unrealized
gains (losses)
on marketable
securities
|
|
Unrealized
gains (losses)
on cash flow
hedges
|
|
Total
|
|
|
|
|
Beginning balance
|
|
$
|
(15,719
|
)
|
|
$
|
85
|
|
|
$
|
(15,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
|
|
(9,757
|
)
|
|
|
(4,574
|
)
|
|
|
(14,331
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
*) 1,387
|
|
|
|
**) 4,081
|
|
|
|
5,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive loss
|
|
|
(8,370
|
)
|
|
|
(493
|
)
|
|
|
(8,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(24,089
|
)
|
|
$
|
(408
|
)
|
|
$
|
(24,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*)
|
The reclassification out of accumulated other comprehensive income during the year ended December 31,
2018 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,
2018 for realized gains on cash flow hedges are included mostly within research and development expenses as well as other operating expenses.
|
The Company repurchases its ordinary shares from time to time on the open market and holds such shares as treasury shares.
The Company presents the cost to repurchase treasury stock as a separate component of shareholders equity.
The
Company reissues treasury shares under the stock purchase plan, upon exercise of options and upon vesting of restricted stock units. Reissuance of treasury shares is accounted for in accordance with ASC
No. 505-30
whereby gains are credited to additional
paid-in
capital and losses are charged to additional
paid-in
capital to
the extent that previous net gains are included therein; otherwise to retained earnings.
The Company is currently involved in various claims and legal proceedings. The Company reviews the status of each matter and
assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.
F-25
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
ab.
|
Impact of recently issued accounting standards:
|
The Company adopted Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), effective as of
January 1, 2018, using the modified retrospective transition method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The main change related to incremental costs to obtain customer contracts, which primarily consist of sales commissions, due
to the longer period of amortization. Under the previous accounting guidance, these costs were expensed as incurred. Under the new standard these costs are deferred and then amortized over a period of benefit which is typically over the term of the
customer contracts as initial commission rates and renewal rates are the same.
The cumulative effects of the changes
made to the Companys consolidated balance sheet as of January 1, 2018 for the adoption of Topic 606 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2017
|
|
|
Adjustments
due to Topic 606
|
|
|
Balance at
January 1, 2018
|
|
Other Assets
|
|
|
33,575
|
|
|
|
25,488
|
|
|
|
59,063
|
|
Deferred tax asset, net
|
|
|
119,431
|
|
|
|
(6,372)
|
|
|
|
113,059
|
|
Retained earnings
|
|
|
8,203,035
|
|
|
|
19,116
|
|
|
|
8,222,151
|
|
F-26
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company adopted Accounting Standards Update
No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers Other than Inventory (ASU
2016-16),
which requires the recognition of the income tax consequences of an
intra-entity transfer of an asset, other than inventory, when the transfer occurs. The adoption resulted in a cumulative-effect of $ 442, which decreased the Companys retained earnings.
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
No. 2016-02
(Topic 842) Leases. Topic 842 supersedes the lease requirements in Accounting Standards Codification (ASC) Topic 840, Leases. Under Topic 842, lessees are required to
recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. This ASU is effective for annual periods beginning after December 15,
2018. The provisions of ASU
2016-02
are to be applied using a modified retrospective approach. In July 2018, the FASB issued Accounting Standards Update
2018-11,
Leases
(Topic 842). This update provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this method, an entity initially applies the new leases standard at the adoption date and recognizes a
cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the prior comparative periods financials will remain the same as those previously presented.
The Company has elected to apply the guidance at the beginning of the period of adoption and not restate comparative periods.
In addition, the Company elected the available practical expedients on adoption.
The Company expects to record
right-of-use
leased assets and corresponding liabilities of approximately $27,000 on January 1, 2019.
In June 2016, the FASB issued Accounting Standards Update No.
2016-13
(ASU
2016-13)
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which requires the measurement and recognition of expected credit losses for financial
assets held at amortized cost. ASU
2016-13
replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU
2016-13
is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. The Company does not expect that this new guidance will have a material impact on the
Companys Consolidated Financial Statements
F-27
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
In January 2017, the FASB issued Accounting Standards Update
No. 2017-04
(ASU
2017-04)
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU
2017-04
eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the
amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. ASU
2017-04
is effective for annual or interim goodwill impairment tests performed
in fiscal years beginning after December 15, 2019; early adoption is permitted. The Company does not expect that this new guidance will have a material impact on the Companys consolidated financial statements.
In August 2017, the FASB issued ASU
No. 2017-12
(Topic 815) Derivatives and
Hedging Targeted Improvements to Accounting for Hedging Activities, which expands an entitys ability to hedge financial and nonfinancial risk components and amends how companies assess effectiveness as well as changes the presentation
and disclosure requirements. The new standard is to be applied on a modified retrospective basis and is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company is currently
evaluating the impact of adoption on the consolidated financial statements.
In June 2018, FASB issued ASU
2018-07
to expand the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for
fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company does not expect that this new guidance will have a material impact on the Companys Consolidated
Financial Statements.
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update
2018-15,
Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (ASU
2018-15).
The amendments in ASU
2018-15
provide guidance to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is
a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use
software (and hosting arrangements that include an
internal-use
software license). The new guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is still evaluating the effect that this guidance
will have on the Companys consolidated financial statements.
F-28
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
On October 23, 2018, the Company completed the
acquisition of all outstanding shares of Dome9 Security Ltd, a privately-held Israeli-based company and its wholly-owned subsidiary in the United States. Under the acquisition method of accounting, the purchase price was allocated to tangible and
intangible assets acquired and liabilities assumed based on their respective fair values. In addition, the transaction included additional consideration related to compensation for post combination services which was recorded as prepaid expenses and
other long term assets and will be recognized over the requisite service period.
The Company accounted for this
transaction as a business combination and allocated the purchase consideration to assets acquired and liabilities assumed based on their estimated fair values, as presented in the following table:
|
|
|
|
|
|
|
Amount
|
Goodwill
|
|
$
|
138,560
|
|
Core technology
|
|
|
26,958
|
|
Net liabilities assumed
|
|
|
(4,498)
|
|
|
|
|
|
|
Total
|
|
$
|
161,020
|
|
|
|
|
|
|
NOTE 4:-
|
MARKETABLE SECURITIES
|
Marketable securities with contractual maturities of up to one year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
|
Government and corporate debentures - fixed interest rate
|
|
$1,203,258
|
|
$
|
9
|
|
|
$(5,017)
|
|
$1,198,249
|
|
$
|
1,026,555
|
|
|
$
|
48
|
|
|
$
|
(1,698
|
)
|
|
$
|
1,024,905
|
|
Government-sponsored enterprises debentures
|
|
231,699
|
|
|
6
|
|
|
(1,200)
|
|
230,505
|
|
|
112,951
|
|
|
|
1
|
|
|
|
(275
|
)
|
|
|
112,677
|
|
Government and corporate debentures - floating interest rate
|
|
13,902
|
|
|
-
|
|
|
(15)
|
|
13,887
|
|
|
27,681
|
|
|
|
14
|
|
|
|
(11
|
)
|
|
|
27,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1,448,859
|
|
$
|
15
|
|
|
$(6,232)
|
|
$1,442,642
|
|
$
|
1,167,187
|
|
|
$
|
63
|
|
|
$
|
(1,984
|
)
|
|
$
|
1,165,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 4:-
|
MARKETABLE SECURITIES (Cont.)
|
Marketable securities with contractual maturities of over one year through
five years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
Government and corporate
debentures - fixed interest
rate
|
|
|
$1,819,541
|
|
|
|
$1,089
|
|
|
|
$(21,630)
|
|
|
|
$1,799,001
|
|
|
$
|
1,985,849
|
|
|
$
|
384
|
|
|
$
|
(15,204
|
)
|
|
$
|
1,971,029
|
|
Government-sponsored
enterprises debentures
|
|
|
383,190
|
|
|
|
278
|
|
|
|
(4,092
|
)
|
|
|
379,376
|
|
|
|
424,619
|
|
|
|
-
|
|
|
|
(4,687
|
)
|
|
|
419,932
|
|
Government and corporate debentures - floating interest
rate
|
|
|
109,878
|
|
|
|
1
|
|
|
|
(910
|
)
|
|
|
108,969
|
|
|
|
46,247
|
|
|
|
134
|
|
|
|
(27
|
)
|
|
|
46,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,312,609
|
|
|
$
|
1,368
|
|
|
$
|
(26,632
|
)
|
|
$
|
2,287,345
|
|
|
$
|
2,456,715
|
|
|
$
|
518
|
|
|
$
|
(19,918
|
)
|
|
$
|
2,437,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments with continuous unrealized losses for less than 12 months and 12 months or
greater and their related fair values were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Less than 12 months
|
|
12 months or greater
|
|
Total
|
|
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
Government and corporate
debentures - fixed interest rate
|
|
$
|
807,274
|
|
|
$
|
(4,369
|
)
|
|
$
|
1,852,625
|
|
|
$
|
(22,278
|
)
|
|
$
|
2,659,899
|
|
|
$
|
(26,647
|
)
|
Government-sponsored
enterprises debentures
|
|
|
40,213
|
|
|
|
(79
|
)
|
|
|
429,101
|
|
|
|
(5,213
|
)
|
|
|
469,315
|
|
|
|
(5,292
|
)
|
Government and corporate
debentures - floating interest
rate
|
|
|
115,511
|
|
|
|
(917
|
)
|
|
|
5,380
|
|
|
|
(7
|
)
|
|
|
120,892
|
|
|
|
(925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
962,999
|
|
|
$
|
(5,366
|
)
|
|
$
|
2,287,106
|
|
|
$
|
(27,498
|
)
|
|
$
|
3,250,06
|
|
|
$
|
(32,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Less than 12 months
|
|
12 months or greater
|
|
Total
|
|
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
Government and corporate
debentures - fixed interest rate
|
|
$
|
1,647,125
|
|
|
$
|
(7,318
|
)
|
|
$
|
1,063,690
|
|
|
$
|
(9,585
|
)
|
|
$
|
2,710,815
|
|
|
$
|
(16,903
|
)
|
Government-sponsored
enterprises debentures
|
|
|
236,403
|
|
|
|
(1,281
|
)
|
|
|
294,986
|
|
|
|
(3,681
|
)
|
|
|
531,389
|
|
|
|
(4,962
|
)
|
Government and corporate
debentures - floating interest
rate
|
|
|
27,810
|
|
|
|
(37
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
27,810
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,911,338
|
|
|
$
|
(8,636
|
)
|
|
$
|
1,358,676
|
|
|
$
|
(13,266
|
)
|
|
$
|
3,270,014
|
|
|
$
|
(21,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018 and 2017, interest receivable amounted to $ 22,940 and $
19,871, respectively, and is included within prepaid expenses and other current assets in the balance sheets.
NOTE 5:-
|
FAIR VALUE MEASUREMENTS
|
F-30
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
In accordance with ASC No. 820, the Company measures its money market
funds, marketable securities and foreign currency derivative contracts at fair value. Money market funds and marketable securities are classified within Level 1 or Level 2. This is because these assets are valued using quoted market prices
or alternative pricing sources and models utilizing market observable inputs. Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar
instruments.
The Companys financial assets measured at fair value on a recurring basis, excluding accrued interest
components, consisted of the following types of instruments as of the following dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Fair value measurements using input type
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
50,230
|
|
|
|
-
|
|
|
$
|
50,230
|
|
|
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government and corporate debentures - fixed interest rate
|
|
|
-
|
|
|
|
2,997,250
|
|
|
|
2,997,250
|
|
Government-sponsored enterprises debentures
|
|
|
-
|
|
|
|
609,881
|
|
|
|
609,881
|
|
Government and corporate debentures - floating interest rate
|
|
|
-
|
|
|
|
122,856
|
|
|
|
122,856
|
|
Foreign currency derivative contracts
|
|
|
-
|
|
|
|
846
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
50,230
|
|
|
$
|
3,730,833
|
|
|
$
|
3,781,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Fair value measurements using input type
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
58,344
|
|
|
$
|
-
|
|
|
$
|
58,344
|
|
|
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government and corporate debentures - fixed interest rate
|
|
|
-
|
|
|
|
2,995,934
|
|
|
|
2,995,934
|
|
Government-sponsored enterprises debentures
|
|
|
-
|
|
|
|
532,609
|
|
|
|
532,609
|
|
Government and corporate debentures - floating interest rate
|
|
|
-
|
|
|
|
74,038
|
|
|
|
74,038
|
|
Foreign currency derivative contracts
|
|
|
-
|
|
|
|
160
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
58,344
|
|
|
$
|
3,602,741
|
|
|
$
|
3,661,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6:-
|
PROPERTY AND EQUIPMENT, NET
|
F-31
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
Cost:
|
|
|
|
|
|
|
|
|
Computers and peripheral equipment
|
|
$
|
51,389
|
|
|
$
|
61,343
|
|
Office furniture and equipment
|
|
|
6,838
|
|
|
|
7,934
|
|
Building
|
|
|
78,121
|
|
|
|
74,209
|
|
Leasehold improvements
|
|
|
11,081
|
|
|
|
10,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147,429
|
|
|
|
153,997
|
|
Accumulated depreciation
|
|
|
68,915
|
|
|
|
76,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
78,514
|
|
|
$
|
77,767
|
|
|
|
|
|
|
|
|
|
|
NOTE 7:-
|
GOODWILL AND OTHER INTANGIBLE ASSETS, NET
|
|
|
|
|
|
|
|
Amount
|
|
|
Balance as of December 31, 2017
|
|
$
|
812,012
|
|
Acquisition
|
|
|
138,560
|
|
|
|
|
|
|
Balance as of December 31, 2018
|
|
$
|
950,572
|
|
|
|
|
|
|
|
b.
|
Other intangible assets, net:
|
Net other intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
December 31,
|
|
|
Life
|
|
|
2018
|
|
2017
|
Original amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
Core technology
|
|
|
8
|
|
|
$
|
44,422
|
|
|
$
|
17,464
|
|
Trademarks and trade names
|
|
|
15 20
|
|
|
|
25,520
|
|
|
|
25,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,942
|
|
|
|
42,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Core technology
|
|
|
|
|
|
|
9,737
|
|
|
|
6,927
|
|
Trademarks and trade names
|
|
|
|
|
|
|
19,238
|
|
|
|
17,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,975
|
|
|
|
24,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Core technology
|
|
|
|
|
|
|
34,685
|
|
|
|
10,537
|
|
Trademarks and trade names
|
|
|
|
|
|
|
6,282
|
|
|
|
7,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40,967
|
|
|
$
|
18,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 7:-
|
GOODWILL AND OTHER INTANGIBLE ASSETS, NET (Cont.)
|
The estimated future amortization expense of other intangible assets as of
December 31, 2018 is as follows:
|
|
|
|
|
2019
|
|
$
|
7,104
|
|
2020
|
|
|
6,888
|
|
2021
|
|
|
6,888
|
|
2022
|
|
|
5,738
|
|
2023
|
|
|
4,122
|
|
Thereafter
|
|
|
10,227
|
|
|
|
|
|
|
|
|
|
|
$
|
40,967
|
|
|
|
|
|
|
NOTE 8:-
|
EMPLOYEES AND PAYROLL ACCRUALS
|
As of December 31, 2018 and 2017, employees and payroll accruals include a benefit of certain related parties since 2002
until 2007 in a total amount of $ 654 and $ 1,194 respectively.
NOTE 9:-
|
DEFERRED REVENUES
|
Deferred revenues consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
Security subscriptions
|
|
$
|
554,215
|
|
|
$
|
476,261
|
|
Software updates and maintenance
|
|
|
765,899
|
|
|
|
702,786
|
|
Other
|
|
|
17,840
|
|
|
|
7,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,337,954
|
|
|
$
|
1,186,573
|
|
|
|
|
|
|
|
|
|
|
The majority of the deferred revenues are recognized within one year or less and
presented as current deferred revenues in the balance sheet. The remaining deferred revenues which are recognized for a period above one year and up to eight years are shown as long term deferred revenues.
NOTE 10:-
|
ACCRUED EXPENSES AND OTHER LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
|
Accrued products and licenses costs
|
|
|
74,487
|
|
|
|
70,252
|
|
Marketing expenses payable
|
|
|
10,083
|
|
|
|
16,373
|
|
Legal accrual
|
|
|
46,529
|
|
|
|
53,607
|
|
Other accrued expenses
|
|
|
42,875
|
|
|
|
36,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
173,974
|
|
|
$
|
176,568
|
|
|
|
|
|
|
|
|
|
|
F-33
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 11:-
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
Certain facilities of the Company are rented under operating lease agreements, which expire on various dates, the latest of
which is in 2027. The Company recognizes rent expense under such arrangements on a straight-line basis.
Aggregate
minimum lease commitments under
non-cancelable
operating leases as of December 31, 2018, were as follows:
|
|
|
|
|
2019
|
|
$
|
7,844
|
|
2020
|
|
|
6,857
|
|
2021
|
|
|
5,200
|
|
2022
|
|
|
4,215
|
|
2023
|
|
|
3,669
|
|
Thereafter
|
|
|
2,656
|
|
|
|
|
|
|
|
|
|
|
$
|
30,441
|
|
|
|
|
|
|
Rent expenses for the years ended December 31, 2018, 2017 and 2016, were $ 8,174, $
11,098 and $ 10,097 respectively.
The Company operates its business in various countries, and accordingly attempts to utilize an efficient operating model to
structure its tax payments based on the laws in the countries in which the Company operates. This can cause disputes between the Company and various tax authorities in different parts of the world.
Further, the Company is the defendant in various lawsuits, including employment-related litigation claims, construction
claims and other legal proceedings in the normal course of its business. Litigation and governmental proceedings can be expensive, lengthy and disruptive to normal business operations, and can require extensive management attention and resources,
regardless of their merit. While the Company intends to defend the aforementioned matters vigorously, it believes that a loss in excess of its accrued liability with respect to these claims is not probable.
F-34
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:-
|
TAXES ON INCOME
|
The Company elected to apply the Preferred Enterprise regime under the Law for the Encouragement of Capital Investment (the
Investment Law) as of 2012 tax year. The election is irrevocable. Under the Preferred Enterprise regime, a preferred income of an Enterprise located in the center of Israel is subject to tax rate of 16%.
Pursuant to Amendment 73 to the Investment Law adopted in 2017, a Company located in the Center of Israel that meets the
conditions for Preferred Technological Enterprises, is subject to tax rate of 12% tax rate. The Company believes it meets those conditions.
Income not eligible for Preferred Enterprise benefits is taxed at a regular rate, as follows: 2018 23%, 2017
24% and for 2016 25%.
Prior to 2012, most of the Companys income was exempt from tax or subject to reduced
tax rates under the Investment Law. Upon distribution of exempt income, the distributing company will be subject to corporate reduced tax rates ordinarily applicable to such income under the Investment Law.
Reduced income under the Investment Law including the Preferred Enterprise Regime will be freely distributable as dividends,
subject to a 15%/20% withholding tax (or lower, under an applicable tax treaty). However, upon the distribution of a dividend from Preferred Income and Technological Preferred Enterprise to an Israeli company, no withholding tax will be remitted.
Pursuant to a temporary tax relief initiated by the Israeli government, a company that elected by November 11, 2013
to pay a reduced corporate tax rate as set forth in the temporary tax relief with respect to undistributed exempt income generated under the Investment Law accumulated by the company until December 31, 2011 (Trapped Earnings) is
entitled to distribute a dividend from such income without being required to pay additional corporate tax with respect to such dividend. A company that has so elected must make certain qualified investments in Israel over five-year period. A company
that has elected to apply the temporary tax relief cannot withdraw from its election. The Company has elected to apply the temporary tax relief by the respective date and believes it meets those conditions.
F-35
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:-
|
TAXES ON INCOME (Cont.)
|
The Companys tax assessments through 2015 tax year are considered
final.
|
2.
|
Foreign Exchange Regulations:
|
Under the Foreign Exchange Regulations, Check Point Ltd. calculates its tax liability in U.S. Dollars according to certain
orders. The tax liability, as calculated in U.S. Dollars is translated into New Israeli Shekels according to the exchange rate as of December 31st of each year.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the Act), which among other provisions,
reduced the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018.
At December 31, 2017, the
Company
re-measured
certain of its U.S. deferred tax assets and liabilities, based on the new rates at which they are expected to reverse in the future. The tax expense recorded in 2017 related to the
re-measurement
of the deferred tax balance was $41,084.
|
c.
|
Income taxes of
non-Israeli
subsidiaries:
|
Non-Israeli
subsidiaries are taxed according to the tax laws in their respective
countries of residence.
The Company does not provide deferred tax liabilities when it intends to reinvest earnings of
foreign subsidiaries indefinitely or if distributed, no tax liability will be imposed. Undistributed earnings of foreign subsidiaries that are not distributed amounted to $ 357,298 and unrecognized deferred tax liability related to such earning
amounted to $ 60,811 as of December 31, 2018.
F-36
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:-
|
TAXES ON INCOME (Cont.)
|
|
d.
|
Deferred tax assets and liabilities:
|
Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. As of December 31, 2018 and 2017, the Companys deferred taxes were in respect of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
|
Carry forward tax losses
|
|
$
|
90,099
|
|
|
$
|
106,481
|
|
Employee stock based compensation
|
|
|
19,275
|
|
|
|
25,117
|
|
Deferred revenues
|
|
|
22,153
|
|
|
|
19,200
|
|
Other
|
|
|
53,243
|
|
|
|
53,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets before valuation allowance
|
|
|
184,770
|
|
|
|
204,646
|
|
Valuation allowance mainly in respect to carryforward losses
|
|
|
(55,745
|
)
|
|
|
(60,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
|
129,025
|
|
|
|
143,943
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(11,335
|
)
|
|
|
(8,862
|
)
|
Undistributed earnings of subsidiary
|
|
|
(9,925
|
)
|
|
|
(9,925
|
)
|
Other
|
|
|
(4,663
|
)
|
|
|
(274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
|
(25,923
|
)
|
|
|
(19,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset, net
|
|
$
|
103,102
|
|
|
$
|
124,882
|
|
|
|
|
|
|
|
|
|
|
Through December 31, 2018, the U.S. subsidiaries had a U.S. federal loss
carry-forward of approximately $395,236 expiring beginning 2020, mainly resulting from tax benefits related to employees stock option exercises that can be carried forward and offset against taxable income. Through December 31, 2018, the
U.S. subsidiaries had a U.S. state net loss carry forward of approximately $96,380, which expire between fiscal 2020 and fiscal 2034, and are subject to limitations on their utilization. Through December 31, 2018, the U.S. subsidiaries had
research and development tax credits of approximately $20,270, which expire between fiscal 2019 and fiscal 2038 and are subject to limitations on their utilization.
|
e.
|
Income before taxes on income is comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
Domestic
|
|
$
|
902,235
|
|
|
$
|
923,744
|
|
|
$
|
862,554
|
|
Foreign
|
|
|
76,605
|
|
|
|
47,202
|
|
|
|
34,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
978,840
|
|
|
$
|
970,946
|
|
|
$
|
896,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:-
|
TAXES ON INCOME (Cont.)
|
|
f.
|
Taxes on income are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
Current
|
|
$
|
140,800
|
|
|
$
|
101,902
|
|
|
$
|
194,149
|
|
Deferred
|
|
|
16,735
|
|
|
|
66,121
|
|
|
|
(22,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
157,535
|
|
|
$
|
168,023
|
|
|
$
|
171,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
132,027
|
|
|
$
|
112,615
|
|
|
$
|
166,152
|
|
Foreign
|
|
|
25,508
|
|
|
|
55,408
|
|
|
|
5,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
157,535
|
|
|
$
|
168,023
|
|
|
$
|
171,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
Domestic taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
120,876
|
|
|
$
|
94,340
|
|
|
$
|
175,522
|
|
Deferred
|
|
|
11,151
|
|
|
|
18,275
|
|
|
|
(9,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,027
|
|
|
|
112,615
|
|
|
|
166,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
19,925
|
|
|
|
7,562
|
|
|
|
18,627
|
|
Deferred
|
|
|
5,583
|
|
|
|
47,846
|
|
|
|
(12,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,508
|
|
|
|
55,408
|
|
|
|
5,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes on income
|
|
$
|
157,535
|
|
|
$
|
168,023
|
|
|
$
|
171,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
g.
|
A reconciliation of the beginning and ending amount of unrecognized tax benefits related to uncertain tax
positions is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
|
Beginning balance
|
|
$
|
342,904
|
|
|
$
|
306,677
|
|
Increases related to tax positions taken during prior years
|
|
|
745
|
|
|
|
46,520
|
|
Decreases related to expiration of statute of limitations
|
|
|
-
|
|
|
|
(41,022
|
)
|
Increases related to tax positions taken during the current year
|
|
|
31,514
|
|
|
|
30,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
375,163
|
*)
|
|
$
|
342,904
|
*)
|
|
|
|
|
|
|
|
|
|
*) As of December 31, 2018 and 2017 unrecognized tax benefit in the amounts of
$18,413 and $5,451 were presented net from deferred tax asset.
F-38
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:- TAXES ON INCOME (Cont.)
Substantially all the balance of unrecognized tax benefits, if recognized,
would reduce the Companys annual effective tax rate.
We adjust our unrecognized tax benefit liability and income
tax expense in the period in which the uncertain tax position is effectively settled, the statute of limitations expires or when new information is available. There is a reasonable possibility that $ 56,702 out of our unrecognized tax benefit
liability will be adjusted within 12 months due to the expiration of a statute of limitations.
During the years ended
December 31, 2018, 2017 and 2016, the Company recorded $ 5,547, $ 4,168 and $ 6,025, respectively for interest expense related to uncertain tax positions. As of December 31, 2018 and 2017, the Company had accrued interest
liability related to uncertain tax positions in the amounts of $ 30,766 and $ 25,219, respectively, which is included within income tax accrual on the balance sheets. The Company did not accrue penalties during the years ended December 31,
2018 and 2017.
The Companys U.S. subsidiaries file federal and state income tax returns in the U.S. All of the U.S
subsidiaries tax years are subject to examination by the U.S. federal and most U.S. state tax authorities due to their carry-forward tax losses and overall credit carry-forward position, except for Check Point Software Technologies Inc. that
the assessment statue period for tax years 2005 through 2014 have expired.
The Company believes that it has adequately
provided for any reasonably foreseeable outcomes related to tax audits and settlement. The final tax outcome of its tax audits could be different from that which is reflected in the Companys income tax provisions and accruals. Such differences
could have a material effect on the Companys income tax provision and net income in the period in which such determination is made.
F-39
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:- TAXES ON INCOME (Cont.)
|
h.
|
Reconciliation of the theoretical tax expenses:
|
Reconciliation between the theoretical tax expenses, assuming all income is taxed at the statutory rate in Israel and the
actual income tax as reported in the statements of income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
Income before taxes as reported in the statements of income
|
|
$
|
978,839
|
|
|
$
|
970,946
|
|
|
$
|
896,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory tax rate in Israel
|
|
|
23%
|
|
|
|
24%
|
|
|
|
25%
|
|
|
|
|
|
Decrease in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Preferred Enterprise status *)
|
|
|
(9%
|
)
|
|
|
(11%
|
)
|
|
|
(5%
|
)
|
Decrease in US deferred tax due to US tax rate change
|
|
|
-
|
|
|
|
4%
|
|
|
|
-
|
|
Others, net
|
|
|
2%
|
|
|
|
-
|
|
|
|
(1%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
16%
|
|
|
|
17%
|
|
|
|
19%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*) Basic earnings per share amounts of the benefit resulting
from the Technological preferred or Preferred Enterprise status
|
|
$
|
0.57
|
|
|
$
|
0.68
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share amounts of the benefit resulting from the Technological preferred or
Preferred Enterprise status
|
|
$
|
0.56
|
|
|
$
|
0.66
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13:- SHAREHOLDERS EQUITY
Ordinary shares confer upon their holders the right to receive notice to participate and vote in general meetings of the
Company, and the right to receive dividends if declared.
Dividends declared on ordinary shares will be paid in New
Israeli Shekels. Dividends paid to shareholders outside Israel will be converted into U.S. dollars, on the basis of the exchange rate prevailing at the date of payment.
On July 25, 2018, the Company announced an extension and increase to its share repurchase plan. Under the updated plan,
the Company may repurchase up to an additional $ 2,000,000 with purchases of up to $ 325,000 a quarter.
F-40
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- SHAREHOLDERS EQUITY (Cont.)
As of December 31, 2018, the Company repurchased ordinary shares for an
aggregate amount of $ 7,909,889. During 2018, 2017 and 2016 the Company repurchased 10,341,000, 9,535,992, and 12,298,434 shares for an aggregate amount of $ 1,103,865, $ 995,322 and $ 987,897, respectively.
|
c.
|
Stock Options, RSUs and PSUs:
|
In 2005, the Company adopted two new equity incentive plans, which were subsequently amended in January 2014 and in July
2018: the 2005 United States Equity Incentive Plan and the 2005 Israel Equity Incentive Plan together are referred to as the Equity Incentive Plans.
Under the Equity Incentive Plans, the Company may grant options to employees, officers and directors at an exercise price
equal to at least the fair market value of the ordinary shares at the date of grant and are granted for periods not to exceed seven years. The Company grants under the Equity Incentive Plans options, Restricted Stock Units (RSUs) and
Performance RSUs (PSUs) and can also grant a variety of other equity incentives. Options granted under the Equity Incentive Plans generally vest over a period of four years of employment. Options, RSUs and PSUs that are cancelled or
forfeited before expiration become available for future grants. The number of PSUs granted to sales employees is equal to the amount of compensation earned (based on the employees level) divided by the fair value of the ordinary share at the
grant date. RSUs and PSUs vest over a four year period of employment from the grant date. PSUs are subject to certain performance criteria; accordingly, compensation expense is recognized for such awards when it becomes probable that the related
performance condition will be satisfied.
Under the Equity Incentive Plans, the Companys
non-employee
directors receive an automatic annual option grant. Following the amendments to the Equity Incentive Plans in July 2018, commencing December 31, 2018, on December 31st of each year, the number of
Reserved and Authorized Shares (as defined below) under both Equity Incentive Plans together shall be automatically reset on such date to equal 10% of the sum of (i) the number of ordinary shares issued and outstanding on such date and
(ii) the number of ordinary shares reserved and authorized under the Equity Incentive Plans for outstanding awards granted under the Equity Incentive Plans as of such date (provided, however, that in no event shall the number of Reserved and
Authorized Shares be less than the number of ordinary shares reserved and authorized under the Equity Incentive Plans for outstanding awards granted under the Equity Incentive Plans as of such date).
The number of Reserved and Authorized Shares under the Equity Plans shall equal the sum of (i) the number of
ordinary shares reserved and authorized under the Equity Incentive Plans for outstanding options, RSUs, PSUs and other awards granted under the Equity Incentive Plans as of such date, and (ii) the number of ordinary shares reserved, authorized
and available for issuance under the Equity Incentive Plans on such date.
F-41
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- SHAREHOLDERS EQUITY (Cont.)
As of December 31, 2018, the number of Reserved and Authorized Shares
under the Equity Incentive Plans is as detailed below:
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
Number in
thousands
|
Stock Options
outstanding
|
|
|
8,542
|
|
RSU outstanding
|
|
|
1,293
|
|
PSU outstanding
|
|
|
85
|
|
Ordinary shares available for issuance under the Equity Incentive Plans
|
|
|
6,610
|
|
|
|
|
|
|
Total
Reserved and Authorized Shares as of December 31, 2018
|
|
|
16,530
|
|
|
|
|
|
|
A summary of the Companys stock option activity and related information is as
follows:
|
|
|
|
|
|
|
|
|
Options in
thousands
|
|
Weighted
average
exercise
price
|
|
Aggregate
intrinsic
value
|
|
|
2018
|
|
|
|
|
Outstanding at beginning of year
|
|
13,142
|
|
$75.97
|
|
$381,022
|
Granted
|
|
2,048
|
|
$109.26
|
|
|
Exercised
|
|
(6,041)
|
|
$59.16
|
|
|
Forfeited
|
|
(607)
|
|
$84.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
8,542
|
|
$95.26
|
|
101,203
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2018
|
|
4,007
|
|
$87.37
|
|
70,507
|
|
|
|
|
|
|
|
The weighted average fair values at grant date of options granted for the years ended
December 31, 2018, 2017 and 2016; with an exercise price equal to the market value at the date of grant were $ 30.14, $ 25.00 and $ 17.14, respectively.
The total intrinsic value of options exercised during the years 2018, 2017 and 2016 was $297,477, $ 95,707 and $
112,989, respectively.
F-42
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- SHAREHOLDERS EQUITY (Cont.)
A summary of the Companys RSUs activity is as follows:
|
|
|
|
|
Year ended
December 31,
|
|
|
2018
|
|
|
Number in thousands
|
|
|
Unvested at beginning of year
|
|
893
|
Granted
|
|
932
|
Vested
|
|
(318)
|
Forfeited
|
|
(214)
|
|
|
|
|
|
Unvested the end of the year
|
|
1,293
|
|
|
|
The weighted average fair values at grant date of RSUs granted for the years ended
December 31, 2018, 2017 and 2016 were $101.2, $ 103.5 and $ 80.73, respectively.
The total fair value of
shares vested during the years 2018, 2017 and 2016 was $32,279, $35,824 and $ 22,772, respectively.
A summary of
the Companys PSUs activity is as follows:
|
|
|
|
|
Year ended
December 31,
|
|
|
2018
|
|
|
Number in thousands
|
|
|
Unvested at beginning of year
|
|
175
|
Vested
|
|
(65)
|
Forfeited
|
|
(25)
|
|
|
|
|
|
Unvested the end of the year
|
|
85
|
|
|
|
The weighted average fair values at grant date of PSUs granted for the year ended
December 31, 2018, 2017 and 2016 were $ 0, $ 104.38 and $ 82.01, respectively.
The total fair value of shares
vested during 2018 was $ 6,354, during 2017 was $ 6,241, and during 2016 was $ 3,056.
As of December 31, 2018, the
Company had approximately $ 189,964 of unrecognized compensation expense related to
non-vested
stock options and
non-vested
RSUs and PSUs, expected to
be recognized over a weighted average period of 1.96 years.
F-43
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- SHAREHOLDERS EQUITY (Cont.)
|
d.
|
Employee Stock Purchase Plan (ESPP):
|
In 1996, the Company adopted an ESPP, which was subsequently amended in 2015. According to the amendments, commencing the
purchase period that begins February 1, 2017, 500,000 ordinary shares are authorized for issuance under the US ESPP and 1,000,000 ordinary shares are authorized for issuance under the rest of the world (ROW) ESPP. As of December 31, 2018,
828,441 ordinary shares had been issued under the amended ESPP plan.
Eligible employees may use up to 15% of their
salaries to purchase ordinary shares but no more than 1,250 shares per participant on any purchase date. The ESPP is implemented through an offering every six months. The price of an ordinary share purchased under the ESPP is equal to 85% of the
lower of the fair market value of the ordinary share on the subscription date of each offering period or on the purchase date.
During 2018, 2017 and 2016, employees purchased 308,920, 346,241 and 311,257 ordinary shares at average prices of $ 87.584,
$ 73.47 and $ 66.08 per share, respectively.
In accordance with ASC No. 718, the ESPP is compensatory and
as such results in recognition of compensation cost. For the years ended December 31, 2018, 2017 and 2016, the Company recognized $ 6,654, $ 6,656 and $ 5,432, respectively, of compensation expense in connection with the ESPP.
|
e.
|
Stock-Based Compensation
|
Stock-based compensation expense related to stock options, RSUs and PSUs is included in the consolidated statements of
operations as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
Cost of revenues
|
|
$
|
3,545
|
|
|
$
|
2,741
|
|
|
$
|
2,153
|
|
Research and development
|
|
|
17,644
|
|
|
|
16,233
|
|
|
|
12,718
|
|
Selling and marketing
|
|
|
20,800
|
|
|
|
18,278
|
|
|
|
19,168
|
|
General and administrative
|
|
|
47,337
|
|
|
|
50,207
|
|
|
|
48,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
89,326
|
|
|
$
|
87,459
|
|
|
$
|
82,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Net income
|
|
$
|
821,305
|
|
|
$
|
802,923
|
|
|
$
|
724,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding (in thousands)
|
|
|
156,632
|
|
|
|
162,720
|
|
|
|
170,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options, RSUs and PSUs (in thousands)
|
|
|
2,815
|
|
|
|
3,942
|
|
|
|
3,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average ordinary shares outstanding (in thousands)
|
|
|
159,447
|
|
|
|
166,662
|
|
|
|
173,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ordinary share
|
|
$
|
5.24
|
|
|
$
|
4.93
|
|
|
$
|
4.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per ordinary share
|
|
$
|
5.15
|
|
|
$
|
4.82
|
|
|
$
|
4.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 15:- GEOGRAPHIC INFORMATION AND SELECTED STATEMENTS OF INCOME DATA
|
a.
|
Summary information about geographical areas:
|
The Company operates in one reportable segment (see Note 1 for a brief description of the Companys business). The total
revenues are attributed to geographic areas based on the location of the Companys channel partners which are considered as end customers, as well as direct customers of the Company.
The following table presents total revenues for the years ended December 31, 2018, 2017 and 2016, and property and
equipment, net as of December 31, 2018 and 2017, by geographic area:
|
1.
|
Revenues based on the channel partners location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
Americas, principally U.S.
|
|
$
|
892,426
|
|
|
$
|
871,297
|
|
|
$
|
847,458
|
|
Europe
|
|
|
717,205
|
|
|
|
674,987
|
|
|
|
627,524
|
|
Asia-Pacific, Middle-East and Africa
|
|
|
306,844
|
|
|
|
308,374
|
|
|
|
266,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,916,475
|
|
|
$
|
1,854,658
|
|
|
$
|
1,741,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:- GEOGRAPHIC INFORMATION AND SELECTED STATEMENTS OF INCOME DATA (Cont.)
|
2.
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
|
Israel
|
|
$
|
71,641
|
|
|
$
|
71,655
|
|
U.S.
|
|
|
3,463
|
|
|
|
2,782
|
|
Rest of the world
|
|
|
3,410
|
|
|
|
3,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
78,514
|
|
|
$
|
77,767
|
|
|
|
|
|
|
|
|
|
|
|
b.
|
Summary information about product lines:
|
The Companys products can be classified by three main product lines. The following table presents total revenues for
the years ended December 31, 2018, 2017 and 2016 by product lines:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
Product and licenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Network security Gateways
|
|
$
|
468,509
|
|
|
$
|
506,057
|
|
|
$
|
516,254
|
|
Other *)
|
|
|
57,048
|
|
|
|
52,969
|
|
|
|
56,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
525,557
|
|
|
|
559,026
|
|
|
|
572,964
|
|
|
|
|
|
Security subscriptions
|
|
|
542,323
|
|
|
|
480,352
|
|
|
|
389,885
|
|
|
|
|
|
Software updates and maintenance
|
|
|
848,595
|
|
|
|
815,280
|
|
|
|
778,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,916,475
|
|
|
$
|
1,854,658
|
|
|
$
|
1,741,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*)
|
Comprised of Endpoint security, Mobile security and Security management products, each comprising of less
than 10% of products and licenses revenues.
|
F-46
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:- GEOGRAPHIC INFORMATION AND SELECTED STATEMENTS OF INCOME DATA (Cont.)
|
c.
|
Financial income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
Financial income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
88,475
|
|
|
$
|
74,900
|
|
|
$
|
69,425
|
|
Realized gain on sale of marketable securities, net
|
|
|
-
|
|
|
|
-
|
|
|
|
2,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,475
|
|
|
|
74,900
|
|
|
|
72,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of marketable securities premium and accretion of discount,
net
|
|
|
13,560
|
|
|
|
20,012
|
|
|
|
23,388
|
|
Realized loss on sale of marketable securities, net
|
|
|
1,803
|
|
|
|
176
|
|
|
|
-
|
|
Foreign currency
re-measurement
loss
|
|
|
5,719
|
|
|
|
5,555
|
|
|
|
2,658
|
|
Others
|
|
|
2,327
|
|
|
|
2,128
|
|
|
|
1,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,409
|
|
|
|
27,871
|
|
|
|
28,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
65,066
|
|
|
$
|
47,029
|
|
|
$
|
44,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-47