SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
Or
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
Or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report.........................
For the transition period from to
Commission File number: 000-23288
SILICOM LTD.
(Exact name of Registrant as specified in its charter and as translated into English)
(Jurisdiction of incorporation
or organization)
14 Atir Yeda Street,
Kfar Sava 4464323, Israel
(Address of principal executive offices)
Mr. Eran Gilad, CFO and Company Secretary
Telephone: +972-9-764-4555
E-mail: erang@silicom.co.il
14 Atir Yeda Street,
Kfar Sava 4464323, Israel
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None Title of each class |
| None Name of each exchange on which registered |
Ordinary Shares, NIS 0.01 nominal value per share | NASDAQ GLOBAL SELECT MARKET |
Trading Symbol(s) |
SILC |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:
6,709,528
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files):
Yes ☒ No ☐
2
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ | Accelerated filer ☒ | Non-accelerated filer ☐ | Emerging growth company ☐ |
Yes ☒ No ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒ International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ Other ☐
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ☐ No ☐
This annual report on Form 20-F includes certain "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934. The use of the words "projects", "expects", "may", "plans", or "intends", or words of similar import, identifies a statement as "forward-looking." There can be no assurance, however, that actual results will not differ materially from our expectations or projections. Factors that could cause actual results to differ from our expectations or projections include the risks and uncertainties relating to our business described in this report at Item 3 titled "Risk Factors."
As used herein or in any document incorporated by reference hereto, the "Company", "Silicom Ltd.", "Silicom", "Registrant", "we", "us", or "our" refers to Silicom Ltd. and its subsidiaries.
We have prepared our consolidated financial statements in United States dollars and in accordance with accounting principles generally accepted in the United States. All references herein to "dollars", "US$", or "$" are to United States dollars, and all references to "Shekels" or "NIS" are to New Israeli Shekels.
3
6 | |
6 | |
6 | |
6 | |
A. Selected Financial Data | 6 |
B. Capitalization and indebtedness | 8 |
C. Reason for the offer and use of proceeds | 8 |
D. Risk Factors | 8 |
29 | |
A. History and Development of the Company | 29 |
B. Business Overview | 30 |
Principal Markets | 34 |
Manufacturing and Suppliers | 34 |
Marketing Channels | 36 |
Patents and Licenses | 38 |
Competition | 39 |
Governmental Regulation Affecting the Company | 39 |
C. Organizational Structure | 40 |
41 | |
42 | |
A. Operating Results | 43 |
B. Liquidity and Capital Resource | 47 |
C. Research and development, patents and licenses, etc. | 48 |
D. Trend Information | 50 |
E. Off-Balance Sheet Arrangements | 52 |
F. Disclosure of contractual obligations | 53 |
54 | |
A. Directors and Senior Management | 54 |
B. Compensation | 56 |
Board of Directors | 60 |
External Directors | 61 |
Audit Committee | 65 |
Compensation Committee | 67 |
D. Employees | 72 |
E. Share Ownership | 73 |
74 | |
A. Major Shareholders | 74 |
B. Related Party Transactions | 75 |
77 | |
A. Offer and Listing Details | 77 |
Markets and Share Price History | 77 |
99 | |
Interest Rate Risk | 99 |
Foreign Currency Exchange Risk | 99 |
101 | |
101 | |
101 | |
101 | |
101 | |
Disclosure Controls and Procedures | 101 |
Management's Annual Report on Internal Control over Financial Reporting | 102 |
Inherent Limitations on Effectiveness of Controls | 102 |
Changes in Internal Control over Financial Reporting | 102 |
102 | |
102 | |
103 | |
103 | |
103 | |
Audit committee's pre-approval policies and procedures | 103 |
104 | |
104 | |
105 | |
106 | |
108 | |
108 | |
108 | |
108 | |
108 | |
109 |
Item 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, AND ADVISERS |
Item 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Item 3. | KEY INFORMATION |
2017 | 2018 | 2019 | 2020 | 2021 | ||||||||||||||||
(in thousands of U.S. dollars, except share and per share data) | ||||||||||||||||||||
Sales | 125,690 | 133,753 | 105,240 | 107,398 | 128,460 | |||||||||||||||
Cost of sales | 79,762 | 91,697 | 69,146 | 73,632 | 84,072 | |||||||||||||||
Gross profit | 45,928 | �� | 42,056 | 36,094 | 33,766 | 44,388 | ||||||||||||||
Research and development expenses | 13,915 | 14,820 | 15,075 | 17,244 | 20,091 | |||||||||||||||
Sales and marketing expenses | 6,722 | 6,642 | 6,647 | 6,209 | 6,599 | |||||||||||||||
General and administrative expenses | 4,507 | 3,943 | 4,159 | 4,065 | 4,641 | |||||||||||||||
Contingent consideration expense (benefit) | (4,642) | - | - | - | - | |||||||||||||||
Total operating expenses | 20,502 | 25,405 | 25,881 | 27,518 | 31,331 | |||||||||||||||
Operating income | 25,426 | 16,651 | 10,213 | 6,248 | 13,057 | |||||||||||||||
Financial income (expenses), net | 156 | 923 | 1,646 | 1,034 | (152) | |||||||||||||||
Income before income taxes | 25,582 | 17,574 | 11,859 | 7,282 | 12,905 | |||||||||||||||
Income tax expenses | 3,868 | 2,937 | 1,623 | 1,557 | 2,364 | |||||||||||||||
Net income(1) | 21,714 | 14,637 | 10,236 | 5,725 | 10,541 | |||||||||||||||
Net income per share | ||||||||||||||||||||
Basic income per ordinary share | $ | 2.912 | $ | 1.938 | $ | 1.361 | $ | 0.804 | $ | 1.544 | ||||||||||
Diluted income per ordinary share | $ | 2.856 | $ | 1.912 | $ | 1.352 | $ | 0.800 | $ | 1.513 | ||||||||||
Weighted average number of ordinary shares used to compute basic income per share (in thousands) | 7,456 | 7,552 | 7,520 | 7,118 | 6,826 | |||||||||||||||
Weighted average number of ordinary shares used to compute diluted income per share (in thousands) | 7,602 | 7,657 | 7,573 | 7,157 | 6,969 |
2017 | 2018 | 2019 | 2020 | 2021 | ||||||||||||||||
Total assets | $ | 162,614 | $ | 182,301 | $ | 195,063 | 195,887 | $ | 219,604 | |||||||||||
Total current liabilities | $ | 19,049 | $ | 21,540 | $ | 26,332 | 29,376 | $ | 50,311 | |||||||||||
Long-term liability | $ | 2,765 | $ | 2,612 | $ | 5,808 | 11,674 | $ | 10,830 | |||||||||||
Shareholders' equity | $ | 140,800 | $ | 158,149 | $ | 162,923 | 154,837 | $ | 158,463 | |||||||||||
Capital stock | $ | 22 | $ | 22 | $ | 22 | 22 | $ | 22 | |||||||||||
Number of ordinary shares issued(1) | 7,564,502 | 7,574,176 | 7,618,676 | 7,670,033 | 7,670,033 |
NIS per U.S. $ | ||||||||||||||||
Year Ended December 31, | High | Low | Average | Period End | ||||||||||||
2021 | 3.342 | 3.074 | 3.230 | 3.105 | ||||||||||||
2020 | 3.862 | 3.210 | 3.442 | 3.215 | ||||||||||||
2019 | 3.746 | 3.455 | 3.565 | 3.456 | ||||||||||||
2018 | 3.781 | 3.388 | 3.597 | 3.748 | ||||||||||||
2017 | 3.860 | 3.467 | 3.600 | 3.467 |
Month | High | Low | Average | Period End | ||||||||||||
March 2022 | 3.300 | 3.176 | 3.243 | 3.176 | ||||||||||||
February 2022 | 3.271 | 3.160 | 3.214 | 3.238 | ||||||||||||
January 2022 | 3.196 | 3.092 | 3.134 | 3.195 | ||||||||||||
December 2021 | 3.168 | 3.101 | 3.132 | 3.105 | ||||||||||||
November 2021 | 3.181 | 3.074 | 3.121 | 3.162 | ||||||||||||
October 2021 | 3.245 | 3.158 | 3.216 | 3.158 |
• | Substantial research and development and business development expenditures, which could divert funds from other corporate uses and/or have a significant negative effect on our short-term results; |
• | Diversion of management's attention from our core business; and |
• | Entrance into markets in which we have little or no experience. |
• | Post-merger integration problems resulting from the combination of any acquired operations with our own operations or from the combination of two or more operations into a new merged entity; |
• | Diversion of management's attention from our core business; |
• | Substantial expenditures, which could divert funds from other corporate uses; |
• | Entering markets in which we have little or no experience; and |
• | Loss of key employees of the acquired operations. |
Item 4. | INFORMATION ON THE COMPANY. |
(i) | Server network interface cards (Server Adapters) - These adapters are used mostly in networking appliances which are used both in the Cloud (including public cloud and On Premise cloud) and in the Edge. |
(ii) | Smart Cards - Intelligent and/or programmable cards, with features such as encryption, Time Synchronization, acceleration, data compression, redirection and switching, packet processing, time stamping, packet capture solutions, ultra-low latency solutions, and other offloading features. These products are used mostly inside servers which are a part of Cloud and Enterprise Data centers or inside Distributed Units and Central Units which are a part of mobile infrastructures. |
(iii) | Smart Platforms - Customer-Premises Equipment, including virtualized Customer-Premises Equipment (vCPE) and universal Customer-Premises Equipment (uCPE) (together, "CPE"), Edge devices for SD-WAN and NFV deployments and Distributed Units (which may or may not include some of the above-mentioned Smart Cards) for the 5G mobile infrastructure market. |
(i) | Providers of applications on Network appliances, including mostly SD-WAN, Cyber Security and Application Delivery applications; |
(ii) | Telcos / Carriers / service providers deploying CPEs for SD-WAN and NFV; |
(iii) | Mobile Operators/Telcos/Carriers deploying 4G/5G infrastructure DUs and CUs; |
(iv) | The "Cloud". |
• | We approach a potential customer or are approached by such customer. |
• | If the potential customer shows interest in the products and we believe that achievement of a business relationship with the potential customer is possible, we ship products for such potential customer's evaluation. |
• | During the evaluation process the potential customer receives a few units of the relevant product for initial basic testing. If the evaluation process is successful, we ship products for qualification. |
• | During the qualification process the potential customer usually purchases a larger amount of our products for more specific testing, which may include certain adaptations of our products to its needs. |
• | If the qualification process is successful, we enter into negotiations regarding the terms of a business relationship. |
• | In some cases, typically with the larger customers and with respect to Smart Cards, the evaluation and qualification process may take 12 months or more. |
• | Silicom Connectivity Solutions, Inc. – a private company incorporated in the United States; and |
• | Silicom Denmark (Fiberblaze A/S) – a private company incorporated in Denmark. |
Item 4A. | UNRESOLVED STAFF COMMENTS |
Item 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
Year Ended December 31, | 2019 | 2020 | 2021 | |||||||||
Sales | 100 | % | 100 | % | 100 | % | ||||||
Cost of sales | 65.7 | 68.6 | 65.4 | |||||||||
Gross profit | 34.3 | 31.4 | 34.6 | |||||||||
Research and development expenses | 14.3 | 16.1 | 15.6 | |||||||||
Sales and marketing expenses | 6.3 | 5.8 | 5.1 | |||||||||
General and administrative expenses | 4.0 | 3.7 | 3.6 | |||||||||
Operating Income | 9.7 | 5.8 | 10.2 | |||||||||
Financial income, net | 1.6 | 1.0 | (0.1 | ) | ||||||||
Income before income taxes | 11.3 | 6.8 | 10 | |||||||||
Income tax expenses | 1.6 | 1.4 | 1.8 | |||||||||
Net Income | 9.7 | 5.4 | 8.2 |
Item 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
Name | Age | Position with Company |
Avi Eizenman(1) | 64 | Active Chairman of the Board |
Shaike Orbach(2) | 70 | President, Chief Executive Officer, Director |
Ayelet Aya Hayak(3) | 52 | Director |
Ilan Erez(3) | 54 | Director |
Eli Doron(4) | 69 | Director |
Eran Gilad | 54 | Chief Financial Officer and Company Secretary |
(1) | Was re-elected for an additional three-year term, commencing as of June 5, 2019. |
(2) | Was re-elected for an additional three-year term, commencing as of June 8, 2020. |
(3) | Was re-elected for an additional three-year term, commencing as of July 1, 2019. |
(4) | Was re-elected for an additional three-year term, commencing as of June 3, 2021. |
Name and Position | Salary and Benefits(1) | Cash Bonus(2) | Equity-based Compensation(3) | Total | ||||||||||||
Avi Eizenman – Active Chairman | 584,877 | 270,000 | 537,895 | 1,392,772 | ||||||||||||
Yeshayahu ('Shaike') Orbach – CEO and President | 432,190 | 270,000 | 537,895 | 1,240,085 | ||||||||||||
Elad Blatt –Chief Strategy and Business Development Officer | 283,400 | 152,303 | 101,439 | 537,142 | ||||||||||||
Oren Benisti – EVP Sales | 224,351 | 127,800 | 101,439 | 453,669 | ||||||||||||
Eran Gilad – CFO and Company Secretary | 267,530 | 34,673 | 101,439 | 403,643 |
(1) | "Salary and Benefits" include annual salary or service fees paid, payments to the National Insurance Institute, manager's insurance and pension funds, severance, advanced education funds, basic health insurance, vacation pay, recuperation pay, tax gross-up payments, automobile-related expenses, telephone expenses and benefits and perquisites as mandated by Israeli or applicable law. |
(2) | "Cash Bonus" includes bonus payments as recorded in our financial statements for the year ended December 31, 2021. |
(3) | "Equity-based Compensation" includes the expense recorded in our financial statements for the year ended December 31, 2021 with respect to equity-based compensation granted to the executive officers detailed above. |
• | An employment relationship; |
• | A business or professional relationship maintained on a regular basis; |
• | Control; and |
• | Service as an office holder. |
• | the majority includes at least a majority of the shares held by non-controlling and disinterested shareholders who are present and voting at the meeting; or |
• | the total number of shares held by non-controlling and disinterested shareholders that voted against the election of the director does not exceed two percent of the aggregate voting rights in the company. |
• | The chairman of the board of directors; |
• | Any director employed by or otherwise providing services to the company or to the "controlling shareholder" or entity under such controlling shareholder's control; |
• | Any director who derives his salary primarily from a controlling shareholder; |
• | A "controlling shareholder"; or |
• | Any relative of a "controlling shareholder." |
• | The chairman of the board of directors; |
• | Any director employed by or otherwise providing services to the company or to the controlling shareholder or entity under such controlling shareholder's control; |
• | Any director who derives his salary primarily from a "controlling shareholder;" |
• | A "controlling shareholder"; or |
• | Any relative of a "controlling shareholder." |
1. | To recommend to the Board of Directors as to a compensation policy for office holders of the company, as well as to recommend, once every three years to extend the compensation policy subject to receipt of the required corporate approvals; |
2. | To recommend to the Board of Directors as to any updates to the compensation policy which may be required; |
3. | To review the implementation of the compensation policy by the company; |
4. | To approve transactions relating to terms of office and employment of certain company office holders, which require the approval of the compensation committee pursuant to the Companies Law; and |
5. | To exempt, under certain circumstances, a transaction relating to terms of office and employment from the requirement of approval of the shareholders meeting. |
a. | Advancement of the goals of the company, its working plan and its long term policy; |
b. | The creation of proper incentives for the office holders while taking into consideration, inter alia, the company's risk management policies; |
c. | The company's size and nature of its operations; |
d. | The contributions of the relevant office holders in achieving the goals of the company and profit in the long term in light of their positions; |
e. | The education, skills, expertise and achievements of the relevant office holders; |
f. | The role of the office holders, areas of their responsibilities and previous agreements with them; |
g. | The correlation of the proposed compensation with the compensation of other employees of the company, and the effect of such differences in compensation on the employment relations in the company; and |
h. | The long term performance of the office holder. |
(i) | the majority of the votes includes at least a majority of all the votes of shareholders who are not controlling shareholders of the company or who do not have a personal interest in the compensation policy and participating in the vote; abstentions shall not be included in the total of the votes of the aforesaid shareholders; or |
(ii) | the total of opposing votes from among the shareholders described in Sub-section (i) above does not exceed 2% of all the voting rights in the company. |
As of December 31, | 2019 | 2020 | 2021 | |||||||||
Total Employees | 260 | 289 | 315 | |||||||||
Marketing, Sales, Customer Services | 25 | 24 | 25 | |||||||||
Research & Development | 106 | 123 | 135 | |||||||||
Manufacturing | 110 | 124 | 138 | |||||||||
Corporate Operations and Administration | 19 | 18 | 17 |
Name | Number of Shares and Options Owned1 | Percent of Outstanding Shares | ||||||
Avi Eizenman | 319,083 | 4.68 | % | |||||
Shaike Orbach | * | * | ||||||
Eli Doron | * | * | ||||||
Ayelet Aya Hayak | * | * | ||||||
Ilan Erez | * | * | ||||||
Eran Gilad | * | * | ||||||
All directors and office holders as a group | 376,915 | 5.52 | % |
* | Denotes ownership of less than 1% of the outstanding shares. |
(1) | The table above includes the number of shares and options that are exercisable within 60 days of April 15, 2022. Ordinary shares subject to these options are deemed beneficially owned for the purpose of computing the ownership percentage of the person or group holding these options, but are not deemed outstanding for purposes of computing the ownership percentage of any other person. Except where otherwise indicated, and subject to applicable community property laws, based on information furnished to us by such owners or otherwise disclosed in any public filings, to our knowledge, the persons and entities named in the table have sole voting and dispositive power with respect to all shares shown as beneficially owned by them. |
Item 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
Name of Shareholder | Number of Shares and Options Owned(1) | Percentage of Outstanding Shares | ||||||
Wellington Management Group LLP(2) | 677,200 | 10.2 | % | |||||
Systemic Financial Management, LP(3) | 528,838 | 8.0 | % | |||||
First Wilshire Securities Management, Inc. (4) | 488,428 | 7.3 | % |
(1) | The table above includes the number of shares and options that are exercisable within 60 days of April 15, 2022. Ordinary shares subject to these options are deemed beneficially owned for the purpose of computing the ownership percentage of the person or group holding these options, but are not deemed outstanding for purposes of computing the ownership percentage of any other person. Except where otherwise indicated, and subject to applicable community property laws, based on information furnished to us by such owners or otherwise disclosed in any public filings, to our knowledge, the persons and entities named in the table have sole voting and dispositive power with respect to all shares shown as beneficially owned by them. All the information detailed in this table is as set forth in major shareholders' public filings, unless stated otherwise. |
(2) | As reported on Schedule 13G/A filed by Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP and Wellington Management Company LLP with the SEC on April 11, 2022. The securities as to which the Schedule was filed are owned of record by clients of one or more investment advisers, which are directly or indirectly owned by Wellington Management Group LLP. |
(3) | As reported on Schedule 13G/A filed by Systemic Financial Management, LP with the SEC on February 10, 2022. |
(4) | As reported on Schedules 13G filed by First Wilshire Securities Management, Inc. with the SEC on February 14, 2022. |
Item 8. | FINANCIAL INFORMATION |
Item 9. | THE OFFER AND LISTING |
PERIOD | LOW | HIGH | ||||||
LAST 6 CALENDAR MONTHS | ||||||||
March 2022 | 35.79 | 42.05 | ||||||
February 2022 | 40.00 | 45.69 | ||||||
January 2022 | 41.84 | 51.66 | ||||||
December 2021 | 43.20 | 52.75 | ||||||
November 2021 | 41.27 | 48.51 | ||||||
October 2021 | 36.02 | 43.84 | ||||||
FINANCIAL QUARTERS DURING THE PAST TWO YEARS | ||||||||
First Quarter 2022 | 35.79 | 51.66 | ||||||
Fourth Quarter 2021 | 36.02 | 52.75 | ||||||
Third Quarter 2021 | 40.25 | 46.11 | ||||||
Second Quarter 2021 | 38.97 | 47.51 | ||||||
First Quarter 2021 | 41.03 | 59.27 | ||||||
Fourth Quarter 2020 | 31.00 | 42.55 | ||||||
Third Quarter 2020 | 29.24 | 39.52 | ||||||
Second Quarter 2020 | 25.09 | 36.88 | ||||||
FIVE MOST RECENT FULL FINANCIAL YEARS | ||||||||
2021 | 36.02 | 59.27 | ||||||
2020 | 20.93 | 42.55 | ||||||
2019 | 28.59 | 40.36 | ||||||
2018 | 32.00 | 77.95 | ||||||
2017 | 34.86 | 77.05 |
Item 10. | ADDITIONAL INFORMATION |
• | Appointment or termination of our auditors; |
• | Appointment and dismissal of external directors, unless the company elects to opt-in to the exemptions promulgated under the Amendment to the Relief Regulations as detailed above, under which there is no requirement to appoint external directors; |
• | Approval of interested party acts and transactions requiring general meeting approval as provided in Sections 255 and 268 to 275 of the Companies Law; |
• | A merger as provided in Section 320(a) of the Companies Law; |
• | The exercise of the powers of the board of directors, if the board of directors is unable to exercise its powers and the exercise of any of its powers is vital for our proper management, as provided in Section 52(a) of the Companies Law; |
• | Amendments to our Articles of Association; and |
• | Approval of an increase or decrease of the registered share capital. |
• | All of the directors are permitted to vote on the matter and attend the meeting in which the matter is considered; and |
• | The matter requires approval of the shareholders at a general meeting. |
1. | A private placement that meets all of the following conditions: |
• | The private placement will increase the relative holdings of a shareholder that holds five percent or more of the company's outstanding share capital, assuming the exercise of all of the securities convertible into shares held by that person, or that will cause any person to become, as a result of the issuance, a holder of more than five percent of the company's outstanding share capital. |
• | 20 percent or more of the voting rights in the company prior to such issuance are being offered. |
• | All or part of the consideration for the offering is not cash or registered securities, or the private placement is not being offered at market terms. |
2. | A private placement which results in anyone becoming a "controlling shareholder" of the public company. |
• | Any amendment to the articles of association; |
• | An increase of the company's authorized share capital; |
• | A merger; or |
• | Approval of interested party acts and transactions that require general meeting approval as provided in Sections 255 and 268 to 275 of the Companies Law. |
• | Distribution of annual and quarterly reports to shareholders – Under Israeli law we are not required to distribute annual and quarterly reports directly to shareholders and the generally accepted business practice in Israel is not to distribute such reports to shareholders. We do however make our audited financial statements available to our shareholders prior to our annual general meeting and furnish our quarterly and annual financial results with the SEC on Form 6-K. |
• | Independence, Nomination and Compensation of Directors – A majority of our board of directors may not necessarily be comprised of independent directors as defined in NASDAQ Listing Rule 5605(a)(2). Our board of directors contains two external directors in accordance with the provisions of the Companies Law. Israeli law does not require, nor do our external directors conduct, regularly scheduled meetings at which only they are present. In addition, with the exception of our external directors, our directors are elected to our board of directors in accordance with the provisions set forth in our amended and restated Articles of Association, as approved by our shareholders on the Annual General Meeting which took place on June 8, 2016. According to our amended and restated Articles of Association, directors are divided into three groups, Group A, Group B and Group C. Each group is brought for re-election once every three years, on a rotating basis, such that at each annual general meeting of the shareholders a given group of directors is brought for election, to serve on a continuous basis for a three-year term, until the third annual general meeting following the meeting on which such group was elected for service and until their respective successors are duly elected, at which point their term in office shall expire. At each annual general meeting, the annual general meeting shall be entitled to elect directors to replace the directors whose three-year term in office has expired, and so on ad infinitum, so that each year, the term in office of one group of directors shall expire. The nominations for director which are presented to our shareholders are generally made by our board of directors. One or more shareholders of a company holding at least one percent of the voting power of the company may nominate a currently serving external director for an additional three-year term. Israeli law does not require the adoption of, and our board has not adopted, a formal written charter or board resolution addressing the nomination process and related matters. Compensation of our directors and other office holders of the Company is determined in accordance with Israeli law. |
• | Audit Committee – Our audit committee does not meet with all the requirements of NASDAQ Listing Rule 5605. We are of the opinion that the members of our audit committee comply with the requirements of NASDAQ Listing Rule 5605(c)(3) and Rule 10A-3(b) of the general rules and regulations promulgated under the Securities Act of 1933 and all requirements under Israeli law. Our audit committee has not adopted a formal written audit committee charter specifying the items enumerated in NASDAQ Listing Rule 5605(c)(1). |
• | Compensation Committee – We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities of our compensation committee, office holder compensation, and any required approval by the shareholders of such compensation. Israeli law, and our amended and restated Articles of Association, do not require that a compensation committee composed solely of independent members of our board of directors determine (or recommend to the board of directors for determination) an executive officer's compensation, as required under NASDAQ's listing standards related to compensation committee independence and responsibilities; nor do they require that the Company adopt and file a compensation committee charter. Instead, our compensation committee has been established and conducts itself in accordance with provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law. Furthermore, the compensation of office holders is determined and approved by our compensation committee and our Board of Directors, and in certain circumstances by our shareholders, either in consistency with our previously approved Executive Compensation Policy or, in special circumstances in deviation therefrom, taking into account certain considerations set forth in the Companies Law. The requirements for shareholder approval of any office holder compensation, and the relevant majority or special majority for such approval, are all as set forth in the Companies Law. Thus, we will seek shareholder approval for all corporate actions with respect to office holder compensation requiring such approval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the Executive Compensation Policy and for certain office holder compensation, rather than seeking approval for such corporate actions in accordance with NASDAQ Listing Rules. |
• | Quorum – Under Israeli law a company is entitled to determine in its articles of association the number of shareholders and percentage of holdings required for a quorum at a shareholders meeting. Our Articles of Association provide that a quorum of two or more shareholders, present in person or by proxy, holding shares conferring in the aggregate more than thirty-three and a third (33 1/3 %) percent of the voting power of the Company is required for commencement of business at a general meeting. |
• | Approval of Related Party Transactions – All related party transactions are approved in accordance with the requirements and procedures for approval of interested party acts and transactions, set forth in Sections 268 to 275 of the Companies Law. |
• | Shareholder Approval – We seek shareholder approval for all corporate action requiring such approval, in accordance with the requirements of the Companies Law. |
• | Equity Compensation Plans – We do not necessarily seek shareholder approval for the establishment of, and amendments to, stock option or equity compensation plans (as set forth in NASDAQ Listing Rule 5635(c)), as such matters are not subject to shareholder approval under Israeli law. We will attempt to seek shareholder approval for our stock option or equity compensation plans (and the relevant annexes thereto) to the extent required in order to ensure they are tax qualified for our employees in the United States. However, even if such approval is not received, then the stock option or equity compensation plans will continue to be in effect, but the Company will be unable to grant options to its U.S. employees that qualify as Incentive Stock Options for U.S. federal tax purpose. Our stock option or other equity compensation plans are also available to our non-U.S. employees, and provide features necessary to comply with applicable non-U.S. tax laws. |
(a) | Amortization of expenses incurred in connection with certain public securities issuances over a three-year period; and |
(b) | Accelerated depreciation rates on know-how, patents and/or right to use a patent or certain other intangible property rights. |
Item 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Item 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Item 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
Item 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
Item 15. | CONTROLS AND PROCEDURES |
Item 15A. | CONTROLS AND PROCEDURES |
Item 16. | Reserved. |
Item 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
Item 16B. | CODE OF ETHICS |
Item 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
2021 | 2020 | |||||||||||||||
PWC | KPMG | PWC | KPMG | |||||||||||||
Audit Fees(1) | $ | 120,000 | $ | 20,000 | - | $ | 120,000 | |||||||||
Audit-Related Fees(2) | - | - | - | $ | 5,900 | |||||||||||
Tax Fees(3) | $ | 2,800 | $ | 56,744 | - | $ | 77,522 |
(1) | Audit Fees consist of fees for professional services rendered for the audit of the Company's annual consolidated financial statements and services normally provided by the independent auditor in connection with statutory and regulatory filings or engagements. |
(2) | Audit-Related Fees consist of accounting consultation and consultation on financial accounting standards, not arising as part of the audit, as well as procedures performed over registration statements. |
(3) | Tax Fees are the aggregate fees billed for professional services rendered for tax compliance, transfer pricing studies, and tax advice other than in connection with the Audit. Tax compliance involves audit of original and amended tax returns, tax planning and tax advice. |
Item 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Item 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
Period | Total Number of Shares Purchased | Average Price Paid per Share (US$) | Total Number of Shares Purchased as Part of Publicly Announced Plan | Approximate Dollar Value that May Yet Be Purchased Under the Plan (US$) | ||||||||||||
January 1, 2021 - January 31, 2021(1) | 19,594 | 44.036 | 775,141 | 4,389,599 | ||||||||||||
February 1, 2021 - February 28, 2021(1) | 25,050 | 46.239 | 800,191 | 3,231,313 | ||||||||||||
March 1, 2021 - March 31, 2021(1) | 41,450 | 47.121 | 841,641 | 1,278,130 | ||||||||||||
April 1 2021 - April 26, 2021 (1) | 28,175 | 45.307 | 869,816 | 1,599 | ||||||||||||
April 1 2021 - April 30, 2021 (1) | 28,175 | 45.307 | 869,816 | 1,599 | ||||||||||||
May 04, 2021 - May 31, 2021 (2) | 26,261 | 40.888 | 896,077 | 13,926,228 | ||||||||||||
May 1, 2021 - May 31, 2021 (2) | 26,261 | 40.888 | 896,077 | 13,926,228 | ||||||||||||
June 1, 2021 - June 30, 2021(2) | 28,370 | 43.986 | 924,447 | 12,678,351 | ||||||||||||
July 1, 2021 - July 31, 2021 (2) | 25,130 | 42.686 | 949,577 | 11,605,662 | ||||||||||||
August 1, 2021 - August 31, 2021(2) | 21,966 | 44.056 | 971,543 | 10,637,936 | ||||||||||||
September 1, 2021 - September 30, 2021(2) | 25,914 | 43.172 | 997,457 | 9,519,188 | ||||||||||||
October 1, 2021 - October 31, 2021(2) | 29,068 | 40.506 | 1,026,525 | 8,341,753 | ||||||||||||
November 1, 2021 - November 30, 2021(2) | 27,831 | 45.536 | 1,054,356 | 7,074,432 | ||||||||||||
December 1, 2021 - December 31, 2021(2) | 23,880 | 46.674 | 1,078,236 | 5,959,861 |
(1) | On April 30, 2020, our Board of Directors determined that it was in the Company's best interest to pursue a repurchase plan of Ordinary Shares from the Company's shareholders, for a total amount not exceeding $15,000,000. The plan was in effect for a one-year period commencing on May 4, 2020. According to the plan, repurchases could be made in the open market subject to applicable securities laws and regulations. The timing and amount of each repurchase transaction was subject to a variety of factors and did not obligate the Company to acquire any specific number of ordinary shares and authorized management to determine at its discretion, at any time, whether to continue, suspend, or terminate the plan. |
(2) | On April 29, 2021, our Board of Directors determined that it was in the Company's best interest to pursue a new repurchase plan of Ordinary Shares from the Company's shareholders, for a total amount not exceeding $15,000,000, upon similar terms to the prior plan, and which shall be in effect for a one-year period commencing on May 3, 2021, unless otherwise determined by the Board of Directors. |
Item 16F. | CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT |
Item 16G. | CORPORATE GOVERNANCE |
• | We are not required to distribute annual and quarterly reports directly to shareholders, but we do make our audited financial statements available to our shareholders prior to our annual general meeting and furnish our quarterly and annual financial results with the SEC on Form 6-K; |
• | A majority of our Board of Directors may not necessarily be comprised of independent directors as defined in the NASDAQ Listing Rules, however, a majority of our audit committee are independent directors in accordance with NASDAQ Listing Rule 5605(a)(2). Our directors are elected to our Board of Directors in accordance with the new directors voting mechanism approved by our shareholders on the Annual General Meeting which took place on June 8, 2016. According to said directors voting mechanism, directors are divided into three groups, Group A, Group B and Group C. Each group is brought for re-election once every three years, on a rotating basis, such that at each annual general meeting of the shareholders a given group of directors is brought for election, to serve on a continuous basis for a three-year term, until the third annual general meeting following the meeting on which such group was elected for service and until their respective successors are duly elected, at which point their term in office shall expire. At each annual general meeting, the annual general meeting shall be entitled to elect directors to replace the directors whose three-year term in office has expired, and so on ad infinitum, so that each year, the term in office of one group of directors shall expire. The nominations for director which are presented to our shareholders are generally made by our board of directors. Pursuant to the Companies Law, one or more shareholders of a company holding at least one percent of the voting power of the company may nominate a currently serving external director for an additional three-year term. Israeli law does not require the adoption of, and our board has not adopted, a formal written charter or board resolution addressing the nomination process and related matters. Compensation of our directors and other office holders of the Company is determined in accordance with Israeli law; |
• | Our audit committee has not adopted a formal written audit committee charter specifying the items enumerated in NASDAQ Listing Rule 5605(c)(1). We believe that the members of our audit committee comply with the requirements of the Israeli law, as well as NASDAQ Listing Rule 5605(c)(3) and Rule 10A-3(b) of the general rules and regulations promulgated under the Securities Act of 1933. For a detailed discussion please refer to "Item 6 – Directors, Senior Management and Employees – Audit Committee"; |
• | As opposed to NASDAQ Listing Rule 5620(c)(3), which sets forth a minimum quorum for a shareholders meeting, under Israeli law a company is entitled to determine in its articles of association the number of shareholders and percentage of holdings required for a quorum at a shareholders meeting. Our current Articles of Association provide that a quorum of two or more shareholders, present in person or by proxy, holding shares conferring in the aggregate more than thirty-three and a third (33 1/3 %) percent of the voting power of the Company is required; |
• | All related party transactions are approved in accordance with the requirements and procedures for approval of interested party acts and transactions set forth in the Companies Law, and are not subject to the review process set forth in NASDAQ Listing Rule 5630. For a detailed discussion please refer to "Item 10 – Additional Information – the Companies Law"; |
• | We seek shareholder approval for all corporate action requiring such approval in accordance with the requirements of the Companies Law rather than under the requirements of the NASDAQ Marketplace Rules, including (but not limited to) the appointment or termination of auditors, appointment and dismissal of directors, approval of interested party acts and transactions requiring general meeting approval as discussed above and a merger; |
• | We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities of our compensation committee, office holder compensation, and any required approval by the shareholders of such compensation. Israeli law, and our amended and restated Articles of Association, do not require that a compensation committee composed solely of independent members of our board of directors determine (or recommend to the board of directors for determination) an executive officer's compensation, as required under NASDAQ listing standards related to compensation committee independence and responsibilities; nor do they require that the Company adopt and file a compensation committee charter. Instead, our compensation committee has been established and conducts itself in accordance with provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law. Furthermore, the compensation of office holders is determined and approved by our compensation committee and our board of directors, and in certain circumstances by our shareholders, either in consistency with our previously approved Executive Compensation Policy or, in special circumstances in deviation therefrom, taking into account certain considerations set forth in the Companies Law. The requirements for approval by the shareholders for any office holder compensation, and the relevant majority or special majority for such approval, are all as set forth in the Companies Law. Thus, we will seek shareholder approval for all corporate actions with respect to office holder compensation requiring such approval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the Executive Compensation Policy and for certain office holder compensation, rather than seeking approval for such corporate actions in accordance with NASDAQ Listing Rules; and |
• | We do not necessarily seek shareholder approval for the establishment of, and amendments to, stock option or equity compensation plans (as set forth in NASDAQ Listing Rule 5635(c)), as such matters are not subject to shareholder approval under Israeli law. We will attempt to seek shareholder approval for our stock option or equity compensation plans (and the relevant annexes thereto) to the extent required in order to ensure they are tax qualified for our employees in the United States. However, if such approval is not received, then the stock option or equity compensation plans will continue to be in effect, but the Company will be unable to grant options to its U.S. employees that qualify as Incentive Stock Options for U.S. federal tax purpose. Our stock option or other equity compensation plans are also available to our non-U.S. employees, and provide features necessary to comply with applicable non-U.S. tax laws. |
• | Our Board of Directors determined that the Company meets all of the requirements of the Israeli Companies Regulations (Relief for Companies Whose Shares Are Registered for Trading Outside of Israel), 2000 (the "Regulations"), pursuant to which Israeli companies which meet all of the following conditions may opt-out of certain Israeli regulations governing the appointment of external directors and the composition of the audit and compensation committees (the "Israeli Dahatz Rules"): (1) the Company's shares are listed on a foreign stock exchange which is referenced in Section 5A(c) of the Regulations, which includes, among others, the New York Stock Exchange (NYSE); NASDAQ Global Select Market; and NASDAQ Global Market; (2) the Company does not have a controlling shareholder; and (3) the Company complies with the requirements of the foreign securities laws and stock exchange regulations relating to appointment of independent directors and composition of the audit and compensation committees as applicable to companies which are incorporated under the laws of such foreign countries. The Board of Directors approved the opt-out of the Israeli Dahatz Rules and follow the requirements of the NASDAQ Listing Rules and the rules under the Securities Act relating to appointment of independent directors and composition of the audit and compensation committees which are applicable to companies which are incorporated under the laws of the United States, effective July 29, 2020. |
Item 16H. | MINE SAFETY DISCLOSURE |
Item 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
Item 17. | FINANCIAL STATEMENTS |
Item 18. | FINANCIAL STATEMENTS |
Item 19. | EXHIBITS |
1.1 |
4.1 |
4.1 |
4.2 |
4.3 |
4.4 |
4.5 |
4.6 |
4.7 |
8.1 |
11.1 |
12.1 |
12.2 |
13.1 |
13.2 |
15.1 |
15.2 |
16.1 |
(*) | Filed herewith. |
SILICOM LIMITED By: /s/ Shaike Orbach Shaike Orbach Chief Executive Officer |
Contents
Page | |
Report of Independent Registered Public Accounting Firms (PCAOB ID: 1309) | F - 3 |
Report of Independent Registered Public Accounting Firm (PCAOB ID: 1057) | F - 5 |
F - 6 | |
F - 8 | |
F - 9 | |
F - 10 | |
F - 11 |
We have audited the accompanying consolidated balance sheet of Silicom Ltd. and subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Consolidated Balance Sheets as of December 31 | |||||||||||
2020 | 2021 | ||||||||||
Note | US$ thousands | US$ thousands | |||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | 4 | 20,676 | 29,285 | ||||||||
Short-term bank deposits | 2F | 5,000 | 0 | ||||||||
Marketable securities | 2G, 5 | 35,117 | 8,266 | ||||||||
Accounts receivable: | |||||||||||
Trade, net | 2H | 21,660 | 31,120 | ||||||||
Other | 6 | 6,126 | 4,693 | ||||||||
Inventories | 7 | 47,650 | 75,753 | ||||||||
Total current assets | 136,229 | 149,117 | |||||||||
Marketable securities | 2G, 5 | 15,281 | 23,773 | ||||||||
Assets held for employees' severance benefits | 12 | 1,833 | 1,882 | ||||||||
Deferred tax assets | 16G | 1,790 | 1,616 | ||||||||
Property, plant and equipment, net | 8 | 4,110 | 4,576 | ||||||||
Intangible assets, net | 9 | 1,170 | 4,314 | ||||||||
Operating leases right-of-use, net | 11 | 9,913 | 8,765 | ||||||||
Goodwill | 25,561 | 25,561 | |||||||||
Total assets | 195,887 | 219,604 |
Avi Eizenman | Shaike Orbach | Eran Gilad | ||
Chairman of the Board of Directors | Chief Executive Officer | Chief Financial Officer |
Consolidated Balance Sheets as of December 31 (Continued) | |||||||||||
2020 | 2021 | ||||||||||
Note | US$ thousands | US$ thousands | |||||||||
Liabilities and shareholders' equity | |||||||||||
Current liabilities | |||||||||||
Trade accounts payable | 14,610 | 29,918 | |||||||||
Other accounts payable and accrued expenses | 10 | 12,953 | 18,582 | ||||||||
Operating lease liabilities | 11 | 1,813 | 1,811 | ||||||||
Total current liabilities | 29,376 | 50,311 | |||||||||
Long-term liabilities | |||||||||||
Operating lease liabilities | 11 | 8,282 | 7,377 | ||||||||
Liability for employees' severance benefits | 12 | 3,256 | 3,443 | ||||||||
Deferred tax liabilities | 16G | 136 | 10 | ||||||||
Total liabilities | 41,050 | 61,141 | |||||||||
Shareholders' equity | 13 | ||||||||||
Ordinary shares, ILS 0.01 par value; 10,000,000 shares | |||||||||||
authorized; 7,670,033 and 7,670,033 issued as at | |||||||||||
December 31, 2020 and 2021, respectively; | |||||||||||
6,899,515 and 6,709,528 outstanding as at | |||||||||||
December 31, 2020 and 2021, respectively | 22 | 22 | |||||||||
Additional paid-in capital | 60,117 | 63,390 | |||||||||
Treasury shares (at cost) 770,518 and 960,505 ordinary shares as at | |||||||||||
December 31, 2020 and 2021, respectively | (24,807 | ) | (34,995 | ) | |||||||
Retained earnings | 119,505 | 130,046 | |||||||||
Total shareholders' equity | 154,837 | 158,463 | |||||||||
Total liabilities and shareholders’ equity | 195,887 | 219,604 |
Consolidated Statements of Operations for the Year Ended December 31 | |||||||||||||||
2019 | 2020 | 2021 | |||||||||||||
US$ thousands | |||||||||||||||
Note | Except for share and per share data | ||||||||||||||
Sales | 2O, 14 | 105,240 | 107,398 | 128,460 | |||||||||||
Cost of sales | 69,146 | 73,632 | 84,072 | ||||||||||||
Gross profit | 36,094 | 33,766 | 44,388 | ||||||||||||
Operating expenses | |||||||||||||||
Research and development | 15,075 | 17,244 | 20,091 | ||||||||||||
Sales and marketing | 6,647 | 6,209 | 6,599 | ||||||||||||
General and administrative | 4,159 | 4,065 | 4,641 | ||||||||||||
Total operating expenses | 25,881 | 27,518 | 31,331 | ||||||||||||
Operating income | 10,213 | 6,248 | 13,057 | ||||||||||||
Financial income, net | 15 | 1,646 | 1,034 | (152 | ) | ||||||||||
Income before income taxes | 11,859 | 7,282 | 12,905 | ||||||||||||
Income taxes | 16 | 1,623 | 1,557 | 2,364 | |||||||||||
Net income | 10,236 | 5,725 | 10,541 | ||||||||||||
Income per share: | |||||||||||||||
Basic income per ordinary share (US$) | 2U | 1.361 | 0.804 | 1.544 | |||||||||||
Diluted income per ordinary share (US$) | 1.352 | 0.800 | 1.513 | ||||||||||||
Weighted average number of ordinary shares used to compute basic income per share (in thousands) | 7,520 | 7,118 | 6,826 | ||||||||||||
Weighted average number of ordinary shares used to compute diluted income per share (in thousands) | 7,573 | 7,157 | 6,969 |
Ordinary shares | Additional paid-in capital | Treasury shares(3) | Retained earnings | Total shareholders’ equity | ||||||||||||||||||||
Number of shares(1) | US$ thousands | |||||||||||||||||||||||
Balance at January 1, 2019 | 7,559,205 | 22 | 54,621 | (38 | ) | 103,544 | 158,149 | |||||||||||||||||
Exercise of options and RSUs(2) | 44,500 | *0 | 154 | 0 | 0 | 154 | ||||||||||||||||||
Purchase of treasury shares | (252,388 | ) | 0 | 0 | (7,971 | ) | 0 | (7,971 | ) | |||||||||||||||
Share-based compensation | - | 0 | 2,355 | 0 | 0 | 2,355 | ||||||||||||||||||
Net income | - | 0 | 0 | 0 | 10,236 | 10,236 | ||||||||||||||||||
Balance at December 31, 2019 | 7,351,317 | 22 | 57,130 | (8,009 | ) | 113,780 | 162,923 | |||||||||||||||||
Exercise of options and RSUs(2) | 51,357 | *0 | 276 | 0 | 0 | 276 | ||||||||||||||||||
Purchase of treasury shares | (503,159 | ) | 0 | 0 | (16,798 | ) | 0 | (16,798 | ) | |||||||||||||||
Share-based compensation | - | 0 | 2,711 | 0 | 0 | 2,711 | ||||||||||||||||||
Net income | - | 0 | 0 | 0 | 5,725 | 5,725 | ||||||||||||||||||
Balance at December 31, 2020 | 6,899,515 | 22 | 60,117 | (24,807 | ) | 119,505 | 154,837 | |||||||||||||||||
Purchase of treasury shares | (322,689 | ) | 0 | 0 | (14,291 | ) | 0 | (14,291 | ) | |||||||||||||||
Reissuance of treasury shares under share-based compensation plan | 132,702 | *0 | 411 | 4,103 | 0 | 4,514 | ||||||||||||||||||
Share-based compensation | - | 0 | 2,862 | 0 | 0 | 2,862 | ||||||||||||||||||
Net income | - | 0 | 0 | 0 | 10,541 | 10,541 | ||||||||||||||||||
Balance at December 31, 2021 | 6,709,528 | 22 | 63,390 | (34,995 | ) | 130,046 | 158,463 |
(1) | Net of shares held by Silicom Inc. and Silicom Ltd. |
(2) | Restricted share units (hereinafter - "RSUs") |
(3) | Company shares held by the Company. Presented as a reduction of equity at their cost to the Company. |
The treasury shares have no rights. | |
* | Less than 1 thousand. |
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Cash Flows for the Year Ended December 31 | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
US$ thousands | ||||||||||||
Cash flows from operating activities | ||||||||||||
Net income | 10,236 | 5,725 | 10,541 | |||||||||
Adjustments required to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation and amortization | 1,997 | 2,384 | 2,437 | |||||||||
Impairment of intangible assets | 0 | 1,657 | 0 | |||||||||
Write-down of obsolete inventory | 2,106 | 1,578 | 5,246 | |||||||||
Discount on marketable securities, net | 144 | 244 | 621 | |||||||||
Share-based compensation expense | 2,355 | 2,711 | 2,862 | |||||||||
Deferred taxes, net | (699 | ) | (61 | ) | 48 | |||||||
Changes in assets and liabilities: | ||||||||||||
Accounts receivable - trade | (1,441 | ) | 3,467 | (9,472 | ) | |||||||
Accounts receivable - other | 4,385 | (1,362 | ) | 1,217 | ||||||||
Accounts receivable - related parties | 364 | 0 | 0 | |||||||||
Change in liability for employees' severance benefits, net | 175 | 153 | 138 | |||||||||
Inventories | 3,529 | (13,336 | ) | (33,526 | ) | |||||||
Trade accounts payable | 769 | (2,076 | ) | 15,031 | ||||||||
Other accounts payable and accrued expenses | 2,824 | 3,872 | 5,936 | |||||||||
Accounts payable - related parties | (18 | ) | 0 | 0 | ||||||||
Net cash provided by operating activities | 26,726 | 4,956 | 1,079 | |||||||||
Cash flows from investing activities | ||||||||||||
Investment in short-term bank deposits, net | (13,542 | ) | 8,542 | 5,000 | ||||||||
Purchase of property, plant and equipment | (1,441 | ) | (1,694 | ) | (2,586 | ) | ||||||
Investment in intangible assets | (1,018 | ) | (1,487 | ) | (3,572 | ) | ||||||
Proceeds from maturity of marketable securities | 1,997 | 16,629 | 37,850 | |||||||||
Purchases of marketable securities | (15,604 | ) | (6,558 | ) | (19,927 | ) | ||||||
Net cash provided by (used in) investing activities | (29,608 | ) | 15,432 | 16,765 | ||||||||
Cash flows from financing activities | ||||||||||||
Exercise of options | 154 | 276 | 0 | |||||||||
Purchase of treasury shares | (7,971 | ) | (16,798 | ) | (14,291 | ) | ||||||
Proceeds from reissuance of treasury shares upon exercise of options | 0 | 0 | 4,514 | |||||||||
Net cash used in financing activities | (7,817 | ) | (16,522 | ) | (9,777 | ) | ||||||
Effect of exchange rate changes on cash balances held | 360 | 341 | 542 | |||||||||
Increase (decrease) in cash and cash equivalents | (10,339 | ) | 4,207 | 8,609 | ||||||||
Cash and cash equivalents at beginning of year | 26,808 | 16,469 | 20,676 | |||||||||
Cash and cash equivalents at end of year | 16,469 | 20,676 | 29,285 | |||||||||
Supplementary cash flow information | ||||||||||||
A. Non-cash transactions: | ||||||||||||
Investments in property, plant and equipment and ROU | 1,621 | 7,548 | 510 | |||||||||
B. Cash paid during the year for: | ||||||||||||
Income taxes | 1,103 | 1,284 | 2,371 |
The significant accounting policies, which are applied consistently throughout the periods presented, are as follows:
A. | Financial statements in US dollars |
B. | Basis of presentation |
F - 11
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
C. | Estimates and assumptions |
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include revenue recognition over time, credit loss, income taxes, inventories, marketable securities, goodwill, intangible assets and share-based compensation.
D. | Business combinations |
E. | Cash and cash equivalents |
F. | Short-term bank deposits |
G. | Marketable securities |
F - 12
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Summary of significant Accounting Policies (cont’d)
G. | Marketable securities (cont’d) |
When other-than-temporary impairment has occurred, the amount of the other-than-temporary impairment recognized in earnings depends on whether the Company intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss.
The Company’s impairment policy from January 1, 2020, following the adoption of the new CECL standard
On January 1, 2020, the Company adopted ASU 2016-13 (Topic 326) Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, as further clarified by the Financial Accounting Standards Board (the "FASB") through the issuance of additional related ASUs, which requires the measurement and recognition of current expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the previous incurred loss impairment model with an expected loss model, which requires the use of forward-looking information to calculate credit loss estimates. The Company adopted the standard under the modified retrospective approach.
H. | Trade accounts receivable, net |
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows.
The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and its customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns.
The Company’s accounts receivables accounting policy from January 1, 2020, following the adoption of the new CECL standard
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows.
The Company presents accounts receivable in the consolidated balance sheets net of allowance for credit losses for potential uncollectible amounts. The Company estimates the collectability of accounts receivable balances and adjust the allowance for credit losses based on the Company's assessment of collectability by reviewing accounts receivable on an aggregated basis where similar characteristics exist and on an individual basis when it identifies specific customers with known disputes or collectability issues. The Company also considers a number of factors to assess collectability, including the past due status, creditworthiness of the specific customer, payment history and reasonable and supportable forecasts of future economic conditions.
F - 13
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Summary of significant Accounting Policies (cont’d)
I. | Inventories |
J. | Assets held for employees’ severance benefits |
K. | Property, plant and equipment |
% | |
Machinery and equipment | 15 - 33 |
Office furniture and equipment | 6 - 33 |
Leasehold improvements | * |
* | Over the shorter term of the lease or the useful life of the asset |
L. | Goodwill and other intangible assets |
F - 14
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Summary of significant Accounting Policies (cont’d)
L. | Goodwill and other intangible assets (cont’d) |
The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company performs a qualitative assessment and concludes that it is more likely than not that the fair value of a reporting unit exceeds its carrying value, goodwill is not considered impaired and the impairment test is not required. However, if the Company concludes otherwise, it is then required to perform a quantitative assessment for goodwill impairment.
The Company performs its quantitative goodwill impairment test by comparing the fair value of its reporting unit with its carrying value. If the reporting unit’s carrying value is determined to be greater than its fair value, an impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. If the fair value of the reporting unit is determined to be greater than its carrying amount, the applicable goodwill is not impaired.
During the years ended December 31, 2019, 2020 and 2021, no impairments were found and therefore no impairment losses were recorded.
M. | Impairment of long-lived assets |
F - 15
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
N. | Leases |
F - 16
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 2 - Summary of significant Accounting Policies (cont’d)
N. | Leases (cont’d) |
After lease commencement, the Company measures the lease liability at the present value of the remaining lease payments using the discount rate determined at lease commencement (as long as the discount rate hasn’t been updated as a result of a reassessment event). The Company subsequently measures the ROU asset at the present value of the remaining lease payments, adjusted for the remaining balance of any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term.
The Company’s lease agreements have remaining lease terms of 2 to 9 years. Some of these agreements include options to terminate the leases immediately. Some of our vehicle lease agreements include rental payments based on the actual usage of the vehicles and other lease agreements include rental payments adjusted periodically for inflation. The agreements related to leases in Israel are in Israeli Shekel ("ILS") or in ILS linked to the Israeli Consumer Price Index or to the US Dollars. The agreements related to leases in the USA are in US Dollars and the agreements related to leases in Denmark are in Danish Krone ("DKK"). The Company’s lease agreements do not contain any residual value guarantees. See Note 11.
O. | Revenue recognition |
F - 17
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
P. | Research and development costs |
Q. | Allowance for product warranty |
R. | Treasury shares |
F - 18
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
S. | Income taxes |
T. | Share-based compensation |
F - 19
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
U. | Basic and diluted earnings per share |
Year ended December 31 | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
Net income attributable to ordinary shares (US$ thousands) | 10,236 | 5,725 | 10,541 | |||||||||
Weighted average number of ordinary shares outstanding used in basic income per ordinary share calculation | 7,520,389 | 7,118,244 | 6,825,630 | |||||||||
Add assumed exercise of outstanding dilutive potential ordinary shares | 52,228 | 38,519 | 143,172 | |||||||||
Weighted average number of ordinary shares outstanding used in diluted income per ordinary share calculation | 7,572,617 | 7,156,763 | 6,968,802 | |||||||||
Basic income per ordinary shares (US$) | 1.361 | 0.804 | 1.544 | |||||||||
Diluted income per ordinary shares (US$) | 1.352 | 0.800 | 1.513 | |||||||||
Weighted average number of shares related to options excluded from the diluted earnings per share calculation because of anti-dilutive effect | 351,610 | 180,916 | 65,534 |
F - 20
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
V. | Comprehensive Income |
W. | Fair Value Measurements |
F - 21
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
X. | Concentrations of risks |
Y. | Liabilities for loss contingencies |
F - 22
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
A. | ADI Engineering, Inc. |
B. | Silicom Denmark |
F - 23
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
December 31 | ||||||||
2020 | 2021 | |||||||
US$ thousands | ||||||||
Cash | 19,477 | 25,368 | ||||||
Cash equivalents * | 1,199 | 3,917 | ||||||
20,676 | 29,285 |
* | Comprised mainly of bank deposits in ILS as at December 31, 2020 and 2021 carrying a weighted average interest rate of 0.84% and 0.03%, respectively. |
F - 24
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Amortized cost basis** | Gross unrealized holding gains | Gross unrealized holding (losses) | Aggregate fair value* | |||||||||||||
US$ thousands | ||||||||||||||||
At December 31, 2021 | ||||||||||||||||
Held to maturity: | ||||||||||||||||
Corporate debt securities and government debt securities | ||||||||||||||||
Current | 8,300 | 43 | (19 | ) | 8,324 | |||||||||||
Non-Current (1 to 4 years) | 23,966 | 10 | (512 | ) | 23,464 | |||||||||||
32,266 | 53 | (531 | ) | 31,788 | ||||||||||||
At December 31, 2020 | ||||||||||||||||
Held to maturity: | ||||||||||||||||
Corporate debt securities and government debt securities | ||||||||||||||||
Current | 35,445 | 265 | (102 | ) | 35,608 | |||||||||||
Non-Current (1 to 5 years) | 15,365 | 339 | 0 | 15,704 | ||||||||||||
50,810 | 604 | (102 | ) | 51,312 |
* | Fair value is being determined using Level 2 inputs. |
** | Including accrued interest in the amount of US$ 412 thousand and US$ 227 thousand as of December 31, 2020 and 2021, respectively. |
The accrued interest is presented as part of other receivables on the balance sheet. |
Activity in marketable securities in 2021 | US$ thousands | |||
Balance at January 1, 2020 | 61,125 | |||
Purchases of marketable securities | 6,558 | |||
Discount on marketable securities, net | (244 | ) | ||
Proceeds from maturity of marketable securities | (16,629 | ) | ||
Balance at January 1, 2021 | 50,810 | |||
Purchases of marketable securities | 19,927 | |||
Discount on marketable securities, net | (621 | ) | ||
Proceeds from maturity of marketable securities | (37,850 | ) | ||
Balance at December 31, 2021 | 32,266 |
F - 25
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Held to maturity: | Unrealized Losses | Fair value | Unrealized Losses | Fair value | Unrealized Losses | Fair value | ||||||||||||||||||
Corporate debt securities and government debt securities | (531 | ) | 25,814 | 0 | 0 | (531 | ) | 25,814 |
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Held to maturity: | Unrealized Gains | Fair value | Unrealized Gains | Fair value | Unrealized Gains | Fair value | ||||||||||||||||||
Corporate debt securities and government debt securities | 0 | 0 | 53 | 5,974 | 53 | 5,974 |
December 31 | ||||||||
2020 | 2021 | |||||||
US$ thousands | ||||||||
Advances to suppliers | 618 | 333 | ||||||
Government authorities | 3,668 | 2,184 | ||||||
Prepaid expense | 477 | 768 | ||||||
Other receivables | 1,363 | 1,408 | ||||||
6,126 | 4,693 |
December 31 | ||||||||
2020 | 2021 | |||||||
US$ thousands | ||||||||
Raw materials and components | 29,362 | 57,156 | ||||||
Products in process | 10,041 | 11,186 | ||||||
Finished products | 8,247 | 7,411 | ||||||
47,650 | 75,753 |
In the years ended December 31, 2019, 2020 and 2021, the Company recorded inventory write-downs in the amount of US$ 2,106 thousand, US$ 1,578 thousand and US$ 5,246 thousand respectively.
F - 26
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
December 31 | ||||||||
2020 | 2021 | |||||||
US$ thousands | ||||||||
Machinery and equipment | 15,494 | 17,305 | ||||||
Office furniture and equipment | 991 | 1,129 | ||||||
Leasehold improvements | 2,884 | 3,406 | ||||||
Property, plant and equipment | 19,369 | 21,840 | ||||||
Accumulated depreciation | (15,259 | ) | (17,264 | ) | ||||
Property, Plant and equipment, net | 4,110 | 4,576 |
Depreciation expense for the years ended December 31, 2019, 2020 and 2021 were US$ 1,731 thousand, US$ 2,000 thousand and US$ 2,009 thousand, respectively.
F - 27
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
December 31 | ||||||||||||
2020 | 2021 | |||||||||||
Useful | US$ thousands | |||||||||||
Original cost: | ||||||||||||
Capitalization of software development costs | 3 | 2,983 | 6,546 | |||||||||
Licenses | 3 | 556 | 565 | |||||||||
3,539 | 7,111 | |||||||||||
Accumulated amortization: | ||||||||||||
Capitalization of software development costs | 2,163 | 2,366 | ||||||||||
Licenses | 206 | 431 | ||||||||||
2,369 | 2,797 | |||||||||||
Intangible assets, net: | ||||||||||||
Capitalization of software development costs | 820 | 4,180 | ||||||||||
Licenses | 350 | 134 | ||||||||||
1,170 | 4,314 |
F - 28
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 10 – Other accounts payable and accrued expenses |
December 31 | ||||||||
2020 | 2021 | |||||||
US$ thousands | ||||||||
Accrued expenses | 2,739 | 8,664 | ||||||
Employee benefits | 6,154 | 6,562 | ||||||
Government authorities | 632 | 577 | ||||||
Other payables | 3,428 | 2,779 | ||||||
12,953 | 18,582 |
A. | The components of operating lease cost for the year ended December 31, 2021 and 2020 were as follows: |
Year ended December 31 | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
US$ thousands | ||||||||||||
Operating lease costs (mainly plant and offices) | 1,494 | 1,623 | 1,921 | |||||||||
Variable lease payments not included in the lease liability | 2 | 3 | 8 | |||||||||
Short-term lease cost | 287 | 285 | 278 | |||||||||
Total operating lease cost | 1,783 | 1,911 | 2,207 |
B. | Supplemental cash flow information related to operating leases was as follows: |
Year ended December 31 | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
US$ thousands | ||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||
Operating cash flows from operating leases | 1,541 | 1,601 | 1,887 | |||||||||
Right-of-use assets obtained in exchange for lease liabilities (non-cash): | ||||||||||||
Operating leases | 1,524 | 7,201 | 451 |
C. Supplemental balance sheet information related to operating leases was as follows:
December 31 | ||||||||
2020 | 2021 | |||||||
US$ thousands | ||||||||
Operating leases: | ||||||||
Operating leases right-of-use | 9,913 | 8,765 | ||||||
Current operating lease liabilities | 1,813 | 1,811 | ||||||
Non-current operating lease liabilities | 8,282 | 7,377 | ||||||
Total operating lease liabilities | 10,095 | 9,188 |
F - 29
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
December 31 | ||||||||
2020 | 2021 | |||||||
US$ thousands | ||||||||
Weighted average remaining lease term (years) | 8.2 | 7.3 | ||||||
Weighted average discount rate | 2.4 | % | 2.3 | % |
December 31, 2021 | ||||
US$ thousands | ||||
2022 | 1,813 | |||
2023 | 1,597 | |||
2024 | 1,235 | |||
2025 | 1,011 | |||
After 2026 | 4,090 | |||
Total operating lease payments | 9,746 | |||
Less: imputed interest | (558 | ) | ||
Present value of lease liabilities | 9,188 |
F - 30
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
| A. | Under Israeli law and labor agreements, Silicom is required to make severance payments to retired or dismissed employees and to employees leaving employment in certain other circumstances. |
In respect of the liability to the employees, individual insurance policies are purchased and deposits are made with recognized severance pay funds. | ||
|
| The liability for severance pay is calculated on the basis of the latest salary paid to each employee multiplied by the number of years of employment. The liability is covered by the amounts deposited including accumulated income thereon as well as by the unfunded provision. |
| B. | According to Section 14 to the Severance Pay Law ("Section 14") the payment of monthly deposits by a company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to the employees that have entered into agreements with the company pursuant to such Section 14. Commencing July 1, 2008, the Company has entered into agreements with a majority of its employees in order to implement Section 14. Therefore, as of that date, the payment of monthly deposits by the Company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to those employees that have entered into such agreements and therefore the Company incurs no additional liability since that date with respect to such employees. Amounts accumulated in the pension funds or insurance policies pursuant to Section 14 are not supervised or administrated by the Company and therefore neither such amounts nor the corresponding accrual are reflected in the balance sheet. |
| C. | Consequently, the assets held for employees' severance benefits reported on the balance sheet, in respect of deposits for those employees who have signed agreements pursuant to Section 14, represent the redemption value of deposits made through June 30, 2008. The liability for employee severance benefits, with respect to those employees, represents the liability of the Company for employees' severance benefits as of June 30, 2008. |
|
| As a result of the implementation of Section 14, as described above, the liability with respect to those employees is calculated on the basis of number of years of employment as of June 30, 2008, multiplied by the latest salary paid. The liability is covered by the amounts deposited, including accumulated income thereon, as well as by the unfunded provision. Such liability will be removed, either upon termination of employment or retirement. |
| D. | Expenses recorded with respect to employees' severance payments for the years ended December 31, 2019, 2020 and 2021 were US$ 929 thousand, US$ 986 thousand and US$ 1,104 thousand, respectively. |
F - 31
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
A. | On October 21, 2013 the Board resolved to adopt the Global Share Incentive Plan (2013) (the "2013 Plan") and to reserve up to 500,000 ordinary shares for issuance under the 2013 Plan to employees, directors, officers and consultants of the Company or of any subsidiary or affiliate of the Company. In January 2018, our Board approved the increase of the number of ordinary shares reserved for issuance under the 2013 Plan by 600,000 additional ordinary shares. Grants under the 2013 Plan, whether as options, restricted stock units, restricted stock or other equity based awards, including their terms, are subject to the Board of Directors' approval. Grants to directors and certain other officers are generally subject to the approvals of the Compensation Committee as well as Board of Directors, and grants to directors or a CEO (and under certain circumstances certain other officers) will also have to be approved by the Shareholders. | |
B. | Options or RSUs granted to Israeli residents may be granted under Section 102 of the Israeli Income Tax Ordinance pursuant to which the awards of options, or the ordinary shares issued upon their exercise, must be deposited with a trustee for at least two years following the date of grant. Under Section 102, any tax payable by an employee from the grant or exercise of the awards is deferred until the transfer of the awards or ordinary shares by the trustee to the employee or upon the sale of the awards or ordinary shares. | |
Capital gains on awards granted under the plans are subjected to tax of 25% to be paid by the employee, and the Company is not entitled to a tax deduction. | ||
Gains which are not capital gains on awards under the plans are subjected to regular tax rates on individuals, and the Company is entitled to a tax deduction for such gains. |
F - 32
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Shareholders' Equity (cont'd)
C. | During 2017 and 2020, the Company granted 78,000 and 86,000 RSUs respectively to certain of its directors, employees and consultants under the 2013 Plan. In relation to those grants: |
1. | The vesting period of the RSUs ranges between 2 to 3 years from the date of grant. | |
2. | The fair value of RSUs is estimated based on the market value of the Company’s stock on the date of grant, less an estimate of dividends that will not accrue to RSUs holders prior to vesting. | |
3. | The Company recognizes compensation expenses on these RSUs based on estimated grant date fair value, with the following assumptions: |
2017 | 2020 | |
Expected dividend yield | 2.68% | 0% |
F - 33
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Shareholders' Equity (cont'd)
D. | On June 8, 2016, the Company granted, in the aggregate, 93,660 options to certain of its directors and employees under the 2013 Plan. In relation to this grant: |
1. | The exercise price for the options (per ordinary share) was US$ 28.38 and the Option expiration date was the earlier to occur of: (a) June 8, 2024; and (b) the closing price of the shares falling below US$ 14.19 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant. | |
2. | The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions: |
Average Risk-free interest rate (a) | 1.58 % |
Expected dividend yield | 2.42 % |
Average expected volatility (b) | 47.90 % |
Termination rate | 9 % |
Suboptimal factor (c) | 3.32 |
(a) | Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant. |
(b) | Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market. |
(c) | Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies. |
F - 34
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Shareholders' Equity (cont'd)
E. | On January 30, 2017, the Company granted, in the aggregate, 119,925 options to certain of its directors and employees under the 2013 Plan. In relation to this grant: |
1. | The exercise price for the options (per ordinary share) was US$ 39.62 and the Option expiration date was the earlier to occur of: (a) January 30, 2025; and (b) the closing price of the shares falling below US$ 19.81 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant. | |
2. | The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions: |
Average Risk-free interest rate (a) | 2.35 % |
Expected dividend yield | 2.42% |
Average expected volatility (b) | 43.71 % |
Termination rate | 9 % |
Suboptimal factor (c) | 3.28 |
(a) | Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant. |
(b) | Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market. |
(c) | Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies. |
F - 35
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Shareholders' Equity (cont'd)
F. | On April 30, 2018, the Company granted, in the aggregate, 137,010 options to certain of its directors and employees under the 2013 Plan. In relation to this grant: |
1. | The exercise price for the options (per ordinary share) was US$ 36.11 and the Option expiration date was the earlier to occur of: (a) April 30, 2026; and (b) the closing price of the shares falling below US$ 18.06 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant. | |
2. | The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:
|
Average Risk-free interest rate (a) | 2.92 % |
Expected dividend yield | 0.0 % |
Average expected volatility (b) | 45.13 % |
Termination rate | 9 % |
Suboptimal factor (c) | 3.2 |
(a) | Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant. |
(b) | Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market. |
(c) | Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies. |
F - 36
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Shareholders' Equity (cont'd)
G. | On January 31, 2019, the Company granted, in the aggregate, 141,928 options to certain of its directors and employees under the 2013 Plan. In relation to this grant: |
1. | The exercise price for the options (per ordinary share) was US$ 33.83 and the Option expiration date was the earlier to occur of: (a) January 31, 2027; and (b) the closing price of the shares falling below US$ 16.92 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant. | |
2. | The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:
|
Average Risk-free interest rate (a) | 2.55 % |
Expected dividend yield | 0.0 % |
Average expected volatility (b) | 44.62 % |
Termination rate | 9 % |
Suboptimal factor (c) | 3.18 |
(a) | Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant. |
(b) | Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market. |
(c) | Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies. |
F - 37
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Shareholders' Equity (cont'd)
H. | On June 8, 2020, the Company granted, in the aggregate, 148,426 options to certain of its directors and employees under the 2013 Plan. In relation to this grant: |
1. | The exercise price for the options (per ordinary share) was US$ 32.54 and the Option expiration date was the earlier to occur of: (a) June 8, 2028; and (b) the closing price of the shares falling below US$ 16.27 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant. | |
2. | The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:
|
Average Risk-free interest rate (a) | 0.75 % |
Expected dividend yield | 0.0 % |
Average expected volatility (b) | 45.29 % |
Termination rate | 9 % |
Suboptimal factor (c) | 3.16 |
(a) | Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant. |
(b) | Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market. |
(c) | Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies. |
F - 38
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Shareholders' Equity (cont'd)
I. | On June 3, 2021, the Company granted, in the aggregate, 133,925 options to certain of its directors and employees under the 2013 Plan. In relation to this grant: |
1. | The exercise price for the options (per ordinary share) was US$ 41.84 and the Option expiration date was the earlier to occur of: (a) June 3, 2029; and (b) the closing price of the shares falling below US$ 20.92 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant. | |
2. | The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions: | |
Average Risk-free interest rate (a) | 1.41 % |
Expected dividend yield | 0.0 % |
Average expected volatility (b) | 45.28 % |
Termination rate | 9 % |
Suboptimal factor (c) | 3.14 |
(a) | Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant. |
(b) | Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market. |
(c) | Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies. |
F - 39
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Shareholders' Equity (cont'd)
J. | The following table summarizes information regarding stock options as at December 31, 2021: |
Options outstanding | Options exercisable | ||||||||||||||||
Weighted average | Weighted average | ||||||||||||||||
remaining | remaining | ||||||||||||||||
Exercise price | Number | contractual life | Number | contractual life | |||||||||||||
US$ | of options | (in years) | of options | (in years) | |||||||||||||
26.91 | 18,329 | 1.6 | 18,329 | 1.6 | |||||||||||||
33.27 | 14,865 | 4.3 | 14,865 | 4.3 | |||||||||||||
28.38 | 35,533 | 2.4 | 35,533 | 2.4 | |||||||||||||
39.62 | 76,176 | 3.1 | 76,176 | 3.1 | |||||||||||||
36.11 | 83,016 | 4.3 | 83,016 | 4.3 | |||||||||||||
33.83 | 87,334 | 5.1 | 87,334 | 5.1 | |||||||||||||
32.54 |
| 134,343 | 6.4 | 0 | - | ||||||||||||
41.84 | 129,925 | 7.4 | 0 | - | |||||||||||||
579,521 | 315,253 |
The aggregate intrinsic value of options outstanding as of December 31, 2020 and 2021 is US$ 4,589 thousand and US$ 9,129 thousand, respectively.
The aggregate intrinsic value of options exercisable as of December 31, 2020 and 2021 is US$ 2,263 thousand and US$ 5,300 thousand, respectively.
The total intrinsic value of options exercised during the year ended December 31, 2020 and 2021, is US$ 240 thousand and US$ 2,334 thousand, respectively.
F - 40
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Shareholders' Equity (cont'd)
K. | The stock option activity under the abovementioned plans is as follows: |
Number of options | Weighted average exercise price | Weighted average grant date fair value | ||||||||||
US$ | US$ | |||||||||||
Balance at January 1, 2019 | 365,495 | |||||||||||
Granted | 141,928 | 33.83 | 13.35 | |||||||||
Exercised | (5,500 | ) | 28.09 | 10.03 | ||||||||
Forfeited | (36,676 | ) | 35.88 | 13.50 | ||||||||
Balance at December 31, 2019 | 465,247 | |||||||||||
Granted | 148,426 | 32.54 | 14.82 | |||||||||
Exercised | (12,357 | ) | 22.38 | 8.63 | ||||||||
Forfeited | (11,269 | ) | 33.93 | 14.56 | ||||||||
Balance at December 31, 2020 | 590,047 | |||||||||||
Granted | 133,925 | 41.84 | 16.62 | |||||||||
Exercised | (132,702 | ) | 34.01 | 12.85 | ||||||||
Forfeited | (11,749 | ) | 35.79 | 15.39 | ||||||||
Balance at December 31, 2021 | 579,521 | |||||||||||
Exercisable at December 31, 2021 | 315,253 |
F - 41
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Shareholders' Equity (cont'd)
L. | The Restricted Share Units activity under the abovementioned plans is as follows: |
Number of Restricted Share Units | Weighted average grant date fair value | |||||||
US$ | ||||||||
Balance at January 1, 2019 | 78,000 | |||||||
Vested | (39,000 | ) | 35.36 | |||||
Balance at December 31, 2019 | 39,000 | |||||||
Granted | 86,000 | 35.33 | ||||||
Vested | (39,000 | ) | 34.43 | |||||
Balance at December 31, 2020 and December 31, 2021 | 86,000 |
F - 42
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Shareholders' Equity (cont'd)
M. | During 2019, 2020 and 2021, the Company recorded share-based compensation expenses. The following summarizes the allocation of the stock-based compensation expenses: |
Year ended December 31 | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
US$ thousands | ||||||||||||
Cost of sales | 437 | 535 | 480 | |||||||||
Research and development costs | 900 | 959 | 1,011 | |||||||||
Selling and marketing expenses | 493 | 602 | 697 | |||||||||
General and administrative expenses | 525 | 615 | 674 | |||||||||
2,355 | 2,711 | 2,862 |
F - 43
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
A. | Information on sales by geographic distribution: |
The Company has one operating segment. |
Sales are attributed to geographic distribution based on the location of the ultimate customer. |
Year ended December 31 | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
US$ thousands | ||||||||||||
USA | 76,081 | 64,503 | 88,556 | |||||||||
North America - other | 1,080 | 639 | 964 | |||||||||
Israel | 11,983 | 12,362 | 9,936 | |||||||||
Europe | 8,973 | 23,208 | 19,383 | |||||||||
Asia-Pacific | 7,123 | 6,686 | 9,621 | |||||||||
105,240 | 107,398 | 128,460 |
B. Sales to single ultimate customers exceeding 10% of sales (US$ thousands):
Year ended December 31 | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
US$ thousands | ||||||||||||
Customer "A" | 17,107 | 12,278 | 19,184 | |||||||||
Customer "B" | 11,030 | 4,225 | 10,145 | |||||||||
Customer "C" | 2,428 | 13,468 | 7,788 | |||||||||
Customer "D" | 0 | 13,328 | 7,689 |
F - 44
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 14 - Geographic areas and major customers (cont'd)
C. Information on Long-Lived Assets - Property, Plant and Equipment and ROU assets by geographic areas:
Year ended December 31 | ||||||||
2020 | 2021 | |||||||
US$ thousands | ||||||||
North America | 1,081 | 1,014 | ||||||
Europe | 189 | 340 | ||||||
Israel | 12,753 | 11,987 | ||||||
14,023 | 13,341 |
F - 45
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Year ended December 31 | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
US$ thousands | ||||||||||||
Interest income | 2,295 | 2,197 | 1,548 | |||||||||
Discount on marketable securities, net | (144 | ) | (244 | ) | (621 | ) | ||||||
Exchange rate differences, net | (357 | ) | (748 | ) | (1,031 | ) | ||||||
Bank charges | (148 | ) | (171 | ) | (48 | ) | ||||||
1,646 | 1,034 | (152 | ) |
F - 46
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
A. | Measurement of results for tax purposes under the Israeli Income Tax Regulations (Rules for Maintaining Accounting Records of Foreign Invested Companies and Certain Partnerships and Determining Their Taxable Income) - 1986 | |
As a "foreign invested company" (as defined in the Israeli Law for the Encouragement of Capital Investments-1959), the taxable income or loss and the tax basis of assets and liabilities of the Company’s Israeli operations are denominated in US Dollars. | ||
B. | Corporate tax rate in Israel | |
The regular corporate tax rate applied to taxable income of Israeli companies is 23% (as from 2018 onwards). | ||
C. | Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law") |
1. | On December 29, 2010 the Knesset approved the Economic Policy Law for 2011-2012, which includes an amendment to the Law for the Encouragement of Capital Investments – 1959 (hereinafter – "the Amendment to the Law"). The Amendment to the Law is effective from January 1, 2011 and its provisions will apply to preferred income derived or accrued in 2011 and thereafter by a Preferred Company, per the definition of these terms in the Amendment to the Law. | |
Companies can choose to not be included in the scope of the Amendment to the Law and to stay in the scope of the law before its amendment until the end of the benefits period. Under the Amendment to the Law, upon an irrevocable election made by a company, a uniform corporate tax rate will apply to all preferred income of such company. The Company elected to apply the uniform corporate tax rate as of 2014. From 2017 onwards, the uniform tax rate is to be 7.5% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel. The company has two facilities in Israel of which one of them is located in Development Zone A. The profits of these Preferred Companies will be freely distributable as dividends, subject to a withholding tax of 20% (or a lower rate under an applicable tax treaty). Should the Company derive income from sources other than the Preferred Company, such income will be taxable at the regular corporate tax rates for the applicable year. |
F - 47
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 16 - Taxes on Income (cont’d)
C. | Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law") (cont'd) |
On December 29, 2016 the Israeli Parliament (the "Knesset") enacted the "Economic Efficiency Law (Legislative Amendments for Achieving Budget Objectives in the Years 2017 and 2018) – 2016" in which the Law was also amended (hereinafter: “the Amendment”). The Amendment added new tax benefit tracks for a “preferred technological enterprise” and a “special preferred technological enterprise” which award reduced tax rates to a technological industrial enterprise for the purpose of encouraging activity relating to the development of qualifying intangible assets. The benefits will be awarded to a “preferred company” that has a “preferred technological enterprise” or a “special preferred technological enterprise” with respect to taxable “preferred technological income” per its definition in the Law. Preferred technological income that meets the conditions required in the law, will be subject to a reduced corporate tax rate of 12%, and if the preferred technological enterprise is located in "Development Area A" in Israel - to a reduced tax rate of 7.5%. A company that owns a special preferred technological enterprise will be subject to a reduced corporate tax rate of 6% regardless of the development area in which the enterprise is located. The Amendment is effective as from January 1, 2017. On June 14, 2017 the Knesset Finance Committee approved "Encouragement of Capital Investment Regulations (Preferred Technological Income and Capital Gain of Technological Enterprise) – 2017" (hereinafter: “the Regulations”), which provides rules for applying the “preferred technological enterprise” and “special preferred technological enterprise” tax benefit tracks, including the Nexus formula that provides the mechanism for allocating the technological income eligible for the benefits. Should the Company derive income from sources other than the “preferred technological enterprise”, such income will be taxable at the "Preferred Company" tax rate (for manufacturing activity in Israel) or regular corporate tax rates for the applicable year. As a result of the aforesaid legislation, starting 2021 the Company implement the “preferred technological enterprise” tax benefit track. |
F - 48
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 16 - Taxes on Income (cont’d)
C. | Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law") (cont'd) |
2. | In the event of distribution by the Company of dividends out of its retained earnings that were generated prior to the 2014 tax year and were tax exempt under the "Approved Enterprise" or "Benefited Enterprise" status, the Company would be subjected to a maximum of 25% corporate tax on the amount distributed, and a further 15% withholding tax would be deducted from the amounts distributed to the shareholders. | |
Out of the Company’s retained earnings as of December 31, 2021, approximately US$ 56,136 thousand are tax-exempt, under our previous "Approved Enterprise" and "Benefited Enterprise" status. If such tax-exempt income is distributed as a dividend (including a liquidation dividend), it would be taxed at the regular corporate tax rate applicable to such profits (subject to a maximum rate of 25%) and an income tax liability of up to approximately US$ US$ 14,034 thousand would be incurred as of December 31, 2021. Based on the 2021 Budget Law, the Company anticipates that any future dividends distributed pursuant to its dividend policy, will impose additional tax liabilities on the Company. The Company intends to reinvest its tax-exempt income. Accordingly, no deferred tax liability has been recognized for income attributable to the Company’s previous "Approved Enterprise" or "Benefited Enterprise" status. If the Company was to declare a dividend from its tax-exempt income, an income tax expense would be recognized in the period a dividend is declared. | ||
On November 15, 2021, the Israeli Parliament released its 2021-2022 Budget Law (“2021 Budget Law”). The 2021 Budget Law introduces a new dividend ordering rule that apportions every dividend between previously tax-exempt and previously taxed income. Consequently, distributions (including deemed distributions as per Section 51(h)/51B of the Investment Law) may entail additional corporate tax liability to the distributing company. Effective August 15, 2021, dividend distributions will be treated as if made on a pro-rata basis from all types of earnings, including Exempt Profits. If such tax-exempt income is distributed, it would be taxed at the reduced corporate tax rate applicable to such income. |
F - 49
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
D. | Taxation of the subsidiaries |
1. | The subsidiary Silicom Inc. files tax returns with US federal tax authorities and with state tax authorities in the states of New Jersey, California, Virginia, New York, New Mexico, Tennessee, Texas and Illinois. The federal corporate income tax rate is 21%. | |
2. | The subsidiary Silicom Denmark is taxed according to the tax laws in Denmark, subject to corporate tax of 22%. | |
3. | The Company has not provided for Israeli income tax and foreign withholding taxes on US$ 8,702 thousand of its non-Israeli subsidiaries' undistributed earnings as of December 31, 2021. The earnings could become subject to tax if earnings are remitted or deemed remitted as dividends or upon sale of a subsidiary. The Company currently has no plans to repatriate those funds and intends to indefinitely reinvest them in its non-Israeli operations. The unrecognized deferred tax liability associated with these temporary differences was approximately US$ 1,537 thousand at December 31, 2021. |
E. | Tax assessments |
1. | For the Israeli jurisdiction the Company has final tax assessments for all years up to and including the tax year ended December 31, 2015. | |
2. | For the US federal jurisdiction, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2016. For the New Jersey and California state jurisdictions, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2015. For the Virginia, Tennessee, New York and New Mexico state jurisdictions, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2017. For the Texas state jurisdiction, Silicom Inc. has open tax assessments for the years 2018 through 2020. For the Illinois state jurisdiction, Silicom Inc. has open tax assessment for the year 2020. | |
3. | For the Danish jurisdiction, Silicom Denmark has final tax assessments for all years up to and including the tax year ended December 31, 2015. |
F - 50
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 16 - Taxes on Income (cont’d)
F. | Income before income taxes and income taxes expense (benefit) included in the consolidated statements of operations |
Year ended December 31 | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
US$ thousands | ||||||||||||
Income before income taxes: | ||||||||||||
Israel | 9,339 | 5,565 | 7,486 | |||||||||
Foreign jurisdictions | 2,520 | 1,717 | 5,419 | |||||||||
11,859 | 7,282 | 12,905 | ||||||||||
Current taxes: | ||||||||||||
Israel | 1,732 | 1,260 | 1,281 | |||||||||
Foreign jurisdictions | 611 | 506 | 1,192 | |||||||||
2,343 | 1,766 | 2,473 | ||||||||||
Current tax (benefits) expenses relating to prior years: | ||||||||||||
Israel | (17 | ) | 50 | (10 | ) | |||||||
Foreign jurisdictions | (4 | ) | (198 | ) | (147 | ) | ||||||
(21 | ) | (148 | ) | (157 | ) | |||||||
Deferred taxes: | ||||||||||||
Israel | (904 | ) | 8 | 174 | ||||||||
Foreign jurisdictions | 205 | (69 | ) | (126 | ) | |||||||
(699 | ) | (61 | ) | 48 | ||||||||
Income tax expense | 1,623 | 1,557 | 2,364 |
F - 51
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
G. | Deferred tax assets and liabilities |
December 31 | December 31 | |||||||
2020 | 2021 | |||||||
US$ thousands | US$ thousands | |||||||
Deferred tax assets: | ||||||||
Accrued employee benefits | 368 | 420 | ||||||
Research and development costs | 1,859 | 2,000 | ||||||
Operating loss carryforwards | 66 | 0 | ||||||
Share based compensation | 365 | 427 | ||||||
Intangible assets | 287 | 228 | ||||||
Operating lease liabilities | 1,121 | 1,048 | ||||||
Other | 1 | 0 | ||||||
Total deferred tax assets | 4,067 | 4,123 | ||||||
Deferred tax liabilities: | ||||||||
Intangible assets | (203 | ) | (169 | ) | ||||
Goodwill | (1,089 | ) | (1,300 | ) | ||||
Operating leases right-of-use, net | (1,100 | ) | (1,000 | ) | ||||
Other | (21 | ) | (48 | ) | ||||
Total deferred tax liabilities | (2,413 | ) | (2,517 | ) | ||||
Net deferred tax assets | 1,654 | 1,606 | ||||||
In Israel | 1,790 | 1,616 | ||||||
Foreign jurisdictions | (136 | ) | (10 | ) | ||||
Net deferred tax assets | 1,654 | 1,606 | ||||||
Non-current deferred tax assets | 1,790 | 1,616 | ||||||
Non-current deferred tax liabilities | (136 | ) | (10 | ) |
F - 52
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
H. | Reconciliation of the statutory tax expense to actual tax expense |
Year ended December 31 | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
US$ thousands | ||||||||||||
Income before income taxes | 11,859 | 7,282 | 12,905 | |||||||||
Statutory tax rate in Israel | 23.0 | % | 23.0 | % | 23.0 | % | ||||||
2,728 | 1,675 | 2,968 | ||||||||||
Increase (decrease) in taxes resulting from: | ||||||||||||
Non-deductible operating expenses | 417 | 508 | 395 | |||||||||
Prior years adjustments | (21 | ) | (148 | ) | (157 | ) | ||||||
Tax effect due to | ||||||||||||
"Preferred Enterprise" status* | (1,099 | ) | (714 | ) | (800 | ) | ||||||
Statutory rate differential | 18 | 105 | (86 | ) | ||||||||
Changes in tax rate | 7 | 181 | 223 | |||||||||
Creation of deferred taxes for tax losses and benefits from previous years for which deferred taxes were not created in the past | (476 | ) | 0 | 0 | ||||||||
Other | 49 | (50 | ) | (179 | ) | |||||||
Income tax expense | 1,623 | 1,557 | 2,364 |
* | The effect of the benefit resulting from the "Preferred Enterprise" status on net earnings per ordinary share is as follows: |
Year ended December 31 | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
Basic | 0.15 | 0.10 | 0.12 | |||||||||
Diluted | 0.15 | 0.10 | 0.11 |
F - 53
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
I. | Accounting for uncertainty in income taxes The accounting literature clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. During 2019, 2020 and 2021 the Company and its subsidiaries did not have any significant unrecognized tax benefits and thus, no related interest and penalties were accrued. In addition, the Company and its subsidiaries do not expect that the amount of unrecognized tax benefits will change significantly within the next twelve months. |
F - 54
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
A. | In January 2022, the Company’s compensation committee and board of directors, respectively, have approved the grant of a total of 121,508 options and 16,000 RSUs under the Global Share Incentive Plan (2013). |
B. | In March 2022, the Company’s compensation committee and board of directors, respectively, have approved the grant of a total of 26,666 options under the Global Share Incentive Plan (2013) of which options granted to directors and office holders are subject to the approval of the Annual General Meeting, which is currently scheduled to convene no later than June 2022, as prescribed under the Israeli Companies Law, 1999 and the Company's Amended and Restated Articles of Association. |
C. | Pursuant to the share repurchase plan approved on April 29, 2021, the Company has purchased 57,568 shares of the Company's ordinary shares subsequent to December 31, 2021 and through March 9, 2022 for a total cost of US$ 2,552 thousand inclusive of transaction costs. |
D. | In February 2022, Russia launched a military invasion into Ukraine. The outcome of the ongoing conflict is uncertain. At this time the Company is unable to estimate any specific impact to its business, financial condition or results of operations. |
F - 55