FORM 20-F - Check Point

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We recognize software revenue in accordance with Statement of Position (SOP) No. 97-2, “Software Revenue Recognition”, as amended by SOP No. 98-9, “Modification of SOP No. 97-2, Software Revenue Recognition, With Respect to Certain Transactions” (collectively, “SOP 97-2”). We recognize software license revenue when persuasive evidence of an arrangement exists, the software license has been delivered, there are no uncertainties surrounding product acceptance, there are no significant future performance obligations, the license fees are fixed or determinable, and collection of the license fee is considered probable. Amounts received in advance of meeting these criteria are deferred. Fees for arrangements with payment terms extending beyond customary payment terms are considered not to be fixed or determinable, in which case revenue is deferred and recognized when payments become due from the customer or are actually collected, providing that all other revenue recognition criteria have been met. As required by SOP 97-2, we determine the value of the software component of our multiple-element arrangements using the residual method when vendor specific objective evidence (VSOE) of fair value exists for the undelivered elements of the support and maintenance agreements. VSOE is based on the price charged when an element is sold separately or renewed. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue. Our software updates and maintenance provides customers with rights to unspecified software product upgrades released during the term of the agreement. Our support services grant our customers telephone access to technical support personnel during the term of the service. We recognize revenues from software updates, maintenance and services ratably over the term of the agreement. We follow very specific and detailed guidelines in measuring revenue, several of which are discussed above. We determine the fair value of each type of undelivered element as follows: For enterprise products, we determine the fair value based on the renewal prices charged for our software updates, maintenance and support services. We offer several levels of services, classified by services offered, response time and availability. We have defined classes of customers, based on the total gross value of licensed software products the customer purchased from us. We price renewals for each service level and each class of customer as a fixed percentage of the total gross value of licensed software products the customer purchased from us. For our consumer products, we determine the fair value based on the renewal prices of our software updates, maintenance and support services for the different products offered. The renewal prices are based on our price list. Business combinations In accordance with business combination accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed as well as to in-process research and development based on their estimated fair values. We engage third-party appraisal firms to assist management in determining the fair values of certain assets acquired and liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Management makes estimates of fair value based upon assumptions it believes to be reasonable. These estimates are based on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible assets include, but are not limited to, the following: future expected cash flows from license sales, maintenance agreements, customer contracts and acquired developed technologies and patents; expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed; the acquired company’s brand and market position as well as assumptions about the period of time the 42
acquired brand will continue to be used in the combined company’s product portfolio; and discount rates. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results. Changes to these estimates, relating to circumstances that existed at the acquisition date, are recorded as an adjustment to goodwill during the purchase price allocation period (generally within one year of the acquisition date) and as operating expenses, if otherwise. In connection with purchase price allocations, we estimate the fair value of the support obligations assumed in connection with acquisitions. The estimated fair value of the support obligations is determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin. The sum of the costs and operating profit approximates, in theory, the amount that we would be required to pay a third party to assume the support obligation. Goodwill and other intangible assets We review goodwill for impairment annually during the fourth quarter of each fiscal year, and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Goodwill impairment is deemed to exist if the carrying value of a reporting unit exceeds its implied fair value. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference. We operate in one operating segment, and this segment comprises our only reporting unit. In calculating the implied fair value of the reporting unit, we use a discounted cash flow methodology, market multiples and market capitalization. Significant estimates that we use in these fair value methodologies include estimates of future cash flows, future short-term and long-term growth rates, weighted average cost of capital and estimates of market multiples of the reportable unit. Other factors we consider are the brand awareness and the market position of the reporting unit and assumptions about the period of time we will continue to use the brand in our product portfolio. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for our goodwill. Our most recent annual goodwill impairment analysis, which was performed during the fourth quarter of fiscal <strong>20</strong>07, did not result in an impairment charge. Realizability of long-lived assets We are required to assess the impairment of long-lived assets, tangible and intangible assets, other than goodwill, under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” 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. 43
Page 1 and 2: SECURITIES AND EXCHANGE COMMISSION
Page 3 and 4: Currency of Presentation and Certai
Page 5 and 6: Year Ended December 31, 2003 2004 2
Page 7 and 8: in customer requirements, or to dev
Page 9 and 10: � Harm to our existing business r
Page 11 and 12: Report on Form 20-F for each fiscal
Page 13 and 14: others. Our suppliers and licensors
Page 15 and 16: We are exposed to various legal, bu
Page 17 and 18: o In a criminal action in which the
Page 19 and 20: of our operations in Israel, and th
Page 21 and 22: the enterprise, and with business p
Page 23 and 24: � Intrusion Prevention Technologi
Page 25 and 26: 3. Security management: A key eleme
Page 27 and 28: These charts summarize our primary
Page 29 and 30: Data and Endpoint Security Check Po
Page 31 and 32: Application Intelligence Our Applic
Page 33 and 34: user interface for the Pre-Boot Aut
Page 35 and 36: implementing, upgrading, and optimi
Page 37 and 38: Check Point Software Technologies (
Page 39 and 40: Property, Plants and Equipment In M
Page 41: The following table presents the pe
Page 45 and 46: We estimate the fair value of emplo
Page 47 and 48: Results of operations The following
Page 49 and 50: oad coverage of our installed base
Page 51 and 52: General and Administrative General
Page 53 and 54: Year Ended December 31, 2006 Year E
Page 55 and 56: As a percentage of revenues: Year E
Page 57 and 58: December 31, 2006, and $1,241.5 mil
Page 59 and 60: Tabular Disclosure of Contractual O
Page 61 and 62: Systems (HDS). He began his career
Page 63 and 64: severance payments mandated by Isra
Page 65 and 66: deficiencies in the administration
Page 67 and 68: Equity Incentive Plans The followin
Page 69 and 70: Shares; (vi) Performance Units; and
Page 71 and 72: ITEM 7. MAJOR SHAREHOLDERS AND RELA
Page 73 and 74: ITEM 8. FINANCIAL INFORMATION Conso
Page 75 and 76: ITEM 9. THE OFFER AND LISTING Our o
Page 77 and 78: directors is also required to conve
Page 79 and 80: the other merging company (or certa
Page 81 and 82: general manager, or in which he or
Page 83 and 84: mere negligence), or committed with
Page 85 and 86: (2) a year selected by the company
Page 87 and 88: Taxation of Non-Israeli Shareholder
Page 89 and 90: Dividends Paid on the Ordinary Shar
Page 91 and 92: Information Reporting and Back up W
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Foreign Currency Risk Most of our s
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ITEM 16. Reserved. ITEM 16A. AUDIT
Page 97 and 98:
ITEM 16E. PURCHASES OF EQUITY SECUR
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ITEM 19. EXHIBITS 1 Articles of Ass
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CHECK POINT SOFTWARE TECHNOLOGIES L
Page 103 and 104:
REPORT OF INDEPENDENT REGISTERED PU
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In our opinion, Check Point maintai
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CONSOLIDATED BALANCE SHEETS U.S. Do
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SIGNATURES The registrant hereby ce
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Exhibit 12.1 I, Gil Shwed, certify
Page 153:
Exhibit 13 CERTIFICATION PURSUANT T
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FORM 20-F - Check Point

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